14 May 2013Print This Post

PI fixed costs driving the wrong behaviour, warns leading academic

Fenn: reward for admission of liability too high

The fixed-costs regime for personal injury work risks encouraging undersettlement by claimant solicitors and admissions of liability by defendants when they might otherwise fight, the academic who studied the RTA portal for the government has warned.

Paul Fenn, professor of insurance studies at Nottingham University Business School, said there needed to be “incentives for good behaviour” built into the system.

Last summer the Ministry of Justice published a report commissioned from Professor Fenn into the first year’s operation of the portal. He concluded that a further review was needed after more experience of the portal before an extension was contemplated, that fixed costs should be proportional to damages and there needed to be an integrated approach to fixed costs within and outside the portal.

Speaking in London yesterday, Professor Fenn said the government had “completely ignored” the first of these recommendations, and had chosen not to make fixed costs proportional to damages for reasons of simplicity. However, this takes away the incentive for solicitors to act in the best interests of their clients, he argued, and risks reducing damages because lawyers are better off settling quickly where liability is not disputed.

He pointed to the fixed-costs regime in Germany, which is “highly proportional” – while solicitors here are paid £500 for all portal cases worth between £1,000 and £10,000, in Germany there is a sliding scale ranging from £180 to £1,125.

Professor Fenn told the Westminster Legal Policy Forum seminar that while the disparity between fixed costs inside and outside the portal previously encouraged defendants to fight, because they were often better off financially leaving the portal, the situation has now gone the other way and the “reward for an admission of liability is now too high”.

He added: “If we’re going to move to a no-fault system, we should do so explicitly rather than by accident… Fault is an essential part of the system to drive behaviour.” Without it, he said, “we could have a much cheaper system”.

Speakers also expressed surprise that the government had no programme in place to monitor and assess the impact of the civil justice reforms.

Meanwhile, James Dalton, assistant director and head of motor and liability at the Association of British Insurers, revealed that it is looking to strengthen its code of conduct on third-party assistance and added that next on the association’s agenda is a predictable damages framework – which would be “independent, transparent and under independent control”. This would help people handling their own case before the small claims court if the government raises the current £1,000 limit.

Also at the seminar, the judge in charge of Jackson implementation, Mr Justice Ramsey, said “fundamental dishonesty” – so as to lose the protection of qualified one-way costs shifting – was not likely to mean a claimant who exaggerates one element of their claim. It is aimed at the kind of case where a claimant is secretly filmed playing football when they are supposedly unable to move freely.

Rod Evans, president of the Forum of Insurance Lawyers, said that something is either a lie or it’s not – “the ‘judicial grey’ on exaggeration seems to me to be a trap that needn’t be laid,” he said.

By Neil Rose