Access to Justice in lower value clinical negligence claims

A snapshot of the existing CFA and ATE insurance funding landscape

The manner in which Claimants are able to fund clinical negligence claims has changed extraordinarily in the last 10 years. The ‘squeeze’ on public funding and the limitations of Before The Event (BTE) insurance have meant that Conditional Fee Agreement (CFA) and After the Event (ATE) insurance have become the main funding option for clinical negligence claims. The certainty that has emanated from costs litigation, the simplification of the CFA regulations, and the entry into the ATE insurance market of new providers have all helped the increased usage of CFAs and ATE insurance.

Accordingly, the market for Claimant funding has now evolved into a model whereby Claimants who do not qualify for public funding, do not carry BTE insurance, and do not have the financial means to pursue their claim are offered a unique funding package. This package may also be available where Claimants are no longer eligible for public funding, or where the BTE limit of indemnity is insufficient to cover both Claimant and Defendant costs to trial, or no longer have the financial means to fund their case. This starts with a CFA, after an initial screening, to investigate if their claim has any prospects of succeeding. However, Claimants are invariably unable to pay any money for even the initial disbursements that need to be incurred to investigate if there is a claim, such as medical notes and a preliminary report on breach and causation. In these situations, law firms fund these disbursements, but on the basis that they obtain insurance cover to reimburse these expenses under the ATE policy at the time that they enter into the CFA. This insurance will cover the claim should it need to proceed to trial for all of the disbursements incurred and the opponent's costs. This insurance is usually offered under a delegated scheme with one provider, and for cases that do not fit the delegated scheme criteria (or where top-up ATE insurance is required), the Claimant's solicitor obtains a case specific quote for ATE cover. ATE schemes offer deferred, staged or sliding scale premiums assessed on the basis of the actual financial exposure to the insurer.

The CFA and ATE insurance package has genuinely increased access to justice for a large proportion of the population previously excluded from making a claim. However, the number of clinical negligence claims made have not significantly increased, even though the costs of pursuing them, in line with increased costs for the lawyers in representing their clients, have. Horrified at the genie they have let out of the bottle, the Defendant industry, who so vigorously supported the ending of legal aid for personal injury claims, and the introduction of CFAs and ATE insurance, are now campaigning to push the burden of ATE insurance premiums and success fees back onto the Claimant, rather than exploring practical ways of using the Civil Procedure Rules (CPR) and reducing the adversarial nature of litigation (including their own conduct in dealing with these claims) to reduce base costs.

When one looks at the types of cases that are typically funded by ATE backed CFAs, a high proportion are for worth less than £60,000 (‘Lower Value Claims’). One reason for this is that Lower Value Claims tend to be cases for which public funding is not available because of the ‘damages:costs ratio’ test. It is rare that a Claimant has the funds to meet the private costs of pursuing their claim. If they have BTE cover that will fund the claim initially, indemnity levels are rarely enough to cover both sides' costs beyond the investigations and pre-action protocol stage. For many practices, claims worth less than £60,000 will make up over 50% of their practice. The highest value claims, those over £250,000 may form less than 20% of their case load, reflecting the fact that although the higher value claims account for a large proportion of the damages paid by the National Health Service Litigation Authority (NHSLA), in the main claims handled by them are worth under £60,000.

For instance, cases of deaths or serious injury caused to the elderly or mentally infirm tend to fall into this bracket of Lower Value Claims because there is no loss of earnings claim. General damages and care claims are often low in these cases due to a complex pre-existing medical history, a limited life expectancy and/or pre-existing care needs. Without the availability of CFA funding and ATE insurance schemes, these claims, of the utmost importance to the Claimants, would not be brought.

Partial costs shifting and its potential impact

One of the options raised in the Preliminary Report for consideration was of partial costs shifting in favour of Claimants, thereby removing the risk of paying Defendant's costs, and providing that base costs are paid by the opponent but the success fee and ATE insurance premium are paid by the Claimant out of their damages (‘Partial Costs Shifting’).

Under this proposal, solicitors could still represent their clients using a CFA and claim a success fee, payable out of Claimant's damages. ATE insurance would still be relevant because although opponent's costs cover would not be required, cover would still be needed for the Claimant's own disbursements for investigating whether a meritorious claim exists but also the disbursements required to bring a case to trial, if required. Accordingly, the limit of indemnity for an ATE policy would be lower and, therefore, the premiums reduced. However, that premium would be payable out of the Claimant's damages.

We will ignore, for the purposes of this article, whether special damages would be ring fenced and only general damages would be available for these deductions to be made.

Before considering the potential impact of Partial Costs Shifting, there are a number of points worth noting.

While it is predominantly Claimants who take up CFA funding, it is not a method preserved to Claimants, and Defendant bodies are also able to engage their panel firms under a collective CFA agreement and to recover success fees from their opponents (the Claimant) when they successfully defend claims.

Further, the review appears to assume (as do many of the submissions made by Defendant bodies) that Claimants are never interested in costs, are never advised about costs by their solicitors and exercise no control over those costs. This is entirely outside of the writers' experience. All clients are advised on costs at regular intervals and at other key litigation points (such as before the issue of proceedings and when offers are made or received), in accordance with the Solicitors Regulation Authority (SRA)'s code of conduct rules. When ATE insurance is obtained, the terms of the policy and solicitor's advice to clients will make clear that the insurance remains valid only so long as they comply with its terms, likewise the CFA funding arrangement. Furthermore, the majority of clinical negligence practices will exercise their right to recover any shortfall in recovery of inter partes costs from the Claimant, and that prospect makes most clients very live indeed to the amount of costs being spent on their behalf. A similar attitude arises in cases funded by BTE insurance, where the client is alive to the limit of the indemnity their insurer provides them with and the fact that it is unlikely to be sufficient to take the case through to trial. In other words, Claimants are not universally litigation ‘savvy’, and do not have bargaining power, but this does not mean they are incapable and uninterested in taking an active role in controlling the litigation and the costs of pursuing their claim. The interest they take usually increases with the value of the claim and the attendant increase in costs likely to be incurred to take it to conclusion. It is not right, therefore, to suggest the Claimant has no interest in costs.

Finally, it has been mooted that making the Claimant liable for the ATE insurance premium would bring market forces into play in the way that market forces were in play before 2000, and that the average Claimant could shop around. Although firms currently operate delegated schemes, these firms will regularly review the ATE insurance market to ensure that the cover and its premiums remain competitive and meet their clients' needs. Thus, market forces are still, and have been over the last 10 years, the driver behind the selection of an appropriate cover for a client's claim.

What then would be the effect of introducing Partial Costs Shifting?

In order to understand the financial implications of this proposal, and taking on board that for many firms the bulk of their work is on Lower Value Claims, we have prepared a short but typical case study.

Let us take a fatal accident claim where the Claimant's husband died following delayed diagnosis of a ruptured spleen after a fall. Solicitors are appointed out of London. To investigate the case two medical experts are required. The response to the letter of claim is a denial of causation. The Defendant is informed in the letter of claim that the case is funded by CFA and staged ATE premiums (which is standard practice). The claim is issued and goes to panel solicitors for the Trust and an extension agreed for service of the defence. A defence denying liability is served but at the same time an offer is received of £25,000. Full value is £50,000 comprising £2000 general damages, £15,000 bereavement damages and funeral costs, a financial and services dependency of £33,000. The client wants to settle as she finds the litigation stressful and recognizes that the litigation carries up to a 40% chance of losing (she was advised the claim had 60% prospects of success). It is assumed that the success fee has been capped at 50% and that the ATE premium and success fee are not recoverable from the paying party. Costs and disbursements are shown in Table 1.

In this scenario, costs are modest because the Claimant's solicitor has been an effective and efficient litigator and skilled enough not to rely heavily on counsel, plus the Defendant has decided to settle very early. However, despite this the Claimant has recovered only 59% of the damages negotiated, or 29% of the full value of the claim. If the case progressed through the court beyond Case Management Conference (CMC), to the exchange of experts reports (a common point at which cases settle), costs will most likely increase to £20,000 base profit costs plus a further £10,000 disbursements. In that situation the sum payable by the Claimant rises from £10,250 to £15,250 (the additional success fee of £5000, ignoring the increase in the ATE premium). Their damages recovered will now be less than 40% of the settlement sum agreed and less than 20% of the sum the claim was worth on a full valuation.

On this scenario, applying Partial Costs Shifting, it is clear that there is a significant shortfall in costs recovery for the Claimant, her solicitors and her insurer. The solicitors face recovering a significant part of the Claimant's costs from her or making a loss on a case they successfully and effectively litigated for their client, and got to settlement at a very early stage, and the insurer will have a shortfall. This inevitably creates a conflict of interest between the solicitor and the Claimant, or to put it another way, the business and the client, who is the conduit by which the business gets paid and makes any profit.

Of real concern are the behaviours that are likely to flow from Partial Costs Shifting for Lower Value Claims on both the Claimant side as well as the Defendant side. There will be a financial disincentive on Claimant solicitors either to be instructed on such cases or from pursuing these cases to trial. The latter introduces a stark conflict of interest such that it may encourage overly discounted settlement of claims by accepting the first offer made. Defendants may very well have, on the other hand, no incentive to settle early in Lower Value Claims. By prolonging litigation and increasing costs, they will put pressure on the claimant to under settle their claim to avoid any damages they may recover being eroded. Such a tactic would also undermine Claimant solicitors' financial ability to take on these cases that would become very high risk in terms of recovery of costs.

Importantly, a Claimant will not gain full recovery of their negotiated damages settlement. These damages would have already have been discounted for the litigation risk at the point of settlement. The second discount by the operation of Partial Costs Shifting would amount to suffering a ‘double deduction’. It needs to be recalled that the Claimant, as the acknowledged injured party (whether by settlement or by a court order), by going through such a civil justice system may justifiably question whether this is equitable.

What if in this case there had been an admission of liability? In that case there would be no question in anyone's mind that the Claimant was entitled to recovery of compensation but the amount she would be compensated with would be reduced to meet the shortfall in costs recovery, and she could recover as little as 20% of the overall damages she is entitled to by law.

It is the case that the Claimant solicitor's costs do not equate to damages directly. There will always be a minimum level of work cases need doing to reach settlement. Equally, the ATE premium reflects the insurer's financial exposure to pay a claim under the ATE insurance policy, not the damages claimed or recovered.

As a solicitor, how appealing will it be to run cases for nothing, to bankroll all disbursements and recover only base costs, namely to receive no success fee on winning cases to balance the substantial losses that will be made on cases that lose?

As an ATE insurer, Partial Costs Shifting introduces great uncertainty. Insurers are faced with a risk of paying out that is certain when it has been assessed; but despite charging a premium for insuring this risk, being the reward for this risk, they are, effectively, invited to gamble on the premium that will be paid. There may well be insufficient damages to pay the success fee and the ATE premium in full. This becomes double jeopardy for the insurer.

Thus the future we see if the Claimant is made to bear the cost of ATE and success fees, are law firms withdrawing from the Lower Value Claims end of the market, as they cannot afford to bear the heavy costs of long-running clinical negligence claims. We foresee ATE insurers unable to sustain their offering in this uncertain market. There are insurers who currently insure clinical negligence claims who may very well decide that with a Partial Costs Shifting system that there is insufficient reward for insuring these claims. This would undermine the stability of the ATE insurance market and the sustainability of CFAs and ATE insurance as a funding option. And, finally, we foresee clients blocked out of the market because their perfectly valid claim is not worth enough money to justify them taking the case forwards, even though it may be worth at least £30,000 net of tax, the equivalent of around 18 months average salary in the UK. This ‘locking-out’ effect of not pursuing a claim would be a real concern as access to justice would be denied to the injured party. Indeed, on another analysis, even those Claimants who go through with their claim may justifiably feel ‘short-changed’ by such a system.

Would Partial Costs Shifting produce a level playing field, or would the balance be tilted in the opponent's favour? Indeed, it may rightly be asked whether we want a justice system that allows a large institutional body, be it the NHS or a doctor backed by a defence union, that by negligent treatment has caused a serious injury or death, to escape a civil claim solely because of the operation of a Partial Costs Shifting regime.

What might the future hold, and what is best practice in the interim?

We would suggest the following tools may lead to better costs control without the need to alter the costs shifting basis:

ATE insurers to introduce additional stages to maximize the opportunity to settle before heavy litigation costs are incurred, so rewarding the Defendant for settling before the CMC and other key stages within the litigation process;