I'm doing a bit of algebra today.
It is now accepted practice that solicitors up and down the country are charging clients 25% or thereabouts of their damages as a success fee if they win their case. Since April 2013, it has also been the norm for defendant insurers to fire off Part 36 offers left, right and centre in order to sidestep Qualified One Way Costs Shifting (QOWCS). Nothing new there then.
Well there is.
You see, prior to the Jackson reforms, solicitors got their success fees from the defendant and they were of course calculated by reference to costs and risk. Now however, the fees come from the client so it is very relevant how much compensation they get. The more they get, the more money the solicitor makes.
As soon as a defendant makes a Part 36 offer, QOWCS is out the window and all of the sum being offered is at risk. The client could lose some or all of the damages if they later fail to beat the Part 36 offer, which means the solicitor could lose some or all of their success fee. Quick then, accept the offer!
Wait a minute though, couldn't the client get more and consequently their solicitor earn more by negotiating a higher figure? Of course they could, but defendants won't let you do that within the 21 day acceptance period so we are back to risking costs again.
The solution? Well it's After the Event insurance of course [yes I would say that but this time I mean it]. Armed with an ATE Insurance policy, a client can hold out for the correct damages offer or can make counter offers, safe in the knowledge that the defendant's offer can always be accepted late. It is like that £1,000 point in Who Wants to be Millionaire. Once you get there, you may as well go for the next question as you will always get the £1,000. ATE Insurance allows solicitors to properly advise clients to settle or not without the risk of costs looming in the background.
So how much would an offer need to be increased by to make it worthwhile having the policy? The answer depends on the accident type but let's assume we are talking about a motor claim.
Our premium for an RTA is £100 + IPT so £106. If a solicitor takes 25% of the client's damages as a success fee, a client would need to win 133.33% of the premium to be better off so:
£106 x 133.33% =£141.33 [working backwards to check this: out of the £141.33, the solicitor would get 25% = £35.33, leaving the premium £106]
So the question here is, ignoring all of the other advantages of having an ATE insurance policy, a client would only need to increase their damages offer by £142 to be better off. The more better off a client is of course, the more the solicitor earns as a success fee.
Win win isn't it?