Life after Jackson from an ATE point of view

Thursday 13th October, 2011

The Legal Aid Sentencing and Punishment of Offenders Bill currently on its way through Parliament will abolish the recoverability of success fees and ATE premiums from the paying party in litigation.

The first point to note about this Bill is that it may not yet happen; this particular provision squeaked through 10 votes to 9 at the MP’s Committee Stage. Secondly, even if recoverability is terminated, this is only part of the proposed reforms recommended by Jackson. Indeed, one of the most powerful arguments against the abolition of recoverability (and there are many) is that it is perverse that the Government, in its rush to slay the imaginary dragon of the compensation culture (see Lord Young), should abolish recoverability without there being any opportunity for discussion about what will replace it.

We can only presume that the nameless apparatchik at the Ministry of Justice who dreamed up the need for the Jackson review will introduce rules through the CPR for the operation of Qualified One Way Costs Shifting (QOCS). This was Jackson’s proposal for the conduct of personal injury claims which would enable “all but the conspicuously wealthy” (LJ Jackson’s phrase – don’t you love precise judicial language?) to pursue claims against insured defendants where if they lost the case, they would have no costs liability to the defendant unless, and there are the catches, they failed to beat a Part 36 offer made by the defendant or if they behaved “unreasonably”.

For claimants who do not have a personal injury claim, there is not even the cold comfort of a QOC available to them. They are simply cast back to the bad old days before the Administration of Justice Act 1999 (AJA 1999) with the added infringements on their right to recover compensation of having deducted from it, both success fees and possibly, ATE premiums. The Jackson proposals will make the pursuit of many legitimate claims commercially pointless.

Can ATE survive in such a climate? I do not know is the short answer. However as ATE insurers, we are in a better position than the tiny market that existed prior to the introduction of the AJA 1999. In those days, claimants would only seek insurance and be prepared to pay a substantial premium if they thought there was a strong possibility that they would lose the case. This made insuring such cases inherently unattractive and therefore very few cases were actually insured.

ATE insurers have now been able to collect data over a decade (still a very short period of time in actuarial terms) that will enable them to price risk with a greater degree of certainty for various different types of litigation. The problem becomes one of, first, is there a continuing need for ATE assuming, say the introduction of QOCS?

Secondly whether or not claimants and/or their solicitors will be prepared to pay a premium to transfer the risk of losing the litigation where once they effectively had such a risk removed for free?

Thirdly the data and experience gathered by ATE insurers has identified areas of litigation that are high risk and therefore require high premiums. How will this be resolved?

Answering these questions in order, first, it seems obvious that there will be a continuing need. The most powerful weapon a defendant has in its armoury is generally not the merits of its defence but the “sleepless night question” it puts to a claimant, can you afford to lose this litigation? Further, any protection afforded by QOCS in personal injury cases will be very limited. It is easy to predict that in virtually all personal injury cases the default position of any defendant insurer will be to make an early low part 36 offer followed by that sleepless night question.

In addition, LJ Jackson thought the answer to ATE was for the country to embrace BTE. However anyone who has had any experience of BTE will know that amongst its other difficulties, it is just enough cover to get your client into serious difficulties i.e. the case is approaching trial and there is now not enough cover left to pay your firm’s fees let alone the other side’s costs if the case is lost.

The fundamental and intractable problem with BTE is that if it is priced at a level that will afford a proper level and width of protection, no-one will buy it, not least because no-one ever expects to be involved in litigation. This is quite apart from the thorny issue of whose solicitor, i.e. BTE insurer or insured, has conduct of the case.

Secondly, it is possible that solicitors who have significant numbers of claims are likely to be prepared to cede part of their fees to obtain ATE cover for their clients in order to attract business and obtain a significant competitive advantage over solicitors who cannot offer such an arrangement. This is particularly the case given that solicitors will continue to have the obligation to advise their client about the need for and potential availability of ATE insurance under the Solicitors Code of Conduct.

It may be that clients will be prepared to share the cost more readily than we suppose given the undoubted benefits insurance provides. On the other hand, at a time when they are usually strapped for cash precisely because they are involved in litigation, they will be reluctant to incur yet more cost that further dilutes any recovery they make.

Thirdly, it is very likely that there will be types of litigation and/or litigation from smaller firms that become too expensive to insure. We expect the post Jackson world to be the end of “one off” insured cases from firms producing a few commercial or professional negligence cases a year. The point being that such a firm will not be able to generate the premium required from its clients’ damages and/ or its fees to provide any worthwhile level of cover. This may lead to consolidation in the market where bigger firms who can offer a volume of litigation can generate the premiums needed to provide the cover necessary and as a result of the significant competitive advantage this will give them, in turn compel claimants to use them.

Certain types of litigation may just become uninsurable, for example, defamation or privacy cases. This will create considerable injustice because it will prevent the ordinary person having any remedy against newspapers or other media owners. The use of ATE has been dramatically highlighted in its use for the phone hacking cases against the News of the World. How otherwise would individuals like the Dowlers be able to take on such organisations?

It will be appreciated that we are entering a world of uncertainty if LASPO becomes law and if and insofar as ATE continues, it will be in much reduced form, probably providing lower levels of cover and the introduction of policy excesses. Further it is likely only to be provided or available through firms who have large volumes of litigation.

We can only hope that the House of Lords will introduce some much needed wisdom in respect of the proposed end of recoverability. It is by no means too late for common sense to prevail and for a proper dialogue with our industry to be commenced, something which never happened during the Jackson review.

Undoubtedly the existing arrangements could have been improved but generally speaking, they had settled down and were working well. Those arrangements did not create or support speculative claims and provided access to justice for every legal person, regardless of financial status, whose claim had merit.

Abolishing such a system and handing all the powerful weapons of litigation back to defendants who need and deserve them least is an act of vandalism of which this Government should be thoroughly ashamed.

Michael Lent

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