Legal expenses insurance is a scam

Daytona

Here's an interesting post from The Motley Fool boards from someone who I guess is a solicitor dealing with accident claims -

"Legal expenses insurance (“LEI”) - particularly in relation to motor claims - is a scam.

In motor policies it's used as a means for your insurance company to find out that you've been involved in an accident. The chances are that because you have the policy they will be the first people you call following the accident.

If the accident was your fault they will have no interest in it.

If it wasn't your fault and you weren't injured they will have no interest in it.

But if it wasn't your fault and you were injured they will be tremendously helpful and sort you out a solicitor in no time at all.

And the reason they will do so is not because they are anxious to alleviate the stress of your accident but because they will sell your claim to one of their panel solicitors for several hundred - perhaps as much as a thousand - pounds.

Of course they will tell you they are referring it to their panel solicitor because they are experts in personal injury claims - rubbish! The sole reason they have sent you to that solicitor it is that they are probably receiving more cash from them than you have paid in your annual insurance premium.

Indeed, many of the firms that do pay to be on insurer panels give appalling service - I know, as I've taken over quite a few cases from them, and seen their files. Only a few months ago I settled a claim for a client at £17,500 that the panel solicitor had recommended settling for £3,000.

The reason that so many are so poor is that after the hefty payment to the insurers to buy your case there is only a minimal profit left.

In a typical RTA minor whiplash claim with damages of £2,000 they will recover £1,200 in costs.

The £1,200 is the amount that the Civil Justice Council decided a solicitor needed to be paid to deal with such a claim properly. But if they have paid, say £600 for the claim that means half the revenue has gone before they even start work.

This in turn means that they can't employ qualified staff to handle claims, as they are too expensive, and that they are desperate to do as little work as possible to get their £600 in. Quite often they will recommend their `client' to accept the first settlement offer made just to close the file and get paid.

I have long argued that the insurers are acting dishonestly in selling your claim without telling you. I also think that someone needs to refer the practice to the Financial Ombudsman, as to my mind that money they receive for your claim should belong to you.

The fact that they have the nerve to charge you an additional premium for your LEI is really taking the proverbial.

And in the event that you do want to use it to pursue a claim that’s not straightforward God help you. They will move heaven and earth to find reasons why the cover doesn't apply, and even if you manage to enforce the cover they will be looking to back down at the first hint of a settlement. They will say that the chances of getting a better deal if you go to court are not enough to justify the risk of additional costs, and withdraw cover just when you need it most.

The latest wheeze - and an illustration of how the policies work for the insurers, not against them - is known as `third party capture'. This means that if you're involved in an accident they will contact you directly, offering a free `voucher' for LEI.

I had a client in today, who had broken his back when a stack of shelves fell on him. He received a letter from the insurers saying they will arrange a medical examination and pay him compensation.

The letter says: "You have of course a right to seek independent legal advice, but I would be more than happy to deal directly with you."

I'll bet they would! They could probably settle the claim for a fraction of what it's worth if they can keep him away from a solicitor.

Later in the letter they say: "I can also arrange for a panel solicitor to act for you at no expense to you." In other words, "If we can't con you into having no legal representation we can at least make some dosh out of it"

Accompanying the letter is the `voucher' for legal expenses cover. This provides that unless you already have legal expenses cover, and subject to various exclusions, they will pay up to £100,000 to cover the costs of the action.

So why are they being so generous, offering to pay for my client to sue themselves?

The reason is simple - once again, it comes down to cash.

As my client - like most people - doesn't have any LEI the normal arrangement would be that I would run the case under a Conditional Fee Agreement ("CFA"), popularly (but inaccurately) called "no win no fee."

This allows for a "success fee" to be added on top of the basic charges. The idea is that the success fee covers the cost of cases that are lost, and where the solicitor receives no payment for the work done. Depending on the risk of the individual case the success fee can range from 1% to 100% of the basic charges.

A CFA will also normally include an insurance policy - known as an `ATE' (after the event) policy - to protect the client against losing and having to pay the opponent's legal costs.

But if the client has LEI they can't legally enter into a CFA. Hence, by giving the `free' LEI policy the insurer can avoid paying either a success fee or for the ATE policy.

The problem from my point of view is that I hate having a LEI insurer looking over my shoulder when I'm running a claim for a client. As mentioned above, they are always looking for an excuse to withdraw cover, and you have to get their permission to refuse settlement offers, no matter how pathetic they might be.

Sometimes they won't allow me to refuse a poor offer, and will say take it or lose your cover, which would leave the client in an impossibly exposed position.

In theory you can at that stage enter into a CFA, but by then it's virtually impossible to get an ATE policy at any price, so the client can't afford to take the risk and agrees to accept the poor offer.

And the other huge disadvantage is that the cover only extends to so called `standard costs’. This means the amount a court would allow you to recover if the opponent was paying the bill. As the benefit of the doubt is always given to your opponent in this situation you would typically recover 70% to 80% of the full amount of the solicitor’s charges.

This obviously has to be made up by someone. With a CFA the success fee covers the shortfall, and with a proper paid for LEI policy the LEI insurer will make up the shortfall. But with the crap policy offered in this case it’s the client who is expected to pick up the tab.

In practice he won’t have to, as I’ll write it off, but it’s totally wrong that such a situation should be allowed to arise at all, and I hope you can now see why LEI policies are often wolves in sheep’s clothing."

http://boards.fool.co.uk/Message.asp?mid=11920335&sort=whole#11920809

It sounds to me that solicitors buying claims from insurers are failing in their basic duty of care.

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Daytona

vikingaero

I posted before that LEI normally involves a crap half baked legal secretary doing all the work in some office, with a solicitor overseeing the whole shebang. So there might be 20-30 secretaries doing all the real work with very little legal input.

Gloomendoom

I used LEI to successfully sue another driver for damages.

No injuries involved, just damage to my vehicle.

Maybe I'm the exception that proves the rule.