AJAG third party capture briefing
New clauses were moved in Lords committee by Lord Thomas and Lord Dubs which aimed to tackle the problem of third party capture, euphemistically called “third party assistance” by the insurance industry, who are vigorously promoting this practice as a way to reduce legal costs. AJAG urges that a similar new clause should be tabled for Lords report stage.
The issue
The problems with third party capture are:
The risk to the claimant of undersettlement
The growth in the number of claims it encourages.
In their drive to maintain and increase profits, the insurance industry wishes to collect premiums but reduce the amounts they pay out. The insurers want to be their own judge and jury. The system should protect claimants and ensure they receive what the law says they are entitled to, not what the insurance company says it is prepared to pay.
In the old days, it was not unusual for the same solicitor to represent both purchaser and vendor in a conveyancing transaction. There were of course clear conflicts of interest, major problems as a result, and that practice no longer occurs.
Third party capture has the same risks to consumers attached to it: the insurer who has the responsibility of paying out on the claim also decides how much to pay, more often than not on the basis of no, or inadequate, medical evidence and without the claimant having the benefit of legal advice.
There could not be a clearer conflict of interest, between a big insurance company playing the numbers and an unrepresented, unadvised claimant.
Basically what happens is that once the third party’s insurers get wind of the claim, they make a direct approach to the claimant as quickly as possible, before the claimant has obtained legal representation. An offer to settle is put forward on the basis “you don’t want the hassle of a medical examination do you? Let’s settle this up quickly for £X”- where of course £X is usually below the correct quantum for the
injury concerned. And of course the offer will be in full and settlement which if accepted, cannot later be reopened.
Examples
The claimant Ms K had a road accident and the insurance company referred her to their solicitors. They dealt with the case using a report from a GP and not having obtained any GP notes. They said her case was worth around £3,000. The claimant sought other legal advice The case settled for £19,500 after obtaining proper evidence.
In this case, Ms K had the good sense to get proper advice and ultimately received the correct compensation: but there are many, many others who do not.
An independent survey last year (ICD research) found that even when a solicitor was instructed by the claimant, almost half the settled cases had inadequate insurers’ offers, and a third needed court proceedings to secure one or to get damages decided by a judge. It can therefore be assumed that a high proportion of third party capture cases result in under- compensation for the claimant.
But that is not the end of the story. Even when a solicitor is instructed, the insurers try to go behind their back and put pressure on the claimant direct to accept an offer, even if advised not to do so by their own solicitor.
These are illegitimate tactics to bring unfair pressure, like Admiral’s letter of
11/1/11 telling a claimant they had made an offer without a medical report, using the need for medical evidence and records as a veiled threat, encouraging the claimant to accept it with an immediate payment.
Admiral letter transcript:
We recently received a claim notification from a firm of solicitors instructed to act on your behalf. We have duly noted that you may have sustained an injury as a result of a collision with our insured driver.
In an attempt to settle your personal injury claim we have put forward an offer in the absence of any medical report. Thus meaning should you wish to accept the offer you will no longer be required to undertake a full medical examination and none of your medical history need to be obtained. We urge you to contact your instructed solicitors to discuss this offer. Should you wish to accept we would issue payment immediately and deal with any solicitor’s costs.
Encouraging claims
But that is not the end of the problems caused by third party capture.
The ABI says there has been a big increase in the number of claims. What they don’t say is that this coincides with the growth in their own practice of “third party capture”.
They are actively encouraging claims with this direct approach offering to settle quickly and without the “inconvenience” of a medical examination. It can often put in the mind of a claimant the idea of putting forward a whiplash claim, which they hadn’t originally thought of doing.
The insurers are playing the numbers. They know if they can buy off 10 whiplash cases for £1000 or so each even if some of them are fraudulent, it is cheaper to them than paying out the correct compensation to properly advised claimants on 4 or 5 of them.
It can be no surprise that this has led to an increase in low value whiplash claims, but also the under settlement of more serious cases.
When they engage in this sort of dubious activity, it is hardly right that they then turn round afterwards to complain of a rise in whiplash cases, and demand legislative action to raise the bar as they are now doing, which would unfairly penalise many perfectly legitimate cases. Action is needed to reduce the incidence of such cases in a legitimate way, without harming genuine claimants.
Cold calling, which is what third party capture effectively amounts to, is clearly forbidden for Claims Management Companies and solicitors, (but not entirely for insurers). This has been a challenge for the regulators, as the rules could not be clearer, for CMCs or solicitors- but the FSA has been unwilling to intervene to stop third party capture.
Lords Committee
So there is need for legislation to stop this insidious practice of third party capture, which is so detrimental to consumers and which has fed the growth in claims too. In Lords committee, new clauses were moved by Lord Thomas and Lord Dubs, who were supported by Lord Neill of Bladen (who suggested that any compensation paid improperly in these circumstances should be unrecoverable), Lord Bach and Lord Clinton-Davis. In response, the Government (Lord McNally) said that abuse was outlawed by the FSA code of practice and the FSA had found no “conclusive” evidence of under-settlement. Yet as the evidence referred to above shows, there is such clear evidence. Legislation is needed, as the FSA has failed to deal with the problem.
Suggested new clause for Lords report
This is based on Lord Thomas’s draft and incorporates Lord Neil’s suggestion. Compared to the original draft it does not include the requirement that the claimant should be legally aided or proceeding under a CFA in paragraph (1). Under the changes introduced by the Bill, a claimant may be financing his case under a different funding arrangement, for example without a CFA but under before the event insurance or by a DBA (“damages based agreement”, introduced under clause 44). It also makes clearer the need to advise the claimant of the final nature of the settlement offer.
Insert the following new Clause—
“Third party’s insurance company
(1) A third party’s insurance company may not solicit a claimant who has a cause of action for personal injuries against its policy holder, to settle that cause of action where to the knowledge of the insurance company, the claimant is legally
represented
(2) A third party’s insurance company may not make an offer to settle in circumstances not prohibited by subsection (1), unless—
(a) it has obtained adequate medical evidence of the personal injury and has disclosed it to the claimant; and
(b) the claimant is advised when the offer is made (i) of his right to obtain legal advice; and
(ii) that the offer is in full and final settlement of the cause of action, if that be the case.
(3) Any settlement made in breach of subsections (1) and (2) shall be void save that any payment made to the claimant shall be unrecoverable from him and not taken into account in any subsequent settlement of the cause of action.”
Andrew Dismore AJAG co-ordinator
