We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

A lose-lose strategy

Jack Straw, sometime Justice Secretary, is on a campaign against referral fees in accident insurance claims. Claims management companies (CMCs) busily ferret out details of accidents that people have suffered, and sell on the details to solicitors who will encourage the victims to sue, on a no-win-no-fee basis. Mr Straw and many like him claim this pushes up legal costs that will eventually have to be paid by insured people generally. Furthermore, it encourages that wicked thing, the ‘compensation culture’, the habit of demanding that someone be to blame for every misfortune we suffer and should pay up accordingly. Mr Straw says referral fees are:

a lucrative and self-serving merry-go-round in which the personal information of anyone involved in any collision with another vehicle, no matter how trivial its effects, is traded like a commodity, typically for £600 to £800 a shot, with the aim of pursuing a claim – any claim – provided that it brings rich rewards to all those involved in this industry.

He reckons that whiplash injuries claimed by car occupants after being shunted from behind are largely fictitious – it seems they’re difficult to diagnose, so such claims are hard to refute.

In fact, one Dr Simon Margolis, CEO of something called the Premex Group, while trying to counter Straw, ends up by making him seem more credible:

There is no blood test or imaging modality currently in existence that can prove or disprove an injury was sustained or whether symptoms are being experienced. That is why a combination of the taking of a history and the laying on of hands during clinical examination by a medical expert remains the appropriate approach. Much can be learned from the general demeanour of the claimant and the way the history is delivered.

“The laying on of hands”! I love that. Much can be learned from the general demeanour of industry apologists.

Straw’s beef seems to be another instance of the ancient complaint against middlemen in general: people can’t see what service they provide and think they just push up prices. I compare the referral-fee example with the old complaint against advertising: when I buy a can of beans I have to pay the costs of the advertising that persuaded me to buy it. Outrageous!

The same answer applies to both cases, I suppose: in claims management, the middlemen actually reduce costs and push up the effectiveness of the whole system by matching up buyers and sellers, and encouraging buyers (accident victims) to buy (sue). If CMCs are squashed, lawyers will have to do the job themselves, or use other means to attract custom.

Jack Straw’s proposals are bound to make the whole process of getting justice less efficient – if that’s imaginable. But his private member’s bill has been read in the Commons without opposition, regrettably.

To bring legal costs down we need the process of linking up providers and consumers to be untrammelled. We also need police, judges and lawyers who do their jobs efficiently. Fat chance of that in the oldest of nationalized industries.

Maybe whiplash injury claims are largely a scam. I’d rather leave it to the people with a direct financial interest in showing this – namely, the insurers – to sort that out, rather than to the medical expertise of Jack Straw.

A lot of people are sceptical about whether no-win-no-fee improves the quality of justice. It may not be the whole answer, but it’s certainly part of the answer. If I ever found myself inside an ambulance I would want to see an ambulance-chasing lawyer hard on its heels. And I’d want some clever type in a sharp suit to introduce us.

11 comments to A lose-lose strategy

  • John K

    One of the worst aspects of these dodgy claims is the car hire scam. So-called courtesy cars are claimed for, whilst the repairs take longer than they should, thus racking up huge costs to the insurance company. The whole process is a cesspool of fraud, which is why motor insurance is so bloody expensive.

  • bobby b

    “Loser pays” is a great system if you’re an insurer. (Caveat: I’m an American lawyer, not a British one, so YMMV.) Here’s why insurers yearn for it:

    95%+ of all auto injury claims are settled quickly and efficiently between injured person and insurer. Insurer either picks up and pays med bills as incurred, or injured person presents bills to insurer later, and they’re paid after a quick check. (“Was there really an accident?”, “Are these bills for your skiing injury?”, etc.)

    If an injured person is claiming a permanent injury and thus asking for compensation for that, a doctor’s exam is arranged, a report generated, and the insurer either denies the claim, or accepts that there is a continuing injury and makes a settlement offer. (The examining doctor is nominally a neutral doc, but in reality, docs who do these make a goodly chunk of money each year from them, and the insurer pays their bill, so . . .)

    At this point, if the injured person thinks the offer is too low, he has to decide if he wants to get a lawyer and push back. (And, actually, quite a few people have spoken to lawyers well before this point.) If he gets a lawyer, he knows right away that he’s given up 1/3 of the offer for the lawyer’s fee. So, if he thinks a lawyer can improve his outcome more than the fee will cost, he hires one.

    A lawyer practicing in this area of the law will know quite accurately how much a given complaint of injury should normally be worth. If the offer is too low and the insurer won’t offer more, the lawyer and insurer know that it’s a simple matter to get the claim into court, and ask a jury what it’s worth. (Surprisingly, aside from some noted areas in our country, (scroogle “Hellholes” for the list), juries are remarkably fair and even-handed when it comes to evaluating injuries, fault, and reasonableness. Anecdotal stuff aside, it really does work. But, as always, some cases can surprise everyone and turn into Monster Spleen-Crushing Verdicts.(tm)

    So, an insurer cannot simply lowball claims. If a claim turns into a lawsuit, the insurer has to pay lawyers, too, and they get paid win or lose, plus juries tend to get angry at lowballing insurers. It’s the knowledge that any claim can turn into a lawsuit that gives insurers incentive to make all of their offers fair.

    Make it “loser pays” – i.e., the loser has to pay the other side’s lawyer – and most injured people cannot meet the basic financial requirements such that their prospective lawyer knows that HE won’t get stuck paying the bill if he loses.

    This means most lawyers would only take cases that seem to be “sure things”. The bulk of claims that do not settle immediately would likely just languish in Claim Worker Hell as open files until the injured person gave in and accepted what might be a completely inadequate offer. What else could he do?

    “Aha!”, (I hear someone say), “but if the lawyers are only taking the cases that clearly should prevail, doesn’t that mean that they’re rejecting the bad, smelly, “I want millions for my sore back!” claims which should have been rejected in the first place?”

    That is, indeed, one of the effects of “loser pays” – but it’s a very small one. I say that because those renowned “totally baseless claims” are quite rare – much rarer than any litigation reform advocate would care to discuss. No, the vast majority of the claims that would be rejected by the lawyers would be smaller claims – involving real, not fake, injuries – in which the insurer has either gotten its impression about the injury wrong, or has simply decided that a lowball offer will be accepted. (Several insurers have an operating rule that says a claim adjuster should never raise an initial offer if the claimant has not hired a lawyer. Why bother?)

    So, the ultimate effect of instituting a “loser pays” rule is that much of the pressure that keeps insurers honest and reasonable simply disappears. If an adjuster knows that claimants face a large entry barrier to the courts, that threat of a lawsuit becomes much more attenuated and remote, and “reasonable” is accordingly defined downward for EVERY offer.

    The system works as it is. There are the standard grotesque stories that come up periodically about the people who win millions for their severe crippling injuries and then go on in blissful retirement to win marathons or compete in rodeos, but these are rare, are usually explained inaccurately, and do not represent anything but noteworthy exceptions to a well-working system.

    “Loser pays” isn’t aimed at this sort of case, anyway; it’s aimed at all of the rest of the cases, in the knowledge that it will make lawsuits much more risky for claimants, and will just generally tip the balance of power quite heavily towards insurers and corporate defendants and dis-empower non-rich claimants.

    (I should note here that this is not self-serving advocacy. I am NOT a plaintiff’s attorney. I do not represent injured people. I work for insurance companies.)

  • In defense of “the laying on of hands”, there are certain parts of the body that do hurt in legitimate injuries but the fakers are not generally aware of. There are others that should not hurt but fakers will sometimes complain of pain in them anyway. From the moment somebody comes in with a whiplash complaint, they’re under observation by medical professionals who have been (or should have been) trained to evaluate people. My wife can spot most fakers before they finish getting on the exam table. This is not entirely a conscious judgment. It comes of seeing hundreds of fakers and legitimately injured and seeing the differences in how they move, act, and behave.

    That complex training and experience is what the doctor was talking about. He just used much more compact language.

  • Stephen Willmer

    Like one of those Soviet children of the 1930s who informed on his parents, the British public likes nothing better than a good crackdown. I wish it, and Straw, joy of this week’s crusade.

  • Andrew Duffin

    No, Chris, sorry, it’s just a scam.

    No more and no less.

    And it costs us all a fortune: insurance for cars has increased by some tens of % (depending on who you believe) in the last year alone.

    The right way to stop is, of course, is for people to be honest and say to the scammers “No, I do not have an injuries thank you, please go away”.

    I agree that the bansturbators’ approach is wrong, but this is one case where even Jack Straw has his heart in the right place.

    And whoever mentioned the contract car hire scam, that too.

  • Midwesterner

    If there is a problem with the tort system’s awards determinations, then that problem needs to be addressed, not bypassed through blanket capping of awards or placing impediments to accessing the courts.

    There are two ways of restraining activities that may cause harm to someone who has no voluntary part of that activity. Either politicians can read the voter opinion polls and pass laws against the ‘abuse’ du jour, or people who engage in those activities can pay (insurance premium) a free market based regulator (the underwriter) to set the parameters of their activity in exchange for assuming the risk (tort settlements).

    Any problem in the tort process needs to be addressed by structural changes to jury selection and court room procedure, not by denial of access or indiscriminate capping of awards.

  • Robbo

    There is definitely a problem which was caused by Labour´s changes in the law around lawyers touting for business etc.

    After being involved in the tiniest of fender-benders I received a series of phone calls saying things along the lines of ‘It won’t cost you anything to make a claim..’ ‘Don’t you want to make a claim ?’ ‘Whiplash can develop months after the event, are you sure you don’t want to make a claim ?’

    I know there are valid cases but there are also plenty of unscrupulous scammers as well.

  • Laird

    I understand the points made by bobby b, and am not unsympathetic to them, but I still have a problem with contingent fees. They clearly encourage frivolous lawsuits, since to the plaintiff it’s a no-lose proposition: there’s no downside risk. The direct cost of litigation, and the not-inconsiderable risk of an outsized jury verdict (especially with a sympathetic plaintiff and an unpopular defendant such as an insurance company) leads to pre-trial settlement of many meritless cases, which both drives up the cost of insurance for everyone and encourages more such behavior. It’s a very real part of the reason our society has become so overly litigious. On the other hand, with “loser pays” the insurance company has every incentive (and the financial wherewithal) to drag out the litigation, drive up the costs, to the point that even meritorious suits wind up being settled at unreasonably low amounts.

    If one focuses purely on who pays the legal fees there is no good answer; both approaches have drawbacks. A partial solution would be a middle ground where an unsuccessful plaintiff must pay, from his own pocket, some portion of the legal fees, to ensure that he isn’t just playing the lottery but actually has “some skin in the game.” But the real solution should be proper case management by the courts.

    Lawyers are supposed to be the gatekeepers of the legal system. In the initial pleading they are required to certify to the court that they believe the case is meritorious. Clearly, in many instances they are blatantly perjuring themselves. Cases are frequently filed merely to get access to the discovery process, to engage in a “fishing expedition” in the hope of turning up some sort of actionable conduct. Or, of course, simply to extort an undeserved settlement (see above). Courts possess all sorts of powers to discipline attorneys who abuse the system, but they are almost never exercised. Judges routinely turn a blind eye to the most egregious actions of plaintiffs’ attorneys. Try filing a motion for sanctions under Rule 11(b) and see how far it gets you.

    And that’s because in most states the courts are wholly-owned subsidiaries of the plaintiffs’ bar. Those are the lawyers who dominate state bar associations, who make substantial contributions to judges’ election campaigns (most judges in the US are elected in one form or another), and out of whose ranks the judges generally come. They’re not going to discipline their colleagues and friends or disrupt their source of campaign funds. It’s a cozy, inbred and essentially corrupt system, but it’s not going to change.

    So the only workable solution would be to restore the old common-law torts of champerty and barratry (both of which have generally been abolished by statute, at least in the US). But since the legislators are mostly lawyers themselves, that’s not likely to happen either. So the game is rigged and we’re screwed. But you knew that already.

  • Laird

    Smited! Again. [Sighs lustily.]

    My lonely anguish melts no heart but mine.

  • Chris Cooper

    I take the points made against contingent fees above. But in a truly free market, we would have to accept that some lawyers would offer such arrangements.

    Do we have to decide for or against (i.e., not have a free market)? I envisage competing legal products: legal insurance taken out in advance guarantees you your day in court when the occasion arises, regardless of the merits of your case; but no-win-no-pay is also on offer. Wouldn’t that work?

  • Chris Cooper

    @ TMLutas:

    – My wife can spot most fakers before they finish getting on the exam table. This is not entirely a conscious judgment. It comes of seeing hundreds of fakers and legitimately injured and seeing the differences in how they move, act, and behave.

    I can’t judge your wife’s abilities, of course – I only know that astrologers are convinced of the same thing. How does she know? She presumably can calibrate her judgements against some objective criteria – and I’d prefer to have the objective criteria.