Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Clinton-Davis Excerpts

Wednesday 1st February 2012 Lords Chamber

[Lord McNally]

My Lords, I thank my noble friend Lord Thomas and the noble Lord, Lord Dubs, for introducing the matter. I also thank the noble Lords, Lord Neill and Lord Bach, for their contributions. Part of the latter's contribution was a warm-up for the further debate that we will have on referral fees, and I will make two points about his comments. First, he said that the insurance industry was trapped in practices that drive up premiums. That would be fine if the insurance industry paid the penalty for that merry-go-round, but the reason that there is so much indignation is that the cost falls on the poor consumer. That is why there seems not to be much incentive in the industry to deal with this; companies casually pass on increased costs to the consumer, as we have seen with the escalation of insurance premiums in this area. Secondly, I join my right honourable friend the Prime Minister in praising the road traffic accident portal, which is working extremely well and we are actively looking at where else it could be applied.

As my noble friend Lord Thomas and the noble Lord, Lord Dubs, explained, Amendments 164 and 164ZA would prohibit an insurer making an unsolicited approach to potential claimants in a personal injury case if the insurer was aware that the claimant had legal representation. The amendments also specify the requirements that must be met before an insurer may make an offer to settle such a claim where a claimant does not have, or is thought not to have, legal representation. This includes a requirement to obtain adequate medical evidence of the injury and to advise the claimant of their right to obtain full legal advice before accepting the offer, and to make it clear to the claimant that the offer to settle is full and final. In either of these cases, a failure on the part of the insurer to observe the provisions would render any settlement void.

Third-party contact is the practice by insurers of making an early settlement offer to a claimant or third party where the insurer's policyholder is at fault in a car accident. The Financial Services Authority regulates the insurance industry and requires that insurers treat their customers fairly at all times. This would cover third-party claimants. I should explain that apparently the industry prefers the term “third-party contact” to “third-party capture”. I will leave it to noble Lords to make their choice on that.

[Lord Clinton-Davis]

Speaking from years of experience in this field, I know that the term “full and final settlement” is often used by insurers at the very beginning of proceedings and negotiations, but I do not think that it is adhered to. It is often possible to obtain a better settlement, so the term is ignored.

[Lord McNally]

The noble Lord says he speaks from very long experience. As this Bill progresses, I have found that quite often noble Lords on all sides of the House who have more experience than me of the legal profession tell me that there is often a gap between what is written down and the reality of the day-to-day practice.

Third-party contact does not, in itself, cause detriment to consumers and may be to their advantage as a claim can often be resolved quickly. In addition, this practice can allow insurers to reduce the legal costs associated with handling a claim, and this in turn reduces costs for all policyholders. However, I am aware of concerns around the potential risk of conflict of interest and the need for the claimant to have independent legal advice before any settlement is agreed. The FSA undertook a review of third-party contact during 2009-10 and did not find conclusive evidence that unrepresented third parties could have achieved higher compensation had they obtained independent legal representation.

Following the FSA’s review, which was referred to by the noble Lord, Lord Thomas, the Association of British Insurers published a code of practice, to which he referred, in June 2010. The code contains specific guidance for insurers on contacting claimants. This limits unsolicited contact. For example:

“Insurers will not make unsolicited visits to an unrepresented claimant at their current address, including hospitals”.

I know we will be returning to some of this later. The code also requires that claimants are informed of their right to seek independent legal advice and of other options available to them to resolve their claim. As I have indicated, the practice was reviewed in 2009-10 but was not found, overall, to be disadvantageous to claimants.

In summary, most of the issues that these amendments seek to address in respect of the handling of third-party contact claims are already covered by existing regulation. The FSA rules require that insurers fully inform third-party claimants of their legal rights, including to independent legal advice, and of alternatives to settling directly with the insurer. In the light of this, we do not believe it is necessary to go along the lines of the noble Lord’s amendment, and I ask him to withdraw it.

--- Later in debate ---

[Lord Clinton-Davis]

Does the noble Lord agree that it is common practice for one solicitor to transfer a case to a solicitor in another part of the country? Speaking from personal experience, I quite often had to deal with cases in London that were transferred from the north of England because it was more convenient to deal with the insurers in that way.

[Lord Pannick]

Yes, I agree. Of course, the Bill will not in any way prohibit such transfers; it will prohibit only payment. However, prohibiting payment will deter what may be a very sensible economic arrangement that provides an incentive to the first solicitor to transfer to the second solicitor a case which the second solicitor can deal with far more efficiently—in the interests of the client; that is the point. As I say, all these matters are properly regulated by the SRA. If the SRA is not properly regulating it is not doing its job. I ask the Minister why and also whether there is any evidence that the SRA is not doing its job properly in regulating referral fees in relation to transfers between solicitors.