THE EFFECT OF QUALIFIED ONE-WAY COSTS SHIFTING ON ATE POLICIES

Richard Finan, Director of Arc Legal Assistance, has recently been discussing the future of the ATE market following the proposed plans for Qualified One-Way Cost Shifting (QOCS) due to take effect in April 2013.

Under the proposals, where a personal injury claim is made, the claimant will no longer be responsible for the defendant’s legal costs where a claim is settled by the courts in favour of the defendant. However, the claimant will still be responsible for the defendant’s legal costs and disbursements in certain instances.

Where a Part 36 offer of settlement is made by the defendant prior to court proceedings and this is rejected by the claimant, the claimant will still be responsible for the defendant’s legal costs and disbursements where any offer of settlement following a court hearing is lower than the original Part 36 offer.

This would result in the need for After-the-Event (ATE) Legal Expenses policies to drop significantly. The risk to claimants of paying the defendants legal costs and disbursements is significantly less, and therefore an ATE policy would only need to cover claimants where a Part 36 offer of settlement is not exceeded in court.

There may still be potential for a small ATE market to cover the risks associated with Part 36 offers, however the premium for such a policy will likely increase. The premium for ATE will also no longer be recoverable from the defendant in the event that a claimant makes a successful claim in court, meaning the claimant would be responsible for the payment of the ATE premium. It is likely that an ATE policy will only be purchased when there is a real risk that a Part 36 offer may not be beaten in court. This will lead to a higher claims incidence, which in turn will adversely affect the underwriters.

It is expected that as a result of QOCS, more claimants will accept Part 36 offers due to the financial risk involved, whereas under the existing rules such offers might have been rejected.

The solution would be to purchase a Before-the-Event (BTE) Legal Expenses Insurance policy, which would cover all legal costs and disbursements of a claim whatever the outcome. Arc Legal’s BTE policies also provide many other additional benefits to Personal Injury cover that are applicable to motorists. Many customers already have the cover, but may not be aware. As a result, where a claimant approaches a solicitor independently, the solicitor may ignore the fact a BTE policy might already be in place, and encourage the customer to enter into a Conditional Fee Agreement (CFA) and a subsequent purchase of an ATE policy where necessary. QOCS will reduce the benefits of such arrangements to customers, meaning the relevance of the BTE market will heighten even further, which should in turn lead to an increased awareness of the benefits of BTE policies.