lawyer

#Trouble for personal injury law firms means trouble for claimants

N early a fifth of the law firms in the north-west of England that specialise in personal injury work are considering closing down, according to a survey conducted last week .

The poll was carried out by O'Connors, a Liverpool law firm that provides business advice to other law firms. Whether its findings are an accurate prediction of what is likely to happen across England and Wales is less important than the broader point it makes: personal injury work is under threat and weaker firms are going to the wall. A new campaign group claims that as many as 100,000 jobs will be lost over the next year. Although predictions such as this have been reported in the specialist legal press for some months now, they tend not to make much of an impact in the mainstream media – at least until a large firm is closed down by the regulator, as happened earlier this month.

The reasons for public indifference are not hard to see. At a time when businesses are finding it hard to survive, there is little public sympathy for solicitors – unless you happen to be an employee of a law firm or the victim of catastrophic medical negligence. And, at back of people's minds, there is an impression that personal-injury lawyers are ambulance chasers – dodgy geezers who make their money from easily fabricated claims of whiplash injury arising from motoring shunts.

We know, of course, that some claimants are dishonest. It must be very tempting to exaggerate one's injuries when there is money to be made, especially when it is uneconomic for insurers to challenge every claimant's account of an accident. And no doubt there are some lawyers, struggling to stay in business, who don't ask too many questions when an unscrupulous claimant walks through the door.

But, at least until recently, many of the ambulance-chasers and the people who advertise for claimants on day-time television have been claims farmers who sell potential clients on to law firms. I use the word sell because law firms pay a referral fee for each case they buy. The going rate is said to be around 700. And payment of these referral fees will be banned under legislation that takes effect from the beginning of next month.

There may be ways of getting round this ban. The most obvious is for law firms themselves to advertise for clients, pooling resources as appropriate. A more sophisticated way of doing this would be for the law firm to buy an existing claims management company, a move that's possible now that solicitors can set up what are called alternative business structures. And perhaps money will change hands in more shadowy ways.

Whichever way it works, though, lawyers who wish to carry on doing personal injury work will need to spend money on marketing their services. And it's money they are not going to get back from anybody but their clients. Claimants take it for granted that insurers will pay all the legal costs involved in a successful claim. In future, it's more likely that a proportion of the damages will be deducted to pay the claimant's own lawyers.

To understand this, you have to know about the RTA portal. as it's currently called. RTA stands for road traffic accident and the portal is simply a computer system enabling claimants' lawyers to send standardised accident claims direct to defendants and their insurers for settlement. It was set up nearly three years ago, not without the teething troubles that seem inevitable with new computer systems, and it now covers most personal injury claims arising from motoring accidents – those worth between 1,000 and 10,000.

The system is run under guidelines from the Ministry of Justice, which currently permits claimants' lawyers to charge insurers fixed costs of 1,200. Last month, however, justice secretary, Chris Grayling, announced that these fees would be cut to 500 from the end of April. A subsequent legal challenge to the cuts was unsuccessful. In addition, the portal will be extended to cover claims worth between 10,000 and 25,000. Costs for these claims will be fixed at 800. And, from the summer, the scheme will be extended to cover claims for employer and public liability worth up to 25,000. It will then be known as the claims portal.

The government's justification for cutting lawyers' fees by more than half is that solicitors will saving as much as 700 per case in referral fees. But lawyers complain that they will still have to pay marketing costs. Ominously, David Edmonds, the industry's super-regulator, told MPs this week that the ban on referral fees might have unintended consequences. Edmonds, who chairs the Legal Services Board, has long argued that there is no evidence of consumer detriment from referral fees and so no justification for a ban.

Quite apart from the question of whether referral fees encourage people to bring unwarranted claims, the insurance industry argues that reducing the costs it pays to claimants' lawyers will reduce the size of insurance premiums – though it cannot say by how much. Lawyers claim that the move will simply increase the size of insurers' profits.

No doubt the truth, as usual, lies somewhere in between. Insurers will probably receive fewer spurious claims. Perhaps premiums will not increase as quickly as they might have done. But people who suffer serious, debilitating accidents through no fault of their own will find it harder to claim compensation. And when that compensation does come, it will be less than the claimants deserve.