Mesothelioma Claims - Justice Committee Contents

3  The financial implications of the Government's decision

12. The Government's consultation response contains, at Annex B, a cost-benefit analysis of the application of sections 44 and 46 LASPO to mesothelioma cases. Based on research and data from the Department for Work and Pensions and the National Institute of Economic and Social Research (NIESR), and taking into account Judicial College Guidelines for the level of general damages for non-pecuniary loss such as pain, suffering and loss of amenity in mesothelioma cases, which set a range of £51,500 to £92,500, this analysis concludes that "the annual net benefit for claimants from the changes might be around £3.6 million".[21] The components of this calculation are set out in the following table, reproduced from the Government's cost-benefit analysis:
Benefits CostsSummary
ClaimantsReceive 10% uplift on general damages (£6.3 to 11.4 million) Pay success fees (£4.7 to 5.9 million) Benefit (£1.7 to 5.5 million, with a central estimate of £3.6 million)
DefendantsNo longer pay CFA success fees (£4.7 to 5.9 million).

No longer pay ATE insurance premiums (£2.3-3 million)

Pay 10% uplift on general damages (£6.3 to 11.4 million)

Pay own costs if claim is unsuccessful (£2.3-3 million)

Cost (£1.7m to 5.5 million, with a central estimate of £3.6 million)
ATE Insurers No longer pay defendant costs if claim is unsuccessful (£2.3 to 3 million) Receive no ATE premium income (£2.3 to 3 million) Assume ATE insurance no longer provided

13. The Government's cost-benefit analysis was hotly disputed by claimant lawyers and victims' representatives. Ian McFall of Thompsons Solicitors said:

    The underlying assumptions in the cost-benefit analysis are unreliable, because it is simply too soon to tell what the likely effects of LASPO will be. I believe that, once LASPO has been given adequate time to bed in, the likely effect on mesothelioma claims will be that the success fee deducted from mesothelioma claimants' compensation will exceed the 10% uplift in general damages, and that most mesothelioma claimants, properly advised, would take out after-the-event insurance so that the net effect, or the likely net effect, of LASPO on mesothelioma claims would be to leave claimants significantly worse off. Ultimately, the cost-benefit analysis is an exercise in premature conjecture, because insufficient time has yet to elapse to assess what the likely effects will be.[22]

14. The Asbestos Victims Support Groups Forum UK expressed concern that post-LASPO it could be "open house" for solicitors:

    solicitors may charge 100% of basic costs, capped at 25% of General Damages. The mid-point between mean and median General Damages is £72,000. NIESR estimate average legal base costs to be about £20,000. At average base costs, solicitors could charge a success fee of 25% of £72,000 which is £18,000, i.e. 91% of their base costs."[23]

Ian McFall made a similar point in a different way when he told us:

    There are a lot of personal injury practices on the high street under a huge degree of pressure, and there is great uncertainty about how LASPO and the Jackson reforms will impact on their business models. I feel sure that some of those small to medium-sized firms struggling for survival will look to take the maximum success fees, ultimately to the disadvantage of claimants, simply to protect the fragile edifice of their business models.[24]

15. The ABI, on the other hand, agreed with the Government that the 10% uplift in general damages would more than offset claimants' inability to recover success fees. Their own research produced a very similar figure to the Government's on the average level of success fee in mesothelioma cases: £4,905.[25] The ABI argued that this average amount, reflecting the fact that for asbestos-related diseases the maximum success fee is set at 27.5% of costs, was too high in any event, for two main reasons: it was set in relation to all asbestos-related diseases, although the risks of failure for claimants in mesothelioma cases were lower than for asbestosis and asbestos-induced lung cancer, and the Mesothelioma Act 2014 had significantly reduced the risks in bringing a mesothelioma claim. With about 90% of mesothelioma claims being successful, according to the Compensation Recovery Unit's (CRU's) figures cited in the Government's cost-benefit analysis, the ABI said that 11% of costs at most would be an appropriate level for a success fee.[26]

16. Much hinges on the reliability of the CRU's 90% success rate figure for mesothelioma claims. On this question, as on many others in this inquiry, we were confronted by a stark and vehement conflict of evidence and opinion. Doug Jewell of the AVSGF UK said the CRU figure did not take account of cases which were dropped before they got to court,[27] and Ian McFall supported him by claiming that the CRU figure was a "statistical fallacy"[28]: he said the success rate in mesothelioma cases "in aggregate" was "in the region of 50%".[29] But Lord Faulks defended the 90% figure:

    We think that the 90% success rate seems to be right because they have to be, as a matter of law, registered with the Compensation Recovery Unit. Of course, there may be a few cases that people turn down at an early stage for one reason or another in this field as in any other field, but, no, I was not convinced about the 50% and I was not satisfied the 90% was wrong, from what I had seen.[30]

17. Nick Pargeter of defendant lawyers Berrymans Lace Mawer LLP proposed that an exercise should be undertaken to look at the risk of failure of mesothelioma claims, following the model of a consultation undertaken in 2005 in relation to all asbestos-related claims, including those which failed at the pre-claim stage, which led to the setting of the current maximum success fee of 27.5%. He argued that this would avoid claimants having to worry about negotiating a success fee with solicitors.[31]

18. Another feature of the Government's cost-benefit analysis which came under challenge was the assumption that claimants would no longer feel the need to take out ATE insurance because of the introduction of QOCS which protects them from liability to meet defendants' costs. The NIESR statistics cited in the cost-benefit analysis give the mean cost of ATE premiums as £2,500. There does remain a risk for claimants under Part 36 of the Civil Procedure Rules, which is not covered under QOCS, if a claimant does not accept a reasonable offer to settle. But insurers argued that the Part 36 risk was a minimal one and no higher than in non-mesothelioma cases.[32]

19. We asked witnesses if there was relevant evidence about this from the way the ATE market had developed in relation to personal injury claims already subject to the LASPO provisions, but there was general caution about drawing definitive conclusions at this early stage. Derek Adamson of defendant lawyers DWF LLP said

    ATE cover, if needed, is needed for a very limited range of liability for costs, and the costs should not be anything like the costs prior to the introduction of LASPO.[33]

Ian McFall of Thompsons Solicitors took a contrary view, arguing that most mesothelioma claimants, if properly advised, should continue to take out ATE insurance in the future.[34] Lord Faulks said the ATE market:

    is still in existence and it is covering various things. I don't think I can give a very clear view as to how it is doing overall and how it is responding, but those who felt that the market would disappear have been wrong.[35]

20. Assessment of the impact of the LASPO reforms on mesothelioma claimants will encompass a range of factors - emotional, psychological, moral, political - which can never be wholly resolved through financial remedies. We were heartened that the evidence we took in this inquiry demonstrated that this was understood by stakeholders on both sides of the argument. Nevertheless the financial impact on mesothelioma sufferers is a key issue, the reliability of the Government's cost-benefit analysis is central to any assessment of that impact, and it is clear that the Government's figures are viewed with suspicion and concern. It is striking that representatives of mesothelioma claimants reject the Government's contention that the reforms will result in a net financial benefit to claimants.

21. We recommend that the Government commission an independent review of the risks of success and failure of all mesothelioma cases to inform the setting of a maximum level of success fee, expressed as a percentage of costs, for lawyers representing claimants in such cases. We also recommend that the Government commission research to evaluate trends in the ATE insurance market in relation to personal injury claims since the provisions of Part 2 of LASPO came into force.

21   Reforming mesothelioma claims: The Government response to consultation on proposals to speed up the settlement of mesothelioma claims in England and Wales, Ministry of Justice, 6 March 2014, Annex B, para 1.4. Back

22   Q 2 Back

23   Asbestos Victims Support Groups Forum UK (MSC0008) Back

24   Q 7 Back

25   Association of British Insurers (MSC0016). The NIESR research cited in the Government's cost-benefit analysis gives a mean success fee of £4,800. Back

26   Ibid, paras 5 and 6. Back

27   Q 6 Back

28   Q 7 Back

29   Q 18 Back

30   Q 65 Back

31   Q 36 Back

32   See e.g. AXA Liabilities Managers (MSC0013)  Back

33   Q 31 Back

34   Q 2 Back

35   Q 63  Back

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Prepared 1 August 2014