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Monday, January 06, 2014

The dangers of 'no win no fee' claims

The Times has an interesting article today on the dangers of 'no win no fee' legal claims and how they are not as risk fee as people think. This is an issue I first too up over six years ago when I raised with the UK Government problems with 'claim farmers'.

This arose out of a case referred to me by a constituent, who had gone to court to make a public liability claim with the assistance of a 'no win no fee' deal with a firm of solicitors. When the case collapsed, the family were left having to meet the costs of the defendant.

In my discussions with Swansea Council it was made clear to me that it is fairly common for 'no win no fee' cases to lead to costs in excess of five to six thousand pounds being awarded against the person who brings the case. Although there will be insurance it is often the case that the insurers will not indemnify these costs especially if they consider that the case has collapsed as a result of the actions of the claimant.

One of the features of this sort of action that is not widely understood is that the claimant takes out insurance to cover any costs, but because of the risk involved the premium can be anything from £1,000 to £10,000. This is paid for by a loan arranged by the claim farmer and claimants are often given the impression that they do not need to worry about repaying it as if they win then the premium will be refunded to them.

If somebody enters into a 'no win no fee' claim and tries to drop out then their own solicitors will hit them for their costs and they will still have the premium to repay. Once somebody has signed on the dotted line then backing out will leave them in breach of contract. Even with the statutory 14 day period of grace many people fall foul of this as it is too late before they realise what they have got themselves into.

The cases referred to by the Times are slightly different, but disturbing nevertheless. They say that
people have been lumbered with legal bills of tens of thousands of pounds despite hiring lawyers on “no win, no fee” deals. They add that nearly £1 million in compensation was ordered to be paid to clients by the Legal Ombudsman because of problems caused by the deals, amid calls for them to be scrapped.

Adam Sampson, the Chief Ombudsman, said: “The no win, no fee market has become increasingly aggressive, with many law firms competing for cases and sometimes prioritising sourcing a large number of customers over a careful selection process. A business model which consistently overvalues the chances of success can drive lawyers into unethical practices to avoid financial meltdown. This report raises questions on whether the no win, no fee label should be used at all. The no win, no fee model has played its part in fostering a culture of ‘ambulance chasing’ and fraudulent claims, which has driven up insurance premiums.”

Part of the problem of course is the withdrawal of legal aid, but the way this market is regulated needs to be reviewed too. This is an outstanding issue from the last government which present Ministers need to pick up on.
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