The UK’s Ministry of Justice confirmed yesterday that a new streamlined claims process has been agreed for road traffic accident (RTA) personal injury claims valued between £1000 and £10,000.
According to the MoJ statement (
click here):
“The new process would provide for early notification of claims; promote early admissions of liability and early settlements; and remove duplication of work from the process.”The original manifestation of fixed fees for personal injury claims came into being on 6th October 2003. Let me digress for a moment and take the opportunity of explaining briefly how the fixed cost system works. Generally speaking, in the U.K., attorneys’ fees are not recoverable from a client’s damages. The fees are recovered from the losing party, in addition to recoverable damages. This somewhat archaic system is referred to as the “indemnity principle”. Following their introduction, fixed costs applied to pre-issue (i.e. cases which had not reached the filing of proceedings) road traffic accident cases (RTAs) where the ultimate value of compensation recovered by the claimant was less than £10,000. The amount of recoverable costs was calculated on the basis of a fixed fee of £800, plus 20% of the damages figure up to £5,000, and 15% of the damages between £5,000 and £10,000. So, if an RTA case was eventually settled for £5,000, the law firm received a £1,800 fixed fee.
The new streamlined claims process imposes a lower overall recoverable costs regime and a defined timetable for the progression of relevant claims. The incessant downward pressure on recoverable costs, together with the tightening of the case continuum timeline, necessitates, in my opinion law firms embracing innovative models for case handling.
The process is divided into three stages, for which fixed recoverable costs (FRC) have been agreed as follows:
For stage 1 (including, broadly: provision of early notification of claims to defendants and insurers; inclusion by the claimant solicitor of all the information the defendant or insurers will need to make a decision on liability; the insurers will have 15 business days to respond. The FRC will be £400.
For stage 2 (medical evidence, offers to settle and negotiation, where liability is admitted, including, broadly: within 15 business days claimant solicitor to confirm medical report as factually accurate, prepare a settlement pack (including any claim for special damages and supporting evidence) and send settlement pack form along with an offer to settle the entire claim to insurer; insurer has 15 business days to accept or reject the offer and make a counter offer, which attracts an extra 20 business days for negotiation) the FRC will be £800 (base costs).
For stage 3 (where quantum cannot be agreed and the court has to determine) the FRC will be £250 for a paper hearing; £500 for an oral hearing.
Under the new system, for a case with quantum agreed at £5000 by the end of stage 2, the fixed recoverable fees would be £1,200. This represents a 33% reduction in recoverable fees in comparison with the existing system. The percentage reduction in fees recovered is more pronounced as the value of the claim increases. At £10,000 under the current system, the recovered fees amount to £2,550.00. If the case settles under the new system by the end of stage 2, the fixed recoverable fee of £1,200 would represent a reduction in excess of 50%.
Where does legal outsourcing come in? With the new system expected to be rolled out in April 2010 it will become counter productive for law firms earning their daily bread running personal injury cases, to conduct these cases utilizing U.K. qualified solicitors, while incurring the overhead associated with housing and employing such individuals. Particularly if one factors in the referral fees, paid by many, road traffic accident firms’ profit margins have been further dramatically slashed overnight. In order to remain competitive, and make a reasonable profit by running such a case load, it is obvious that these cases must be processed as efficiently, quickly and frankly as cheaply (without compromising quality of representation), as humanely possible. Without exploring alternative methods of processing large volumes of such cases, in time, many firms will be unable to survive. The most cost effective approach for law firms is the LPO route. LPO offers claimants’ firms, in effect, a blended model; incorporating the claims management, process reengineering and technological expertise on hand within the outsourcing community, together the requisite legal domain knowledge.
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