I am compelled to respond directly to an article I read in the December issue of Litigation Funding. Robert Warner of Temple Legal Protection explains that he disagrees with my October article which encourages solicitors to make applications to multiple insurers to mitigate problems that can be encountered with poor service standards.
Mr Warner is perfectly entitled to disagree of course, but his subsequent advice to solicitors is dangerous in my view. Moreover, in the uncertain litigation funding climate created in the wake of Jackson LJ’s report, the inherent problems with the conclusion he reaches are magnified.
The nub of Mr Warner’s article is that it would be more beneficial for solicitors to approach a single insurer, rather than to shop around (the references to a broker’s involvement are a red-herring) and this advice is rather worrying in my view. Let me say immediately that I am not opposed to delegated authority schemes where solicitors have the guaranteed certainty that insurance will be available for clients falling within the scheme parameters and can take advantage of block-rated premiums by insuring their full basket of risk with one insurer. My article on service standards related to cases where no delegated authority exists and for which individually underwritten insurance terms are required.
Mr Warner quotes the research of a funding manager at Russell Jones & Walker who (somewhat unsurprisingly) thought it would be too onerous to search the market on every occasion where a firm has “a sizeable book of business” to offer. I think everyone would agree that firms with a significant volume of homogenous work would benefit from a delegated scheme with pre-agreed premia, where such a scheme is available.
What is however questionable is a law firm blindly sending every case available to their “preferred” insurer, based upon no more than a commercial relationship without the contractual certainty of delegated authority. If the preferred insurer rejects a case (as will unquestionably happen sooner or later), this rejection will need to be disclosed to the next insurer approached, which will undoubtedly have an adverse impact on the client’s prospects of getting insurance at all or at a competitive premium.
This issue is compounded by the question of service standards, which is of course where we came in. If the rationale for sending one-off cases to the ‘preferred’ insurer is to get preferential treatment and quicker turnaround times, there will still come a time where the insurer rejects the case, meaning that the process will need to be started from scratch with a second insurer and so on. The net effect is that multiple insurance application processes must be completed back to back, whereas a simultaneous search of the market would have very quickly highlighted which insurers had appetite for the risk in question and expedited the process.
I don’t doubt that Mr Warner would much prefer to receive all referrals directly, so that he doesn’t have to compete for the business on terms or on price in relation to the cases that he wishes to insure. However, that does not mean that it is in the best interests of the client to do so. Indeed, it is not in the best interest of practitioners either.
Shopping around (whether via a broker or directly) is the safest protection for solicitors to comfortably discharge their duties; and is the easiest way for clients to be comfortable that the terms offered are competitive (both on coverage and price) and is also precisely what the judiciary intended to occur in the market when recoverability was introduced i.e. for a competitive market to develop.
I would ask any insurer this: if I were to agree to approach you first with every one-off case because of our special relationship, will you guarantee to offer me insurance on every case? Will you guarantee to offer me a very competitive deal that you know for certain is in line with the market for that specific case? The answer to the first question is of course is “no” and the answer to the second is that it is impossible to judge what is very competitive without considering alternatives.
If Sir Rupert’s recommendation to abolish premium recoverability is implemented, the advice to cosy up to one insurer (without a binding authority) seems even more questionable, as the premium will come out of damages. It will cease to be a question of whether we can justify this level of premium and will become a question of whether the insurance is an attractive and reflects a viable proposition for the client on the numbers.
Solicitors will need to demonstrate to their clients that they have done their upmost to ensure that the client is not paying any more than they should. Indeed, even if the changes are not implemented, it is likely that the Judiciary are going to become more aggressive when it comes to assessing premiums, so solicitors should be wary about relying on relationships too heavily, at the expense of gathering evidence of market comparables.
Jackson LJ is advocating that the ATE insurance industry adopt a voluntary code to protect successful opponents from being left out of pocket in the event the insured triggers voidance of the policy by breaching the terms and conditions. Specifically, he is suggesting that the ATE insurers agree to pay the defendant’s costs, whilst preserving their rights against the policyholder to recoup their losses. The risk of not being able to enforce against the policyholder then lies with the ATE insurer and not the defendant.
In truth, I was under the impression that was what was already happening. Certainly I am aware of instances where leading ATE insurers have paid an adverse costs order on a without prejudice basis to protect their position against the policyholder where they are concerned the Insured did not comply with terms of policy. Accordingly, I agree with Jackson’s recommendation, as I see it as a reinforcement of what I have seen happen in practice.
However, it made me think about repudiations more generally and how disappointing it is that Sir Rupert Jackson felt it necessary to devote a section in his report (entitled “Protection of opposing parties when the ATE insurer is entitled to repudiate”) to this issue. Indeed, it starts with the following line “One recurring complaint…”. Recurring! Is it really a recurring complaint? I appreciate there are examples but is there a major issue?
I do not think that there is anything more awkward to deal with and unwelcome than discovering that an insurer is seriously considering voidance of a policy following notification of a claim. Fortunately, in my experience, such an occurrence is incredibly rare among the leading ATE providers. In fact, the instances where potential voidance is raised have been so rare in my career that it has only arisen on a handful of policies among the thousands of cases that I have been involved in either as a broker or in my former capacity as an underwriter.
In those cases, it has usually been issues of fabrication of evidence which have been highlighted by the trial judge that has led insurers to seek to avoid the policy and it is hard for an insured to feel aggrieved by repudiation in such circumstances.
The infrequency of voidance from reputable insurers is a point that I am keen to highlight to those solicitors who are worried that insurers will always seek to wriggle out at the first sign of a claim. I am pleased to say that the reality is that insurers take their Treating Customers Fairly (TCF) obligations seriously and avoid taking minor points where the opportunity arises to frustrate otherwise valid claims. The insurance sector is of course one of the most heavily regulated sectors and as such the evidence must be overwhelmingly compelling for an insurer to take a relaxed approached to voidances. Furthermore, were it truly a recurring theme, the negative PR those offending insurers would receive would have seen an end to their pipeline of new referrals many years ago.
To get a definitive answer to how big the problem of repudiations is within the ATE legal expenses industry, a study could be undertaken to see how many complaints have been made to the insurance ombudsman and subsequently upheld. Of course, it would be necessary to ensure the complaints were strictly about ATE and not BTE, to ensure the figures are not skewed. My guess is that the numbers would be low, perhaps surprisingly low to Sir Rupert.
I accept that Jackson’s recommendation for a voluntary code is a good one to establish confidence but the problem should not be overstated. The threat of potential voidance continues to have a major hold over the reputation of the market and insurers need to do what they can to diffuse the prevailing perception amongst the legal industry that ATE insurers are constantly voiding policies. If some insurers really are operating a conveyer belt of repudiations, then we need to look at more than just protection for the defendant through a code of practice, but involve the Financial Services Authority.
Matthew Amey is a director of ATE broker TheJudge (http://www.thejudge.co.uk)