'£400 club' ruling opens door to recovery of "at least £10m" in portal fees, insurance lawyers say
Posted by Nick Hilborne
Horwich Farrelly: "huge amount of money" could be owed to motor insurers
A ruling at Cardiff County Court "opens the door" for the potential recovery of "at least £10m" paid by insurers in stage 1 RTA claims portal fees for cases that never progressed any further, it has been claimed.
Patrick McCarthy, a partner at insurance law firm Horwich Farrelly, told Litigation Futures that the figure was a "conservative estimate".
The firm said that between 2010 and 2013, a "significant number of claims" were submitted by claimant solicitors where stage 1 costs of £400 were paid, even though the claim did not progress beyond that point. This has long been dubbed the '£400 club'.
The firm said there was a concern amongst insurers that many of these 'abandoned' claims were at best speculative and at worst perhaps fraudulent and they lobbied for a change to the pre-action protocol to close the loophole.
In 2013, the protocol was amended so that stage 1 costs were only payable upon receipt of the stage 2 settlement pack, including evidence in support of injuries and losses.
A number of claimant solicitors have always contended that, under the rules prevailing at the time, they were entitled to retain the stage 1 costs even if the claim did not progress.
Horwich Farrelly reported that, in ordering reimbursement of the stage 1 costs on three claims, District Judge Phillips said that, despite the wording of the protocol at the time, the whole system was based upon the premise that claims would proceed to stage 2, a conclusion he said was reinforced by the 2013 change.
The judge gave the claimant lawyers leave to appeal, with the case set to be 'leapfrogged' to the Court of Appeal given its importance.
Mr McCarthy added: "We have believed for some time that stage 1 costs are an interim payment which, if a claim is not pursued, should be recoverable, and have been working to test and challenge perceptions to the contrary.
"Our specialist recoveries team has been running an initiative that combines both debt recovery techniques and test litigation, and the success at Cardiff County Court is an important first step in the right direction."
Mr McCarthy said that if the Court of Appeal agreed with DJ Phillips, insurers would be able to pursue recovery of those stage 1 costs paid where a claim was not subsequently pursued.
"£400 may seem a relatively small amount in claims terms, but the high number of claims involved means that a huge amount of money could be owed to motor insurers.
"According to the published claims portal statistics, over 2.3m claims notification forms were submitted between 2010 and 2013, and around 20% of the related claims appear to have remained 'in the system' i.e. they haven't been settled or moved out of the portal process.
"Even if only a small proportion of these are part of the '£400 club', the total stage 1 fees involved across the industry could run to tens of millions of pounds."
portal fees
Paul Bennett says:
The £400 club has been investigated by the SRA and I have defended a number of firms facing allegations from insurers of misuse of this. None have yet gone to SDT.
I expect a number of battles with insurers and the SRA to emerge from this development.
Claimant firms should steel themselves for opportunistic claims from insurers but the Court of Appeal may yet affect the challenges. Firms would be crippled if the claims were upheld which is likely to affect the Court of Appeal arguments.