Change to ‘no win, no fee’ legal cases

Justice Secretary Kenneth Clarke has recently announced that the government will ban ‘no win, no fee’ legal cases.

While insurance firms are rejoicing as they believe that this will help address the problem of rising car insurance prices, there are also concerns that this could mark the end of legal cases against multinational firms on behalf of employees who have been wronged. We therefore take a look at the impending changes and validity of the comments which have been made on the matter.

No win, no fee legal changes

The changes

Lord Justice Jackson released a white paper in early 2010 which recommended that the government reform the legal system by banning ‘no win, no fee’ cases. The civil court judge showed that there had been huge increases in civil litigation costs in the UK in recent years and believed that addressing this issue would help the economy.

At that point, the losing defendant had to pay the winning lawyer a ‘success fee’ and heft insurance premiums which often made their expenses four times the cost of the actual action. Instead, the Judge proposed that lawyers be paid out by the winning side and that success fees should be caped to 25% of the total payout which he believed would force lawyers to compete with each other who would take the smallest share of their client’s payout, ultimately leading to a massive reduction in legal expenses.

Upon the coalition government coming to power, Kenneth Clarke took note of this white paper and on the 29th March 2011 announced that he would make ‘no win, no fee’ cases illegal and stated that lawyers would no longer be entitled to a ‘success fee’ paid by defendants, but would instead claim a share of the damages. The total damages which could be awarded will also be capped to £15,000.

Mr Clarke also announced that everybody lodging a civil court claim for damages will be encouraged to consider mediation in order to avoid Britain becoming a society in which “fat cat” lawyers receive massive fees. This will force lawyers to agree how much of the damages they will receive if the claim is successful before the case begins.

All those in favour

The news was welcomed by insurers, with Direct Line claiming that 10% of car insurance premiums recovered by insurers now go toward paying legal professionals. The car insurance provider therefore believe that this will address the problem of rising car insurance costs: “Currently, 10% of every car insurance premium paid goes to the legal profession. The continuing rise of lawyers’ fees has been a major contributing factor to recent increases in car insurance prices across the industry.”

This was corroborated by Will Thomas from who more specifically blamed an rise in personal injury claims for the car insurance premium increases, citing the “injury lawyer’s ads on the television” as a major contributor. Insurance company Zurich also supported this viewpoint: “The biggest rising cost for us is the sheer volume of personal injury claims. The public have been bombarded with no-win, no-fee adverts, so they’re claiming where previously they wouldn’t have.”

It should be noted that the increased number of fraudulent claims which have been, as reported by the Insurance Fraud Buerau (IFB), may well be linked to the fact that people have been able to make claims without fear of losing money in the event of their case being unsuccessful. The ABI believes that these fraudsters have been costing insurers £5 million per week.

Young Male drivers have been particularly badly hit by these price rises, with research by showing that the average 18 year old male driver with a 1.25 litre Ford Fiesta now faces car insurance premiums of over £7,000. This is due to the higher statistically likelihood of young male motorists making a claim or having a claim made against them. The Association of British Insurers (ABI) has blamed the culture of ‘ambulance chasing’ lawyers for these price increases, claiming that prices have had to go this high due to the likely legal expenses insurers could face from people in this age/gender group.

All those against

The shadow Justice Secretary Sadique Khan has opposed these reforms, stating that it will make it harder for people with legal complaints worth very little financially to find a lawyer to represent them: “There’s a fear that these plans go so far in trying to keep down costs that some claimants with meritorious cases will find it difficult, if not impossible, to find a lawyer to take their case.”

Of far greater concern is the viewpoint of Solicitor Andrew Dismore who is the co-ordinator of the Access to Justice Action Group. Dismore believes that this ruling will make it almost impossible for “the poorest people” in the world to challenge the “richest multinationals”. This point is supported by Dan Watkins from Contact Law who said that the changes mean that an employer with shoddy working practices will likely go unpunished.

Who is right?

There is no doubt that car insurance costs are out of control, with young drivers now often paying more for their car insurance each year than they do for their first car. This is the root cause of these reforms, with insurance companies insistent that this will help address the problems they have faced in recent years which have been caused by “ambulance chasing” lawyers.

However, the fact that these changes will aid companies who will be less likely to face legal challenges from aggrieved employees is obviously a concern and feeds into the Tory stereotype of favouring businesses over people. Once again, this appears to be a case of a small proportion of the population exploiting loop holes for financial gain and ultimately ruining it for law abiding people with genuine reasons to claim.

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