‘No win, no fee’ compensation claims hitting council budgets

 2 July 2003.

Councils’ budgets are being hit by the abolition of legal aid for personal injury claims and the consequent introduction of Conditional Fee Arrangements (CFAs), also known as no-win no-fee arrangements, according to new research conducted by the Local Government Association (LGA) and Zurich Municipal.

Responses to the survey from 212 councils in England and Wales revealed that 81% of councils say the introduction of CFAs has increased the annual cost to their authority of handling compensation claims.  The number of compensation claims against 87% of councils has also increased, and 68% say the number of tenuous or fraudulent claims has increased since the introduction of CFAs.

CFAs mean lawyers only get paid if they are successful.  To spread the risk, lawyers can take out an after the event (ATE) insurance policy when they take on a claim.  These policies can be expensive.  They also charge their usual costs, plus a success fee if they win the case.  All of these costs are borne by the lawyers (or claims firm) if they lose the case.  However, if they win, the costs get charged to the defendant.  It is these costs that have had a major impact on the costs associated with small claims.

Alan Hunter, Zurich Municipal Claims Manager, said "Legal aid was cut in order to reduce the burden on the taxpayer of funding fair and equitable access to justice.  But the hidden impact of the introduction of CFAs has been to shift the burden from the Lord Chancellor’s Department to the Council Tax payer, and to reduce the funds available for front-line public services.  The Government has, perhaps unintentionally, robbed Peter to pay Paul."

Sir Brian Briscoe, LGA Chief Executive said,"The Government should work with us to identify the effects on Local Authorities of the introduction of CFAs, and consider measures to compensate councils for the additional burden on their budgets. In the meantime, councils need to examine their procedures to ensure decisions are taken quickly so the sometimes punitive success fees charged by lawyers are kept to minimum where claims are not specifically defended."

Other conclusions from the survey include:

• 96% say lawyers and other advisers are encouraging people to make claims
• The most popular source of advice and guidance for councils on CFAs is insurance companies (84%), followed by the media (74%).  Only 1% have received advice and guidance from the Government
• 34% say they have increased the numbers of hours staff spend dealing with compensation, yet 40% say they do not have sufficient resources to deal with increases in compensation claims
• Only 31% of councils say they have made significant changes to the way they handle claims since the introduction of CFAs.

-Ends-

Notes to Editors:

• Research was conducted by RBA research, on behalf of Zurich Municipal and the Local Government Association, between 2 June and 18 June 2003.  212 councils in England and Wales responded (representing 52% of all local authorities)
• Conditional Fee Arrangements (CFAs) have been in place since 1999, introduced in response to the Government's scaling back of the legal aid budget.  The success fees charged in CFAs have increased the number and cost of compensation claims to public service providers and the council taxpayer.  Effectively the introduction of CFAs has shifted the balance of funding access to justice, from the Government's legal aid budget to the budgets of individual public services, including local authorities.
• The LGA and Zurich Municipal are therefore keen to develop a 'one voice' campaign to raise awareness of how the issue can be tackled by local authorities and other public service providers, Government and the tax paying public.  More specifically the aim will be to encourage best practice in mitigating the effect of CFAs on budgets.
• The LGA represents the local authorities of England and Wales - a total of just under 500 authorities. There are 34 county councils, 36 metropolitan district councils, 47 English unitary authorities, 33 London authorities, 238 shire district councils and 22 Welsh unitary authorities. The LGA also represents police authorities, through the Association of Police Authorities (APA); fire authorities and passenger transport authorities. A key feature of the LGA Regional Structure is the Welsh Local Government Association - the WLGA is a constituent part of the LGA, but retains full autonomy in dealing with Welsh affairs.
• The results of the survey will be presented and discussed at the LGA conference on Wednesday 2 July, at 11:15, in the Charter Suite, 1st Floor, Moat House Hotel.
• Zurich Municipal is the leading provider of risk management and insurance solutions to Britain's public services.  The company employs nearly 600 staff dedicated to providing expert advice and support to public service providers.  For further information visit www.zurichmunicipal.com
• Zurich Municipal reached its 10th anniversary in March 2003 - a month that also marked the 100th anniversary of Zurich Municipal's predecessor organisation - Municipal Mutual Insurance.
• Zurich Municipal is part of Zurich Financial Services, an insurance-based financial services provider with an international network that focuses its activities on its key markets of North America, the United Kingdom and Continental Europe. Founded in 1872, Zurich is headquartered in Zurich, Switzerland. It has offices in approximately 60 countries and employs about 68,000 people.· Zurich Municipal is part of Zurich Financial Services, an insurance-based financial services provider with an international network that focuses its activities on its key markets of North America, the United Kingdom and Continental Europe. Founded in 1872, Zurich is headquartered in Zurich, Switzerland. It has offices in approximately 60 countries and employs about 68,000 people.

For further information please contact:
Pritie Billimoria, Catherine Webster or Robert Blevin 
Tel: (0)20 7535 9950