Simon Gibbs is negotiations manager in the London office of defendant cost specialists Legal Costs Negotiators Ltd (LCN).
He is editor of LCN's client newsletter and frequently has articles published in legal and insurance periodicals. He is a regular speaker for central law training on the subject of legal costs.
The new predictable costs scheme in low value road traffic accident (RTA) claims has now been in place for more than a year. Given the average life cycle of such cases, the new fixed fees are now applicable in the majority of settled claims. Insurers should now be in a position to start assessing the operation of this scheme.
The potential benefits to insurers of this scheme are two-fold: a control over spiralling solicitors' fees and the ability to reserve with confidence.
Has the scheme delivered these benefits?
The evidence is that a majority of insurers feel comfortable with handling these cost claims in-house, as opposed to referring them to external costs consultants as is the usual practice. As such, there is only limited industry-wide data as to whether the amounts being claimed by solicitors are appropriate. However, the evidence to date is not good.
Where Predictable Costs are claimed, and are appropriate given the date of the accident, the amounts claimed are excessive at least 50% of the time. The main problem areas are:
·Excessive medical fees
·London weighting incorrectly claimed
·Success fees incorrectly calculated
·Irrecoverable agency fees claimed
·Excessive ATE premiums
·Invalid CFAs
·Costs calculated by reference to the wrong level of damages
Although the average savings achievable on such cases are not large, it would appear to be easily in excess of £100 per case. Multiply this by 50% of all RTA claims and the extent of the problem is immediately apparent. Insurers who do not carefully monitor their handling of such claims will have a significant problem. The margins on this type of insurance are small. Any overpayments will cut into profits or push up premiums.
Are insurers confident they are correctly challenging those unreasonable costs claims?
Are they confident that claims handlers do not simply pay the amounts claimed on the basis that they assume it must be correct?
A similar issue arises in the growing number of claims which are not strictly speaking predictable costs cases, because of the date of the accident, the size of the damages or even the fact that it is not an RTA, but predictable costs are still claimed. The assumption that many insurers will make is that they should agree to pay on this basis because the amounts are relatively modest compared with a claim calculated on an hourly rate basis.
However, there are two problems with this approach.
Firstly, a firm of solicitors will rarely offer to settle on these terms if it is a case where they have done a significant amount of work. They will only offer to settle this way if they know the actual work done is relatively low. Insurers therefore fail to benefit from any element of swings and roundabouts. They will pay average sized (fixed) costs on the simple cases and higher normal costs on anything larger. How are claims handlers, who generally have limited experience of assessing legal costs, meant to be able to assess whether the predictable costs proposal is reasonable on that particular case?
The reasons behind these unreasonable claims are a combination of claimant solicitors deliberately trying to overcharge and their own ignorance of the new rules. The outcome is the same: insurers are still facing over inflated claims. Unfortunately, many do not yet appear to appreciate this.
