The senior judiciary is on the lookout for a magic money tree.
The April 2013 Jackson reforms sought to get a grip on legal costs through proportionality and costs budgeting. Unfortunately for claimants, however, they also put an end to recoverable success fees and after-the-event insurance premiums. That has damaged the ability of lawyers to act under ‘no win, no fee’ agreements, and left many people unable to access the courts.
Wouldn’t it be great if there were an easy solution to provide the funding needed for these claims, without any cost to the taxpayer? For at least the past decade, the idea has been knocking about that before-the-event (BTE) insurance could somehow offer a solution. So, it is perhaps not surprising that legal expenses insurance, including BTE, is one of the topics being looked at as part of the Civil Justice Council’s broad-ranging review of litigation funding. There was an interesting discussion about it at a CJC consultation event held at Oxford University last month.
Greg Callus, media law barrister at 5RB, set out the problem: ‘There’s a certain level of lower-value claim that is never going to be economically attractive to the lawyers offering CFAs, damages-based agreements or third-party funding; matters that will never be worth above £150,000–£200,000, whether it’s in the Business and Property Courts or personal injury… Many are in the county courts.’
Callus said a key feature of these claims is the growing number of litigants-in-person (LiPs). He explained: ‘One underappreciated aspect of LiPs becoming predominant in the courts is that the AI generation changes everything.
‘I’ve now done a couple of cases where there was a LiP on the other side, who – without doing anything wrong – had used AI to conduct something approximating legal research. They are able to find authorities, most of which actually exist. They are looking for points, but without the legal training to tell the difference between good and bad ones. Certainly, not all the points made this way are bad. But what they are is voluminous.
Read more by Rachel Rothwell
‘Ordinary people who have no legal training are massively emboldened by the possibility of producing documents this way. But civil litigation is not going to be able to cope with a huge increase in the use [of AI] by people who are not legally trained, not regulated, and yet able to generate massive volumes of evidence for submission, for low-value disputes.’
All this points to the huge benefit of BTE, Callus said, because insurance-backed litigation with lawyers on both sides will enable low-value disputes to be resolved so much more efficiently.
The benefits of BTE are clear, but how to ensure enough people take out a policy to make a meaningful difference? The CJC’s interim report noted that Canada is looking at a mandatory LEI scheme to replace civil legal aid. It cites Sweden and Germany as jurisdictions where BTE already plays a much greater role. But comparisons can be misleading. In Sweden, for example, BTE was boosted by the government forcing insurers to add it to household policies at no extra cost. It is hard to see that happening here. Meanwhile in Germany, the BTE market is far more mature and competitive, with 44 insurers involved, as opposed to just a handful in the UK. Germany also has scaled, fixed legal costs, making the insurer’s potential liability much easier to predict.
Also speaking at the CJC event, Rocco Pirozzolo, managing director and underwriting director at Harbour Underwriting Ltd, examined what role BTE could play in group litigation. A typical BTE policy gives a limit of indemnity of around £25,000 to £100,000. So if you had a group action of, say, 10,000 people who all had their own BTE insurance, this could provide a very substantial pot for funding a group claim. Insurers are prudent animals, however, and the greater risk exposure from group claims would push up premiums – from £25 to perhaps £100 – while enough policies would need to be sold to ensure that the premiums covered the exposure. How to achieve that level of takeup?
‘It’s a huge challenge,’ said Pirozzolo, but there are ‘glimmers of hope’. He pointed to the way some employers already offer a legal helpline and other assistance for employees. Could BTE insurance become a common staff benefit offered by employers? We have seen this in the past with private health insurance.
One thing is for sure. If no viable method can be found to radically increase takeup of BTE insurance, it will never become the panacea that those in charge of the justice system have always wanted it to be.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.
For subscription details, tel: 020 8049 3890, or click here
3 Readers' comments