No win, no fee. Four words which have become stigmatised by more than a decade of headlines laced with terms like ‘fraud’, ‘ambulance chasing’ and ‘compensation culture’.
Even today the tabloid attack on lawyers continues. But this only contributes to the uncertainty behind what a no win no fee claim (otherwise known as a Conditional Fee Agreement) actually is.
So here is my attempt to make things clearer:
The old regime, pre-April 2013
In April 2013 new legislation (the Legal Aid Sentencing and Punishment of Offenders Act) changed the rules of no win no fee funded claims. Prior to the change, this is how a typical car accident claim funded by a no win no fee agreement would work:
- Driver A is injured in a crash that was the fault of Driver B.
- Driver A pursues a claim against the insurer of Driver B, through a solicitor funded by a no win, no fee agreement.
- Driver A wins the case and receives the full amount of the compensation awarded.
- The legal costs owed to Driver A’s solicitor for running the case, are paid by Driver B’s insurer – plus a ‘success fee’.
- The success fee was limited by legislation to an additional 100% of the legal costs. The success fee percentage was calculated based on the risks of the individual case therefore a high risk case would result in a high success fee. In car accident claims the success fee was also limited by the Civil Procedure Rules (the legal process lawyers follow in pursuing a claim) so in the majority of cases if the claim did not go to a court trial then the success fee recovered from Driver B’s insurers would be 12.5%.
- In most cases Driver A would also have a legal expense policy to protect him against paying Driver B’s legal costs and Driver A’s disbursements (cost of medical reports, court fees etc) if Driver A’s claim was unsuccessful. If the legal expense policy was purchased after the accident (after the event insurance) the cost of this insurance premium would also be recovered from Driver B’s insurers.
In this scenario Driver A receives 100% compensation and pays no legal costs or after the event insurance premiums.
If Driver A had lost the case, they would not pay their solicitor as the solicitor had agreed to act on the basis they would only be paid if the claim was successful. If Driver A had a legal expense policy this would pay Driver B’s legal costs and Driver A’s disbursements.
The new regime, post-LASPO
All of this changed when LASPO came into force on the 1st of April 2013.
Before I explain how no win no fee claims work today, it’s important to explain the government’s reasoning behind the introduction of what some legal professionals considered a further suppression of claimant’s access to justice.
Critics of the pre-April 2013 system argued that as the no win no fee arrangement was riskless to the claimant, it indirectly spawned a ‘have a go’ culture in Britain. In turn this was believed to have caused a rise in fraudulent claims – particularly in the arena of whiplash.
As the claimant was never responsible for paying solicitor fees, their choice in legal representation was based on lawyer expertise, experience and reputation. Cost didn’t come into it and so this allegedly led some solicitors to charge inflated rates – which the claimant had no qualms with. And why would they? After all, the insurer was always paying the bill.
However, insurers were believed to be offsetting these legal fee payouts by increasing yearly premiums for motor insurance. And this is where the press picked up the story – blaming a wildfire of extortionately high insurance quotes, on sparks ignited by ‘greedy’ solicitors.
LASPO was brought in to change all of this.
The simplest way to explain the effects of LASPO is to run through the Driver A/Driver B scenario again here:
- Driver A is injured in a crash that was the fault of Driver B.
- Driver A instructs a solicitor to pursue a claim against the insurer of Driver B funded by a no win no fee agreement.
- Driver A wins the case and is awarded compensation for the losses he has suffered.
- Depending on the case, some legal fees owed to Driver A’s solicitor may be paid by the insurer of Driver B.
- However the success fee is no longer recoverable from Driver B’s insurer so is paid out of Driver A’s compensation.
- The maximum success fee remains at 100%.
- Legislation limits the amount that can be deducted from Driver A’s compensation award. The limit is 25% of the compensation awarded for pain, suffering and loss of amenity and past losses.
- Driver A may also be advised to purchase legal expense insurance to protect against the risk of losing or failing to beat an offer and having to pay for the disbursements and Driver B’s legal costs.
In this scenario Driver A if successful will not receive 100% compensation as up to a maximum of 25% of their compensation will be deducted as a success fee and if they purchased a legal expense policy the cost of the premium will also be deducted from their compensation.
The success fees charged by solicitors will vary and some solicitors may not charge any success fee. If the solicitor charges a success fee it will be calculated on their costs and as the limit applies to the amount of client compensation it is possible that the success fee will be less than the limit of 25%.
The relevant success fee will be agreed between the solicitor and their client prior to making the claim.
If Driver A loses the case, again, they will not be required to their solicitor’s fees.
Under such an agreement Driver A may still be responsible to pay Driver B’s legal fees and Driver A’s disbursements, if he loses. It is therefore important that the solicitor advises Driver A on legal expense insurance to protect against this risk.
More information on modern day no win no fee claims can be found if you click here.
What does all this mean to you – the accident victim?
Reduction in the amount of compensation received: The fact that the success fee is now paid out of the compensation means that you are no longer receiving 100% compensation. It may be that due to the consequences of the accident you need every penny of the compensation to pay for treatment, carers, and adaptations to your property etc.
The government did try to reduce the impact of the payment of success fees by injured claimants and last year as part of a judgment made by the Court of Appeal it was ordered that where claims are funded under a Post April 2013 no win no fee agreement the injured claimant will receive a 10% increase in compensation for their injury.
Quality of service and legal advice: It is possible there will be an increase in the number of complaints made against law firms regarding the quality of their service. The reduction in fees may lead some law firms to change their business model. Whereas prior to April 2013 the person dealing with your claim may have been legally qualified now after April 2013 the firm’s view may be that it is no longer cost effective to employ a legally qualified person. Alternatively legally qualified staff may be expected to deal with larger case loads, which reduces the amount of time they have to spend on each claim.
Or worse still because success fees are no longer recoverable from the at fault insurer and fees have been reduced, you may not be able to find a lawyer willing to take on your case as it is just too risky to act on your behalf.
John Spencer highlighted these concerns and more (regarding LASPO changes to claims limits), in the month following LASPO’s full enforcement.
Only time will tell if all of these disadvantages are worth the change. Has your car insurance premium become reasonable yet? Are a few pounds off your motor insurance worth giving up access to justice? Let me know in the comments.