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Djanogly: Referral fees are a 'symptom of a sick suing culture'17 Oct 2011by Donald MacKenzie Giving evidence to the Transport Select Committee hearing into the high cost of motor insurance on 11  October 2011,
Jonathan Djanogly MP, Parliamentary Under-Secretary of State for
Justice (pictured, at the hearing) described the payment of legal
referral fees in car insurance as a "symptom of a sick suing culture".He confirmed that his previously announced intention to ban legal referral fees in car insurance would be incorporated into the current Legal Aid, Sentencing and Punishment of Offenders Bill, that includes all the other Lord Jackson recommendations but which had not, until now, included his recommended referral fee ban. However, with the implementation of what has been dubbed 'Tesco law', that is, delivery of legal services via so-called alternative business structures (ABS) later this year, he admitted that it was likely that claims management companies (CMCs) would join forces with law firms to become one company with, in effect, the CMC becoming the advertising wing of the legal firm. However, by entering into such an ABS arrangement, the CMC would then be regulated by the Solicitors' Regulation Authority (SRA) which would exert tighter controls on its business practices which would reduce opportunities for aggressive and intrusive case generation. Mr Djanogly further admitted that there are ways to get around the banning of referral fees by remunerating referring agents for services rendered and this is why it would not be just a simple matter of making the payment of referral fees a criminal offence given that proof beyond reasonable doubt that specific payments constituted a referral fee would be problematic. Instead, questionable cases would need to be assessed from a civil (balance of probabilities) regulatory perspective to see whether in actuality a referral fee had been paid. While he did not state that this complexity would make it infrequent, costly and impractical for many cases to be brought, that appears to be the likely consequence. He also talked up his Government's support of the Jackson recommendations, especially the non-recoverability of success fees from the defending car insurers that he expected to reduce the money in the system, making it less realistic for injury lawyers and their clients to pursue more marginal or speculative cases. On specific questioning from the Chair of the Transport Select Committee, Liverpool MP, Louise Ellman, Mr Djanogly said that he would be consulting on whether other referral fees in car insurance needed to be banned, including those paid by uncompetitive credit car hire firms. He also planned to review the remuneration of lawyers through the road traffic accident (RTA) claims portal system that currently handles claims worth under £10,000. On the subject of claims management firms cold-calls or texts sent to accident victims, he pointed out that some of these are lawful as the small print of many insurance policies allows insurers to share your information in this way. But, for those sent from unregulated firms, and others operating outwith the law, they could be reported to the Information Commissioner's Office (the ICO). As Ms Ellman, the Committee Chair pointed out, the high and increasing cost of car insurance is an issue that concerns the majority of drivers in this country. The public are looking for action rather than enquiries and consultations. There is no doubt that politicians are hearing that message. What they can deliver, remains to be seen. |
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