Submissions to the Civil Justice Council have revealed that, since the 'Jackson reforms' came into force, there has been a rise in professional indemnity claims against solicitors for undersettlement.

Rachel Rothwell, arguing her case in the Law Gazette last week, suggests that part of the problem is the unrealistically low fees set for claimant solicitors - which incentivise firms to offer quick settlements rather than engage in prolonged negotiations or proceedings.  While this may help reduce the incidence of artificially prolonged cases, and unrealistic settlement demands, conversely, it could also lead to firms negotiating settlements below the level they should reasonably have been expected to achieve for their client.

Clients may themselves be keen to settle, particularly when the other side has an offer of money on the table.  The client's circumstances may be such that immediate cash is an attractive incentive.   However, down the line, there are numerous incidences of clients who decide/realise after the event that they could, in fact, have obtained a significantly higher settlement.

 The fact is that the low levels at which fixed fees have been set have left margins very tight for claimant lawyers. That will inevitably increase the temptation for lawyers to undersettle claims and get the matter dealt with quickly – and indeed there are already reports that this is happening.

Law firms that pursue professional negligence claims are nothing new, but the fear is that, in an increasingly 'dog eat dog' world, more and more firms may be looking at solicitor claims as a potentially attractive new market.

The Gazette article references a new website dedicated to Professional Indemnity claims.   Claim More Money advertises that it will review a claim in fine detail, with the stated aim of endeavouring to "squeeze out all the compensation that you're entitled to, getting you more money, and we won't rest until we get you every last penny... All on a no win, no fee basis".

PII Premium Implications?

For firms that undertake a significant element of Personal Injury work, there is the inevitable concern that this could lead to a hardening of the insurance market for them.   It is somewhat too early to say whether that is justified.  Certainly, there is little risk of the sort of claims contagion witnessed in the residential property market.  However that is not a reason to be complacent.

So called 'PI Factories' are most at risk of a worsening risk profile, should this growth in professional claims work against solicitors continue.

How to reduce the risks?

•  Ensure you have clearly identified the claim quantum - and ensure your process for identifying quantum is thorough and robust.
•  Avoid blanket restrictions on the amount of time spent on a file before settling
•  Where a client is keen to settle, or there circumstances which make it attractive to the client to settle early, ensure that these are flagged clearly on the file, and that the consequences of such a settlement are clearly explained to the client.
•  Ensure any such advice is in writing and recorded on the file
• Be able to demonstrate how your systems, procedures and supervision work in practice to reduce the risk

If you have had any undersettlement claims in the last 3 years, being able to demonstrate to insurers that you have reviewed the cause of these claims, and put in place new, effective controls, will significantly enhance the risk profile of the firm at renewal.

For more information about mitigating risk, contact Calum MacLean.