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The combination of the consultation by the Ministry of Justice (MoJ) on law firm cost recoveries and the impact of the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act on success fees is likely to expose claimants without legal expenses insurance to significant levels of deductions from damages, as a result of Damages Based Agreements (DBAs), according to Arc Legal Assistance (Arc Legal).

New regulations for DBAs and Conditional Fee Agreements (CFAs) will come into force on 1st April 2013, as part of the LASPO Act which will see claimant solicitors no longer able to recover a success fee from the third party but having the option to deduct this from damages payable to their client. As a result, Arc Legal believes that claimants without legal expenses insurance will face potentially significant deductions from their damages.

In addition, if the MoJ do significantly reduce the level of solicitor’s costs recoverable from the third party, as per their recently issued Consultation paper, solicitors may look to make up the shortfall from DBAs.

Commenting on the implications for claimants, Richard Finan, Director of Arc Legal, said: “The ‘double whammy’ of success fees being deducted from claimant’s damages and new levels of costs deductions will expose those claimants without legal expenses insurance to the prospect of significant reductions in the compensation they would receive.”

The new regulations on DBAs and CFAs confirm the levels of costs that can be deducted from claimant’s damages for personal injury, employment and other types of claims. These will range from up to 25% of general damages in personal injury claims, up to 35% of the sums recovered by the claimant in an employment matter and up to 50% for other types of claim.

Finan continued: “These levels of cost exposure demonstrate what an important role legal expenses insurance will continue to play in protecting the damages received by claimants while improving their access to justice. Arc Legal is committed to ensuring that cover continues to ensure claimants will receive 100% of their compensation for damages awarded.”

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