Are you a Dorothy?


Holland: naivety will be costly

Posted by Zoe Holland, managing director of Litigation Futures sponsor Zebra Legal Consulting

Within the context of the tornado of legal reform, the impact of the funding changes within clinical negligence, together with the impact of LASPO on the personal injury sector, has the potential to be both dramatic and sobering.

Most clinical negligence lawyers agree that the claimant’s access to justice is now at risk. Debate has been centred upon the difficulty a claimant might face in locating a specialist solicitor with the willingness to run a more complex but less valuable case, including a neonatal death or loss of a loved one. As a specialist sector audit firm, this is increasingly the harsh reality of what we are now seeing within some firms a year on from LASPO.

In addition, the wider personal injury sector changes have seen a swathe of cash-rich new entrants entering clinical negligence, at a time when a number of niche practices are under increasing cash flow pressure with the removal of legal aid (and thus interim costs payments). Firms have been bombarded from every which way possible.

Zebra’s instructions have seen a tangible increase in both established firms (looking for additional funding) and also new entrant firms requiring guidance on department set-up. In a Zebra market survey this month, out of 35 established personal injury firms with turnover in excess of £5m, 23 of these have either considered setting up clinical negligence departments or have already done so.

Our defendant contacts inform us that they have also seen a significant increase in clinical negligence claims from new firms. A pre-medical letter of claim in complex cases is often the first giveaway of an inexperienced firm.

Whichever way we come at it, the road ahead is potentially fraught. It won’t simply be a skip, hop and dance along a dazzling Yellow Brick Road, and not all of those that engage in the sector will find their reward at the end.

‘Home’ as we used to know it and how we conducted business no longer exists. A click of the heels won’t get us back to where we began.

The challenge

Clinical negligence is a challenging area of litigation, and that same challenge translates into law firms’ financial profiling and cash flow forecasting. More than ever before, the changes mean that having a forensic understanding (financial, technical and operational) of this work is critical.

Risk profiling individual fee-earner caseloads and departmental caseloads to identify where resources are best employed are increasingly important. Proper and realistic costs forecasting will be required to assist with cash flow and budgeting.

The reality is that with the exception of a few cases funded by legal aid, a firm will need to significantly invest before seeing a cash flow. Investment in specialist costs drafting (internal or external) to realise those costs is more important than ever.

Entering into clinical negligence at this time is not for the faint hearted.

SQM and sharing knowledge

Historically, firms with a contract for public funding had to meet minimum requirements in respect of quality, training and supervision and provision of clinical negligence work. It might be a fair comment from the sector that the Specialist Quality Mark (SQM) offered a level of quality assurance to the public that the firm had skill and expertise in this complex area of law.

However, over recent years, a growing number of specialist departments/firms have made a deliberate choice not to proceed with a public funding franchise and these have maintained an excellent niche offering. There are a plethora of good firms carrying out clinical negligence work as well as a growing abundance of those with little experience; the challenge is how a potential claimant chooses a quality offering.

I spent 15 years in private practice as a clinical negligence specialist at leading firms Irwin Mitchell and Alexander Harris. A claimant focus has always been where my heart lies. Going forward, if we are to put the claimant at the centre, it will require the clinical negligence sector to share knowledge, expertise and skill outside of their firm and to a much greater extent.

There is the potential (and certainly a need) for organisations such as AvMA, the Association of Personal Injury Lawyers and the Society of Clinical Injury Lawyers to disseminate specialist knowledge and collaborate with each other. This is not a time for clinical negligence lawyers to be isolationist, aloof or protectionist (which sometimes we are accused of) if we are to put the claimant at the heart of why we chose to do this work in the first place.

Cash flow impact for law firms

Certificates provided firms with some (reducing) security of cash flow with end-of-stage payments, albeit that the introduction of codified rates for experts, in some cases, resulted in the erosion of the firm’s profit costs to supplement the hourly rate charged by the experts involved.

The expectation that the firm will assist clients by carrying disbursements for the client until the end of the case can have a significant impact upon the firm’s finances.

Some clients with higher risk cases (primary limitation expired or shortly to expire) who would otherwise have obtained a certificate may find it more difficult to find firms to take their cases. The cash pull and indemnity risk is too great from the outset.

On a positive, some firms used to using the Legal Aid Agency checklist procedures and costs budgeting have already acquired significant skill in risk profiling and costs forecasting and can apply those skills to alternative funding by conditional fee agreement (CFA).

Risk assessment and case selection

Case selection is now of paramount importance to any firm. Firms can no longer rely upon the success fee from cases post 1 April 2013 to fund unsuccessful claims. Every case must count. Unsuccessful claims must be discontinued at the earliest opportunity.

At the outset, far more in-depth assessment of risk/reward must be made before taking a case on CFA. This will include:

  • Merits of the case and prospects of success, including careful analysis of the medical issues;
  • Risk factors – number of defendants, number of experts, proximity to limitation;
  • Value of the case – including a detailed valuation of general damages and recoverable past losses to determine the impact on the recoverable success fee;
  • Potential base costs at conclusion (taking into account issues of recoverability);
  • Availability and desirability of ATE taking into account risks of the case and recoverability of the premium; and
  • Disbursement funding.

To be profitable, firms must look closely at their expense of time costs and hourly rates in relation to each particular case. Guideline hourly rates are only that – guidelines – and variable hourly rates justifiable by expense of time and nature of case may be more appropriate than a one-size-fits-all grade A or Grade B rate for clinical negligence work.

Bank funding and investing in clinical negligence

Increasingly, banks are looking more closely at firms’ WIP profile and indemnity risk, and clinical negligence is certainly in the spotlight.

In the last six weeks, Zebra has carried out four due diligence projects for ‘new to bank’ and additional funding projects in mainstream banking.

Firms must have a real grasp on their WIP risk profile and be able to demonstrate technical capability and low indemnity risk, if the are to achieve funding from their banks.

Banks now want a more granular view of what is within the firm’s filing cabinets, and this is set to stay.

Are you a Dorothy?

Whatever a firm’s approach, the challenge ahead for both claimant and lawyer is not going to be an easy one. It’s not just a case of ‘follow the Yellow Brick Road’. Firms will need to be prepared to adapt and evolve to the rocky terrain ahead. A pair of red sparkly shoes will simply not be enough. Naivety will be costly.

Managing clinical negligence profitably, and with a low indemnity risk profile, requires close financial management as well as technical expertise, and operational excellence.

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