Business Articles

8th July 2005 - By Alicia Sharman of Timms Solicitors

Why Management Companies avoid claims

Most people are aware these days of the controversy surrounding Claims Management Companies, such as The Accident Group and Claims Direct. With all the bad press about such companies, it is not difficult to see why many of them no longer exist, but what was the real flaw with the scheme as far as the public is concerned?

Such companies claimed that they offered "no win, no fee". What such companies did not highlight was that where there was a win, there was a fee, usually in the form of a hefty loan which accrued high interest on a monthly basis. When a Claimant signed up to the scheme, a loan agreement was signed that was arranged by the company.

The usual rule applied in personal injury matters it that where a claim is successful, the Defendant should pay the Claimant's costs, which would include a reasonable insurance premium in appropriate cases. These companies believed the premium the Claimant had purchased would be recovered, although many Claimants did not appreciate the rate of interest that would accrue on it over the period of time taken to complete the case.

Defendants did not like being presented with a bill for a large premium, particularly on cases that settled for amounts of only the same amount or less than the premium itself. Not surprisingly, the Courts were faced with a large volume of cases where the Defendants were challenging the amount of premium. Judgement Day for these companies finally came when, having looked at numerous factors that had been taken into account when setting the amount of premium, the Court ruled that only a percentage of the premium was to be repaid by the Defendant to the Claimant.

This was the bad news for Claimants pursuing claims under such schemes. Not only did they have to repay the interest on the loan out of their compensation but also the remaining part of the premium which the Court had ordered the Defendant did not have to pay. Consequently, many Claimants saw little, if any, of their compensation.

A genuine "no win, no fee" agreement that most local Solicitors, such as Timms Solicitors, offer does not operate this way. An after the event insurance policy is purchased to protect a Claimant against paying the Defendants costs if the claim fails. If a claim is successful, the Defendants will repay the reasonable premium when paying costs at the end of the matter. Most Solicitors will take whatever costs they can agree with the Defendants and will not look to their Client for any shortfall. As a result, in the event a case is lost, it costs a Client nothing and, if won, they keep all their compensation with no deductions at all.

A local firm is by far the best way to ensure frank advice is given with no hidden charges.

Alicia Sharman
TIMMS

www.timmssol.co.uk

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