Direct Line faces £45m hit from LASPO ruling

Direct Line Group faces a pre-tax hit of between £30m and £45m to its 2012 results if the ABI fails to overturn a recent Court of Appeal decision, according to their prospectus for listing on the stock exchange released today.

The issue centres on the 10% increase in general damages which will be implemented when the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) comes into force in April 2013.

Direct Line originally assumed that the 10% increase would only apply to new claims made after 1 April 2013.

However, the prospectus says the Court of Appeal’s decision in the Simmons v Castle case in July stipulates that the 10% increase will apply to all claims settled after 1 April 2013, regardless of when the claim was made.

The ABI has applied to the Court to reconsider its decision. But Direct Line said in the document that if the court does not amend its decision, its 2012 results could face a hit of between £30m and £40m.

If this happens, Direct Line will recognise the majority of the expense in the third quarter.

The company said in its IPO prospectus: “If the Court reverses its original decision, this impact will not arise, although it is also possible that the Court may implement a compromise position, which would result in a lesser impact. Given the current uncertainty, the above estimates do not include mitigating actions, if any, that may be available to the Group.”

Direct Line priced its pending IPO today at between 160p and 195p a share. The insurer’s shares will start trading on the London Stock Exchange on an unconditional basis on 16 October.