Direct Line off the hook as 10% damages ruling overturned

The Court of Appeal has overturned a decision that could have hit Direct Line Group’s (DLG’s) 2012 profits by £45m.

Following legal pressure from the Association of British Insurers (ABI), the court has revised its opinion in the Simmons V Castle ruling. The ruling relates to the 10% increase in general damages that will apply when the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) comes into force in April 2013.

Under the original ruling, the 10% general damages increase would have applied to all cases decided after 1 April 2013.

Following the revision, however, the 10% will now not apply to cases where the claimant entered in to a conditional fee arrangement before 1 April 2013. For any cases started after this date, the 10% increase will be balanced by reductions in legal costs.

The ABI said it had applied to re-open the judgement in the Simmons v Castle case because it felt it would “upset the carefully balanced package of government reforms to the civil litigation system by introducing the 10% increase in general damages ahead of other measures”.

DLG revealed in the prospectus for its pending initial public offering (IPO) that it could face a hit of between £30m and £45m to its 2012 pre-tax profits if the ABI failed to get the Court of Appeal’s decision changed.

Some observers predicted that if the judgement had not been changed, it would have knocked 3p off DLG’s share price. The DLG IPO is expected to be priced tomorrow morning.

ABI’s assistant director of motor and liability James Dalton said: “The insurance industry took this action in our continuing fight to reduce unnecessary costs being passed onto honest motorists. Today’s decision by the Court of Appeal means that insurers will not be forced to pass on about £300m in increased costs to the premium paying public, which represents around £13 per motor insurance policy.”

Dalton added, however, that the insurance industry had only won the battle over unnecessary costs “but not the war”.

“The fight to bring about a speedier, more cost-efficient civil litigation system for the benefit of claimants and customers continues,” he said.

“We are pleased the court recognised that the original judgment upset the package of measures which feature in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and which were originally intended by Lord Justice Jackson to maintain a careful balance between the interests of claimants and defendants. We are also pleased that the court now acknowledges it should have sought submissions from ABI and other interested parties before announcing the increase.”