12.1 The Government have provided no solution to the issue of disbursement funding
12.2 Problems
Lack of disbursement funding
Some costs are inevitable
QOCS does not provide an answer Amounts involved are not trivial Legal aid alternative ruled out
Disbursement only ATE policies do not provide a solution. Risk of loans at rates of up to 16%.
Regulation would inevitably be needed
12.3 This is one of the most serious failings of the Government’s proposals. The solution for clinical negligence is unworkable, and is covered in the section of our paper dealing with clinical negligence. This section deals with the wider implications for other types of case, including disease cases, injuries of maximum severity, and accidents at work (EL) needing liability expert evidence.
12.4 Some costs are inevitable and amount to an irreducible minimum, for example disbursements for medical reports, police reports, and if a case is litigated court fees. The outstanding question for the Government is, who is to fund these costs?
12.5 At present these disbursements are generally covered by recoverable ATE insurance. The lack of disbursement funding is one of the inevitable consequences, if ATE recoverability is generally ended. This will become a major barrier to access to justice in the absence of a workable solution.
12.6 It is clear that QOCS does not provide an answer to this problem. The legal
aid fund has also been ruled out: indeed historically, one of the reasons for introducing recoverability of ATE premiums covering disbursements and defendants’ costs was the consequence of legal aid being removed from personal injury work.
12.7 Some straightforward medical reports for fast track claims are financed under
credit arrangements through the Association of Medical Reporting Organisations’ agreement (AMRO). AMRO have made clear that for commercial reasons, they are unable to extend these credit arrangements beyond these basic reports (GP, orthopaedic and accident and emergency consultants, with the possible exception of basic psychology reports, presently under discussion. In fact, there are early signs of
61 the AMRO agreement breaking down, as some liability insurers have, or are considering, withdrawing from it.
12.8 The recent case of Sibthorpe and Morris v L.B.Southwark suggests some solicitors may cover costs of minor disbursements “in house” rather than taking out a formal insurance policy to cover such costs, though it is not likely that this will be widespread, particularly in higher disbursement or higher risk cases. To expect the claimant’s solicitor to bear the cost of disbursements is to attempt to get a quart out of a pint pot, given the Government’s plan to end recoverability of success fees and other costs restrictions anticipated to be on the way, such as further fixed fee regimes. Banks are increasingly reluctant to lend to personal injury practices, due to the long tail of personal injury litigation. Such an approach will lead to risk aversion by claimants’ solicitors, who would fear exposure to costs orders, in turn
leading to a loss of access to justice for claimants unable to fund their cases. This is especially so in non-personal injury cases, as QOCS is only intended to apply to personal injury so the costs risks are even greater. It is not a viable proposal for higher value cases either, where the disbursements are large; nor more generally for a high caseload in one firm, as too many underwritten cases leads to too much risk being carried, potential jeopardising the firm’s overall future.
12.9 The amounts involved are not trivial to the ordinary claimant. By way of example, Amtrust’s claims experience shows that their claimants have an average potential disbursement liability of £1,280, should the case fail without recourse to litigation; but if legal proceedings are commenced and the claimant is unsuccessful, that liability is an average of £5,847. The overall claims average is £1,739. The average premium recovered is £471.06. Whilst a premium at this level would be affordable to some, it is beyond the disposable income of most claimants; and this assumes a market continuing as at present, which would definitely not be the case under the Government’s plan, which if implemented unamended will probably mean an end to the ATE market except as an adjunct to general insurance for high cost commercial cases.
12.10 With QOCS, the average failed claim cost remaining to the claimant to meet through unrecoverable ATE or from his own resources would at best be reduced to the unrecovered disbursement figure of £1280. However, it is more than probable that without other steps being taken, the ATE reduced pool comprising only riskier cases would result in an adverse impact, with an increased proportional incidence of claims at a greater average claim cost and consequent significant increase in premiums, in the unlikely event that the ATE market survives.
12.11 We do not agree with Sir Rupert Jackson’s comments that disbursements in
unsuccessful claims are well within the means of claimants and their solicitors. This is both patronising and inaccurate. Claimants are in large part ordinary working people on modest incomes with little disposable capital or income, particularly if they have had an injury which itself brings increased expenditure to the claimant and his
62 family, at the same time as the claimant’s income is likely to be reduced if the claimant is unable to work due to his injuries, even temporarily.
12.12 Moreover, Sir Rupert’s suggestion of a legal aid alternative (which only applied to clinical negligence and not to other high front loaded costs claims, such as industrial disease or cases of maximum severity) has been ruled out by the Government.
12.13 The suggestion for clinical negligence, is that ATE premiums covering investigative expert medical reports only would still be recoverable. For the reasons given in that section of this paper, that is not a workable solution. The Government do not propose to permit recoverability more generally of disbursement only policy premiums; and in any event, disbursement only based ATE polices are not commercially viable, either: we illustrate this in detail in our section on clinical negligence.
12.14 Again, using Amtrust as an example, based on current volumes and claims experience, Amtrust believe they could offer a pre litigation starting premium of £150, which is only viable due to recoverability and volume, based on the alternative model we propose in section 14 of this paper. An increased claims frequency of 25% would result in a pre litigation premium of circa £188, with a further staged premium of £1177 payable to cover post litigation risk.
12.15 Amtrust’s current model is based on an average claim of £1739, (£1280 pre
litigation and £5875 post litigation). If disbursement only policies were permitted, the average claim would be reduced to £1373, (£1280 pre litigation and £2211 post litigation).
12.16 For such a model to work it would be essential to retain both a critical mass volume and recoverability, to ensure that there is a viable market and consumer uptake, with policy volumes remaining the same and the claims experience not altering significantly. If the premium was not recoverable, many claimants would not take out insurance; and when they did, would only do so in the more risky cases, thus reducing the volume of policies and increasing the frequency and value of any claim, and thus pushing up premiums to beyond what is commercially viable.
12.17 For these reasons, we believe that disbursement only ATE policies funded
by the claimant do not provide a solution.
12.18 The risk the Government is running is a repetition of the former Claims Direct problems. The former Claims Direct funded insurance premiums and disbursements through loans at rates of up to 16%. This led to consumer campaigns in the media (especially the Sun and BBC’s Watchdog) when claimants were ending up with zero (or worse) damages as the result of the loans. This led in turn to a Government consultation on the regulation of funders. Now, there is no need for this and there are no litigation funding businesses operating in this mass market. Whilst
63 self regulation is sufficient for the current remaining high end litigation funding,
regulation would inevitably be needed for the wider market if loans become the alternative funding system.
12.19 The best solution to the disbursement funding problem is to continue with recoverability of ATE premiums, on the restricted basis we propose in section 14, which includes provision for disbursements as part of a comprehensive package.
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