No win no fee no chance

13-12-2004

No win no fee no chance ( 270kb) - CAB evidence on the challenges facing access to injury compensation

Summary and introduction

The challenge of access to compensation

1. Around 2.5 million people in the UK sustain accidental injuries every year.  As a result they may lose income or independence, and face lifestyle changes. Fault may rest with the driver of another car, a public authority such as a local authority or hospital, an employer or another individual whose action or inaction was the cause of the accident and the injury sustained. Under UK law the liable party must compensate the injured person for any loss (i.e. the polluter pays).

2. Far from there having been a recent boom in consumers claiming compensation for injuries, only 31 per cent of accident victims actually claim compensation using legal processes. Indeed the actual number of claims for injuries following accidents has reduced since the new method of funding legal actions in personal injury cases, the ‘‘conditional fee agreement’’, was rolled out, as the table in Appendix 1 shows.  Since the abolition of legal aid for personal injury cases in 2000, CABx have handled over 130,000 enquiries relating to personal injury claims.

3. Seeking compensation for injuries and harm is not a social problem or the sign of the emergence of a ‘compensation culture,’ but simply realising a civil and legal right.  Where an individual has suffered injuries, a compensation award can help them to afford help and services to enable them to adjust and fully recover or make up for financial loss.  People who have been injured may have lost pay, or even their jobs, as a result of being unwell.   They may have experienced a dramatic change in lifestyle where social opportunities were closed off to them, they may have incurred costs to adapt their life and their homes to deal with the injury, whether during a period of recovery or permanently. They may also have experienced stress, depression and anxiety. Failure to address these problems can contribute to social exclusion.   

4. A financial award of compensation (damages) from the person or body responsible can help to reduce public costs of services and benefits to the individual affected.   Also lessons learnt from claims ought to benefit others and the public at large by putting right the problems that caused the injury in the first place.  Whether as employers, service providers or citizens, we all have obligations to avoid causing harm to others, and to take all reasonable steps to prevent such harm arising.  

5. The effectiveness of any system for compensation is whether the system:

• ensures access to all who need to use the process;
• is effective at providing fair compensation and redress to individuals;
• is transparent;
• involves proportionate processes which do not involve excessive costs or procedures for either side
• ensures quality of advice and representation for those people who need it;
• provides redress when legal advice is inadequate or things go wrong, and
• results in problems that caused the accident being solved.

Personal injury compensation is failing consumers

6. Citizens Advice’s evidence is that these criteria are not currently being met by the system.  For many thousands of people who have experienced accident or injuries through no fault of their own, often suffering disabling effects, the system is failing.  It is extremely complex for an unrepresented individual to pursue a claim for compensation.  They will need legal advice on their likely prospects of success and help collecting their evidence and putting their case, which may need to go to court.   So pursuing a claim efficiently and effectively is likely to involve using legal services and incurring court costs at some stage.

7. Legal aid for these costs was withdrawn in 2000 and a new system of conditional fee agreements, colloquially known as ‘‘no win no fee’’, was extended.  In the new system, the legal and other costs of taking the case are covered by the ‘losing’ side.  The consumer takes out insurance to cover themselves against the risk of having to meet both sides’ costs if they lose.  

8. The complex financial and legal processes involved are often misunderstood by consumers, and consumers’ needs can be misunderstood by the service providers. There is widespread mis-selling of legal and insurance products, and consumers are often induced into signing conditional fee agreements (CFAs) inappropriately. On this basis alone policy makers should be wary of extending conditional fee funding to other areas of civil law. CAB evidence is that the withdrawal of legal aid and the advent of conditional fees (‘no win, no fee’) has contributed to a system which involves relatively high legal costs and delays.      

9. Problems with the present system include:

• Consumers are subjected to high-pressure sales tactics by unqualified intermediaries introducing them to a legal process.  Inappropriate marketing and sales practices are used – for example with salesmen approaching accident victims in hospital.
  
• Few consumers seem to understand the risks and liabilities they are exposing themselves to as the risks of conditional fee agreements have not been clearly explained to them at the outset by salesmen. Consumers are misled into thinking the system will be genuinely ‘no win no fee’ but can often find that costs are hidden and unpredictable.
  
• Loan financed insurance premiums, in addition to other legal costs, can often erode the value of claimants’ compensation.  In some cases consumers even owe money at the end of the process.  This turns the whole claims process into a zero-sum gain for consumers and denies effective access to compensation.
  
• The system does not deliver anything effective to consumers on rehabilitation. International comparisons show that the UK trails behind other countries in getting injury victims back to work.  The arduous legal processes and money only results of our current system of compensation often means that victims are not being sufficiently helped to resume a normal life in both society and the workplace.  Over time this failure increases the overall cost both to society and the public purse and needs to be addressed.
  
• Conditional fee agreements create perverse incentives for the legal profession and provide the conditions for cherry-picking of high value cases with high chances of success.  This results in lawyers refusing to take on good small claims which may nevertheless be of enormous financial and personal significance to the client, thus denying access to justice.
  
• There is no effective joined-up system for regulating conditional fee arrangements to ensure consumers are protected on both quality of advice and costs.  In particular, the activities of claims management companies seem to fall largely outside the system of regulation yet they are increasingly the primary introducer of the consumer to the claims process as well as a complex package of financial services – consequently the information and advice they give is of critical significance to the consumer.  A voluntary code is still in its infancy.

10. This report looks at the experience of CAB clients who have pursued personal injury compensation through CFAs.  Typically the consumers we help are on low incomes and may often be vulnerable because they have suffered some level of personal physical injury for which compensation could be available if elements of fault liability and causation can be established.

11. The report proceeds to examine the evidence, the policy options for reform and alternative methods of redress in personal injury cases. Although the former system of funding personal injury claims only represented a net cost to the public of 4 per cent of legal aid annual expenditure,  we do not advocate a simple return to public funding for personal injury cases based on current legal aid eligibility criteria.  Legal aid is very restricted and means tested, and by definition was not actually of assistance to many consumers.   

12. However, there are significant problems in this market which need remedying so as to provide better protection and service to individual consumers, improve access to justice and outcomes and give the public a better system for dealing with personal injury compensation.   Citizens Advice is also concerned about the emerging policy direction to extend the use of conditional fee agreements as a method of funding legal cases in other areas of law, for example with public law cases.  

13. Key messages for reform of funding for personal injury cases include:

• Claims managers, intermediaries and organisations introducing consumers to legal processes should be subject to independent regulation.  Regulation should cover competence, quality and costs and secure a proper focus on protecting the consumer, who is after all funding the system. (para 3.27)
  
• The Financial Services Authority and the Office of Fair Trading should produce a joint policy on how they will regulate sales of linked insurance and credit products designed to fund legal actions.  (para 3.38 )
  

• The Financial Ombudsman Service and the Legal Services Ombudsman should co-ordinate complaints procedures about conditional fee agreements so that there is a “one stop shop” for any consumer complaints.  (para 3.38)
  
• There should be statutory regulation of the form and content of CFAs.  (para 3.15)
  
• The Office of Fair Trading should undertake a market study into the market for conditional fee agreements, to establish whether this market works effectively for consumers. (para 6.9)
  
• The Department for Constitutional Affairs should undertake a feasibility study into whether a contingency legal aid fund  could be a viable alternative for funding personal injury cases. (para.4.47)
  
• The Department for Constitutional Affairs should review the legal costs system for personal injury in civil courts to examine whether there are any alternatives to frontloading most of the costs. (para 4.16)
  
• The government should establish a task force on compensation to look at the viability of introducing ADR or no fault based systems to deal with personal injury cases, and review how to achieve fair rehabilitative compensation and proportionality between costs and damages. (para 5.4)
  
• The Department for Constitutional Affairs should evaluate the impact of the introduction of conditional fee agreements on personal injury claims before proceeding to replace legal aid with CFA-funding for other types of cases. (para 6.3)

About this report

14. This report is based on 385 evidence reports from 224 Citizens Advice Bureaux over the period January 2002 to September 2004.  Chapter 1 examines the policy background to the increase in conditional fee agreements for personal injury compensation.  In Chapter 2 we look at CAB evidence about the failure of conditional fee agreements to pursue personal injury claims, including high pressure selling techniques and the outcome for clients.  In Chapters 3, 4 and 5 we examine policy options for regulation, claims financing and non-court based options for personal injury claims.  In Chapter 6 we outline our major recommendations and conclusions.   

Social Policy contact: James Sandbach Social.policy@citizensadvice.org.uk

No win no fee no chance ( 270kb) - CAB evidence on the challenges facing access to injury compensation