Is BTE the answer to a higher small claims limit? Most certainly not

Disaster is on the horizon for personal injury claimants if the government pushes ahead with an increase in the small claims court limit from £1,000 to £5,000, according to Paul Hurley, business development and marketing director at leading legal expenses insurer ARAG Legal Services

Hurley: BTE prices will only go up

With the non-recoverability of after-the-event (ATE) insurance for the majority of personal injury claimants after 1 April 2013, the government was banking on an increase in before-the-event (BTE) insurance so that claimants would be on a level playing field in their battle with insurers.

This is even more the case now that it is proposing to increase the small claims limit for road traffic-related personal injury (PI) claims from £1,000 to £5,000, with the government citing BTE as one way the impact of the change on claimants could be mitigated. But such insurance will simply become unaffordable to a great many.

Over 80% of PI claims settling with damages between £1,000 and £5,000. If solicitors’ costs are no longer recoverable from the negligent third party, then they will need to be paid by the BTE insurance, meaning an unprecedented and unacceptable increase in the price of a BTE policy. The result is quite simple, fewer people with BTE insurance, meaning access to justice is denied to the innocent.

There must be a balance between cost and access, but such a change to the small claims court limit is a step too far. It is daunting enough for a claimant to give evidence in court, let alone expect them to be on a level playing field with solicitors and barristers, in pursuing a claim from cradle to grave. A PI claim, or any other type of litigation for that matter, is a once-in-a-lifetime experience for the vast majority of people and yet there is the possibility that they will need to fend for themselves in a complex matter in which they have no experience.

So what are the options if the increase goes ahead? Certainly BTE will not fill the void. It must be remembered that before the Access to Justice Act 1999, BTE was just as widely available as it is today and yet the penetration level hardly moved in the 1990s despite the lack of conditional fee agreements and recoverable ATE premiums. If BTE insurance is expected to cover costs in a new small claims court regime, then costs will increase, leading to an affordability issue and fewer people buying the product.

Will PI become the new PPI? Claimants will need assistance, that we can be sure of, and this can only be provided at a cost, and such cost will undoubtedly be a percentage of damages. Perhaps claims management companies (CMCs) will charge varying rates, but it is most unlikely that the claimant will trawl the internet or the local telephone directory to find who will take the smallest amount from damages.

The real challenge here is control and regulation of CMCs, but not in the percentage of damages taken, but in the knowledge and experience provided to the claimants so that damages are maximised.

The wealthy in society could pay for their own legal representation, but what is the point? If costs are not recoverable, then incurred costs in pursuing the case could outstrip damages, leaving the claimant out of pocket. With quantum unknown at the outset of the claim, it would be a tough call for any solicitor to say this could be the most cost-effective option.

If the small claims court limit increases, the only thing that is certain for claimants is the uncertainty, in that BTE could be unaffordable and a CMC that not have the knowledge and experience required to deal with case. What an unnerving position for an innocent person.