COMPETITION AUTHORITY STUDY OF COMPETITION IN LEGAL SERVICES PRELIMINARY REPORT. SUBMISSION BY THE IRISH INSURANCE FEDERATION (IIF) (June 2005)

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1 COMPETITION AUTHORITY STUDY OF COMPETITION IN LEGAL SERVICES PRELIMINARY REPORT SUBMISSION BY THE IRISH INSURANCE FEDERATION (IIF) (June 2005) 1. Introduction The Irish Insurance Federation (IIF) is the representative association for insurance companies established in Ireland. IIF members write approximately 95% of motor and liability insurance in Ireland, measured by premium income, and are major providers of cover against legal liabilities incurred by Irish individuals and businesses. As such, our members are regular and major users of the legal system and have a keen interest in any proposals aimed at reducing the cost of civil litigation. In this submission we comment on those Competition Authority proposals which are of most relevance to insurers in the context of personal injury claims. 2. Chapter 12: Legal Fees and the Taxation of Costs Competition Authority Proposals Proposal 27: The Legal Services Commission should be responsible for directing the amount and type of information to be contained in Section 68 letters (i.e. letters setting out estimates of fees) issued by lawyers. Proposal 28: The Law Society should review its precedent Section 68 letters and issue a practice direction to ensure that solicitors give clients more information regarding likely fees. Proposal 29: The Department of Justice, Equality and Law Reform should introduce legislation requiring barristers to issue letters providing fee information similar to solicitors Section 68 letters, both to clients and to solicitors, when first briefed. Proposal 30: Taxing Masters should not consider the size of any award when assessing legal costs. Legal costs should be assessed on the basis of the work undertaken by individual lawyers. Proposal 31: Taxing Masters should cease the general practice of allowing junior counsel s fees at two-thirds that of senior counsel. Instead fees should be set on the basis of the work undertaken by each of senior and junior counsel. Proposal 32: The Department of Justice, Equality and Law Reform should introduce legislation to permit persons other than solicitors being appointed to the position of Taxing Master.

2 IIF Views IIF agree with all of these proposals. Solicitors fees in Ireland have historically been linked to the value of the award. In addition scheduled costs are charged on top of the professional fee i.e., solicitors create a separate schedule of all the items of work done down to letters written, referrals to Counsel etc. and mark an additional fee for having to do each item, all of which is already covered in the bulk fee. Scheduled costs can generate approximately 500 extra per case. Meanwhile barristers costs are governed by a powerful informal set of fees and rules which have the potential to influence the market in an anti-competitive manner. As far as adjudication on legal costs is concerned, District Court costs are currently set by a Government-controlled scale. However only a minuscule percentage of personal injury claims are in this court. The County Registrar, who is normally appointed from the ranks of local solicitors, determines costs in the Circuit Court. Any appeal is to a Circuit Court judge, usually a former barrister. High Court costs are awarded by the Taxing Master (a barrister appointment) with appeal to a High Court Judge, a barrister. Both will have come from the same ranks, i.e. the Bar. The current method of setting and adjudicating on legal costs is not independent. All courts hearing personal injury actions should operate on the basis of Governmentcontrolled fixed scales which are not linked to the size of the award but instead reflect the amount of work involved and the complexity of the legal issues involved (generally low in straightforward personal injury cases). Any appeals and disputes should be dealt with by an independent adjudication body. Insurance companies that settle fees within one month of receipt of the bill of costs should not be subject to any charge for interest. Where interest is payable the rate should be linked to the ECB rate or some similar index rather than according to the current fixed rates set by legislation. As part of work carried out for the Motor Insurance Advisory Board, IIF have analysed non-compensation costs in personal injury cases for the eight years i.e. costs and disbursements paid to other parties such as solicitors, barristers and other experts. One can see from the graph and tables below that: taking all types of claim together, non-compensation as a percentage of compensation has risen from 35.5% in 1996 to 45.9% in 2003; for motor claims involving injury, non-compensation costs have risen from 34.5% in 1996 to 41.5% in 2003; for employer s liability claims, non-compensation costs have risen from 42.2% in 1996 to 51.7% in 2003; for public liability claims involving injury, non-compensation costs have risen from 52.7% in 1996 to 65.3% in

3 n-compensation Costs as a % of Compensation - All Classes ( ) n-compensation Costs as a % of Compensation - All Classes ( m) Compensation n-compensation Total Outlay n-compensation 26.2% 27.6% 27.9% 29.4% 29.8% 28.8% 30.4% 31.5% as % of total outlay n-compensation as % of compensation 35.5% 38.2% 38.6% 41.6% 42.4% 40.4% 43.7% 45.9% 3

4 n-compensation Costs as a % of Compensation - Motor Third Party Personal Injury Claims ( m) Compensation n-compensation Total Outlay n-compensation 25.6% 27.3% 27.6% 28.0% 28.3% 27.5% 28.8% 29.3% as % of total outlay n-compensation as % of compensation 34.5% 37.5% 38.2% 38.8% 39.5% 38.0% 40.4% 41.5% 4

5 n-compensation Costs as a % of Compensation - Employer s Liability Claims ( m) Compensation n-compensation Total Outlay n-compensation 29.6% 29.1% 28.6% 31.7% 31.4% 31.0% 33.0% 34.0% as % of total outlay n-compensation as % of compensation 42.2% 41.0% 40.0% 46.5% 45.9% 45.0% 49.3% 51.7% n-compensation Costs as a % of Compensation - Public Liability Claims (involving injury) ( m) Compensation n-compensation Total Outlay n-compensation 34.5% 35.8% 33.0% 37.5% 36.0% 33.7% 36.3% 39.5% as % of total outlay n-compensation as % of compensation 52.7% 55.9% 49.3% 60.0% 56.3% 50.9% 56.8% 65.3% tes Compensation = general and special damages paid to claimants. n-compensation = costs and disbursements paid to other parties such as solicitors, barristers and experts. The figures for are partial returns based on figures supplied by companies representing 67.8% of the motor market and 33.3% of the liability market in 1998 gross written premium terms. The figures for are partial returns based on figures supplied by companies representing 64% of the IIF market in 1999 gross written premium terms. The figures for are partial returns based on figures supplied by companies representing 57% of the IIF motor market and 69% of the IIF liability market in 2003 gross written premium terms. The Government has partially addressed the problem of high legal costs in Ireland by establishing the Personal Injuries Assessment Board. Meanwhile the Civil Liability and Courts Act, 2004 addresses many of the inefficiencies and delays in the legal process which have driven legal costs upwards. IIF believes that the Government should complement their efforts to date by moving now to break the link between legal costs and the size of the award. IIF advocates fixed scales of solicitors party and party costs in the Circuit and High Courts 5

6 which are not linked to the size of the award. Such solicitors scale fees should remunerate according to the stage the claim has reached, thus reflecting the defined items of work done rather than the value of the claim. The scales should eliminate scheduled costs. In relation to barristers costs, equal consideration should be given to independent controls in the form of formal scales. Increasing the financial limits of the lower Courts is sometimes proposed as a possible way of reducing legal costs. IIF do not believe that increasing the financial jurisdictions of the District and Circuit Courts in relation to personal injury actions is advisable because increased limits would tend to promote inflation in both damages and costs. We enclose an IIF Report entitled Legal Process and Inefficiencies, the objective of which is to identify inefficiencies within the current Irish legal process and to propose alternative procedures. We produced this report in July 2002 and many of our concerns about inefficiencies in the legal process have been addressed in the Civil Liability and Courts Act We enclose the full report for the sake of completeness but we would draw the Competition Authority s attention to the sections relating to legal costs in particular as these inefficiencies still remain in the system i.e. process stages inclusive on pages Chapter 9 Restrictions on Advertising Competition Authority Proposals Proposal 18: The Department of Justice, Equality and Law Reform should introduce legislation to transfer the regulation of advertising by barristers to the proposed Legal Services Commission. Proposal 19: As an interim measure the Bar Council should permit advertising by barristers by either: Option A: The abolition of Rule 6.1. The sole regulation of advertising by barristers would then be the restrictions on misleading advertising contained in the European Communities (Misleading Advertising) Regulations, Option B: The substitution of Rule 6.1. with an alternative rule permitting advertising so long as it does not: Give false or misleading information; Refer to the outcome of previous, or future, legal action; Bring the administration of justice into disrepute, or otherwise be considered in bad taste; or Appear in inappropriate locations. Proposal 20: The Department of Justice, Equality and Law Reform should introduce legislation to transfer the regulation of advertising by solicitors to the proposed Legal Services Commission. 6

7 Proposal 21: As an interim measure the Department of Justice, Equality and Law Reform should introduce amending or secondary legislation to remove restrictions on advertising content and forms that are not inherently misleading, harmful or offensive, either by: Option A: Removing all specific legislation relating to solicitors advertising in favour of reliance on the restrictions on misleading advertising contained in the European Communities (Misleading Advertising) Regulations, 1988; or Option B: Amending current restrictions by limiting restrictions to: False or misleading advertising; References to the outcome of previous, or future, legal action; Advertising in bad taste or which brings the administration of justice into disrepute; or, Advertising in inappropriate locations. Q12: What practical problems, with adverse consequences for competition and for buyers of legal services, could arise in liberalisation of advertising as proposed in Proposals 18 and 19? Q13: What practical problems, with adverse consequences for competition and for buyers of legal services, might arise from implementing the liberalisation of advertising as proposed in Proposals 20 and 21? IIF Views IIF do not favour relaxing the current advertising restrictions as they relate to personal injury claims because we believe that such a move risks reinvigorating the claims culture which the Government and the insurance industry have done so much to counteract in recent years. It would be of little consolation to the premium paying public if increased advertising by solicitors and barristers promoted inflation in both damages and costs thus militating against the overall objective of the Government and insurance industry of controlling/reducing the claims costs incurred by insurers in personal injury claims. 4. Chapter 7 Direct Access and Restrictions on Barrister Practice Competition Authority Proposals Proposal 11: The Bar should either: Option A: Abolish completely Rules 4.1 and 4.22 so that unlimited Direct Access is permitted; or Option B: Broaden the existing Direct Access Scheme, in a manner similar to the new UK scheme, to include the following features: Barristers will only be permitted to undertake direct access work if: o they have been in practice for three years following the completion of their period of devilling or pupillage; 7

8 o they have complied with training requirements imposed by the Bar Council; and they have notified the Bar Council that they intend to do public access work. A barrister must refuse instructions if he or she considers that it is in the interests of the client or in the interests of justice for the lay client to instruct a solicitor or other professional client. A barrister is not obliged to accept instructions from a direct access client. Barristers may not undertake work in certain sensitive areas or where there are likely to be profound ramifications for clients and others; i.e.: o Immigration or asylum work; o Family or criminal proceedings other than for advice where proceedings have not been commenced (but not to attend interviews conducted by prosecuting or investigating authorities) or some appeals; and o Where the instructions come from intermediaries and are in connection with any family or criminal proceedings. Proposal 12: The Bar should abolish rule 2.6 so that barristers are permitted to be in part time practice at the Bar or to be in employment. Proposal 13: The Bar should abolish rule 8.3 so that membership of the Law Library is not limited to barristers in full time practice. Q9a: What practical problems, if any, might arise in relation to options A and/or B of Proposal 11? Q9b: Are there alternatives to Options A and B of Proposal 11 that might also increase direct access to barristers? Q10: Would extra regulation be required if barristers handle client funds? Would this create an unnecessary burden on the Bar, and/or additional costs to clients? IIF Views Insurance companies are currently unable to instruct a barrister directly as they do not come within the exceptions provided for in the Bar Council s Direct Professional Access Scheme. Where insurance companies decide to retain Counsel they would like to be able to instruct Counsel directly, they have the expertise to do so and it is an anomaly that they cannot. In short IIF would support either Option A (complete abolition of Rule 4.1 and 4.22) so that unlimited direct access is provided or, if this is too radical, Option B. Either way insurers should have the facility to instruct barristers directly. Re Proposal 12, IIF agree that the Bar Council should abolish Rule 2.6 so that barristers are permitted to be in part-time practice at the Bar or to be in employment. The situation in which State Bodies find themselves, as described in paragraph 7.33 of the report, equally applies to insurance companies. Many insurance companies have ongoing legal needs and should be permitted to use in-house employed barristers to represent them in court. The prohibition results in insurance companies having to outsource at considerable additional cost, barrister services when they could instead employ barristers to represent them in court. 8

9 Re Proposal 13, IIF agree that the Bar Council should abolish Rule 8.3 so that membership of the Law Library is not limited to barristers in full time practice. 5. Chapter 3 Regulatory Reform Competition Authority Proposal 1 Proposal 1: The Department of Justice, Equality and Law Reform should bring forward legislation to establish a Legal Services Commission. The Commission would regulate both branches of the legal profession. The majority persons appointed to the Legal Services Commission should be non-lawyers. There are two possible models for the Legal Services Commission: Option A: The Legal Services Commission would have responsibility for, and would undertake, all of the regulatory powers and responsibilities currently undertaken by the Law Society, the Bar Council and King s Inns. The Bar Council and the Law Society would retain representative functions. Option B: The Legal Services Commission would have responsibility for the regulation of legal services, but would delegate many regulatory functions to existing and possibly new self-regulatory bodies. The Legal Services Commission would be given explicit authority to make new regulations and would have power to veto the rules of selfregulatory bodies. These self-regulatory bodies would not be permitted to exercise representative functions. Q3a: Q3b: Q3c: Q3d: What practical problems might arise in establishing a Legal Services Commission, as envisaged in either Option A or B of Proposal 1? What timeframe would be necessary to establish the Legal Services Commission and to transfer regulatory responsibilities and/or functions from the Bar Council and Law Society? Who should be the non-lawyers on the Legal Services Commission? For example, would representatives from the Office of the Director of Consumer Affairs or IFSRA be suitable representatives? Are there other possible models (in addition to Option A and B of Proposal 1) that would achieve the objective of transparently distinguishing representative and regulatory functions and which would also ensure that the regulatory system promotes competition in the interests of buyers of legal services? IIF Views It is very difficult for any organisation to fulfil self-regulatory and representative roles simultaneously. IIF therefore support the separation of these roles within the legal profession and agree with the establishment of a Legal Services Commission on the Option B model. 9

10 There are practical problems associated with any regulatory change. However Option B lessens these by enabling the Legal Services Commission to delegate many regulatory functions to existing and possibly new self-regulatory bodies with appropriate expertise, which are not permitted to exercise representative functions. IIF suggest that a three-year timeframe would be necessary to establish the Legal Services Commission and transfer regulatory responsibilities and/or functions from the existing self-regulatory bodies. Users of legal services should be represented on the Legal Services Commission. 10

11 Legal Process and Inefficiencies 11

12 Index Content Page Number Introduction 3-4 Main Inefficiencies identified 5-20 Process Flowcharts

13 Introduction Objective: The objective of this report is to identify the inefficiencies within the current Irish legal process and to propose alternative procedures. Methodology: Interviews with a number of experienced personal injury claims staff and also with three solicitors specialising in personal injury defence. Structure of report: The existing personal injury claim process has been mapped from the perspective of the insurance company. In addition,the litigation process which runs alongside this has also been flow-charted. The inefficiencies that occur at all different stages of the process have been identified and cross-referenced to both the litigation and claims handling processes. 13

14 Personal Injury Claims & Litigation Process 1 NOTIFICATION 2 INVESTIGATION 3 EVALUATION 6 LITIGATION 4 NEGOTIATION 5 CLOSURE The Litigation process may commence at any stage and will run concurrently with the other processes detailed. 14

15 Process Stage Inefficiency Result Comments 1 Letter of Claim 2.1 Investigation 3.1 Evaluation 7.4 PSP The letter of claim in most cases is lacking in any real detail. Often the letter does not contain sufficient information for the defendant to know the allegations being made and the extent of the injuries involved. Delays the investigation/ evaluation process. Defendants unaware as to what investigations/ enquiries are required both from a liability and medical viewpoint. The originating letter should provide a clear summary of the facts. The letter should outline the allegations being made. What is the nature of injury and who are the medical attendants? RSI number? Detail whether there are other losses involved. 15

16 Process Stage Inefficiency Result Comments Investigation 7.7 Lack of early co-operation from claimant solicitors in dealing with issues relating to liability. There is a lack of willingness on the part of claimant solicitors to discuss liability with a defendant s insurer. The reason for this attitude may be the concern that any information provided may be used against the claimant/plaintiff at a later stage. Uncooperative attitude, including in certain cases refusal to identify witnesses, only adds difficulties to the investigation of the plaintiff s case. Consideration is needed as to how to create an environment between both parties that facilitates the early conclusion of the investigation processes. In addition the claimant solicitor will insist on first obtaining an engineers report. The expense of utilising an engineer is high and could be avoided if both sides were prepared to discuss legal liability issues at an early stage. The claimant solicitors should clearly state the basis on which they hold the defendant liable and provide reasonable assistance in advancing liability investigations. It is accepted that difficulties will arise in certain situations. 16

17 Process Stage Inefficiency Result Comments 3 3.1, 3.3, 3.5 Evaluation Lack of early co-operation from claimant solicitors in dealing with issues relating to injuries and reluctance to share own medical evidence. 7.7 There is often a lack of willingness on the part of claimant solicitors to discuss injuries with a defendant s insurer. Except on rare occasions claimant solicitors will refuse to share own medical reports or even discuss client s condition preferring to suggest that defendant obtain report from own medical attendant. This attitude only adds delays to the evaluation process and additional expense as defendants are required to go to expense of obtaining own report. The issue of medical evidence should not be contentious. There should be greater transparency. Consideration should be given to a compulsory sharing of medical evidence at the earliest stage or a process put in place where both parties agree a suitable independent expert be instructed to assess and the findings/ report are shared and agreed. 4 2 Investigation 7.8 Defendant slow to conclude investigations and/or concede liability even when it clearly attaches. Defendants can be slow in concluding own investigations. Also there is a view that an early concession on liability is not the best tactic as often liability arguments are the only realistic means of having a control on potential damages agreed. Delays may add to overall cost. Whilst in certain cases this might be a valid attitude, it delays the process and adds expense of engineers costs etc. Consideration to a strict time scale for completion of investigations should be considered. Consideration required as to whether this stance is an appropriate tactic. 17

18 Process Stage Inefficiency Result Comments 5 4 Negotiation Claimant solicitors unwilling to enter into early negotiations. The attitude appears to be that delay in entering into negotiation means additional damages and then in turn additional costs. There are no penalties imposed on claimant/ solicitors for not engaging in early discussions. The longer an injury is outstanding the more it is worth with a knock on affect on costs. Costs include additional costs of medical reports etc. Consideration is needed to imposition of penalties on claimants/ solicitors for not engaging in early negotiations were medical evidence clearly indicates that injury prognosis is known. 6 4 Negotiation Claimant solicitors unwilling to enter into negotiations unless proceedings issued. Even in cases were liability is not in dispute and injuries not particularly serious, claimant solicitors will issue legal proceedings. This attitude adds additional costs to settlement of cases due to increased professional fees and use of counsel. There should be penalties imposed on plaintiff solicitors if reasonable efforts not made to dispose of cases before court proceedings issued. 7 4 Negotiation Claimant solicitors unwilling to enter into negotiations unless counsel involved. The concern appears to be that counsel required to protect claimant solicitors in event of proceedings being issued by client against solicitor due to level of settlement. Whilst claimant solicitors concerns are understood to some extent there is an over dependence on counsel in even the less serious of cases. Counsel should not be used in all cases and if claimant solicitor feels need then counsels negotiation fees should be absorbed into solicitors own professional fee. In certain cases the reason may be laziness or perhaps a lack of confidence in evaluating their clients claim. Use of counsel in all cases is not warranted and only adds unnecessary costs to negotiation process. 18

19 Process Stage Inefficiency Result Comments Defendants slow to nominate solicitors to accept service of proceedings. Often delays occur on part of defendant in nominating a firm of solicitors to accept service of proceedings where proceedings are warranted and settlement negotiations not possible. Delays add expense due to cost of direct service and possible Motion costs. Early attention and action required. 6.1 L.D.P Inconsistency between Courts regarding initiating of legal proceedings. The present situation in the Circuit Court is that the Civil Bill must be issued and served within the Statute of Limitations period. However in the High Court the Plenary Summons must issue within the Statute of Limitations period but it need only be served within one year of issuing. Furthermore an extension of an additional six months or more can be obtained. The situation can arise in the High Court, for personal injury cases, that the defendant may not be aware that legal proceedings have been intimated for as long as 5 years from the date of incident or other relevant date. This extraordinary delay can cause difficulties for the defendant in the investigation of liability and also evaluation of the plaintiff s claim. The same position as applies to the Circuit Court should apply to the High Court. The Writ and Statement of Claim should be served together on the defendant within the Statutory period. 19

20 Process Stage Inefficiency Result Comments 10 Inadequate detail in pleadings 6 L.D.P In many cases the detail contained in the Civil Bill/Statement of Claim and in the Replies to Particulars is inadequate and does not enable the defendant to gain a full picture of the case being brought. As a result it can take a very considerable amount of time and effort to progress cases as quickly as they should. The late admission of further details regarding injuries or Special Damages is generally allowed by the Court. Very often the defendant is not given a clear picture as to the true extent of the claim being made. The very late admission of further particulars often changes a case entirely. It may make any Tender made ineffective. In addition it can be very difficult to counteract the case made by the plaintiffs advisors. Strict rules regarding accuracy of pleadings and late introduction of additional particulars must apply. 11 Delays in progressing pleadings L.D.P Discovery 9 Disclosure We have identified that considerable delays can occur in progressing the pleadings from Civil Bill/Statement of Claim stage through to Defence and onto tice of Trial. The prescribed time limits for filing of documentation are not adhered to and the procedures for ensuring compliance are slow and cumbersome. As a result it can take a very considerable amount of time and effort to progress cases as quickly as they should. The result of these delays is that it takes much longer to finalise the pleadings than should be the case. This leads to extra costs and, very often, additional General Damages as the length of time the plaintiff has been injured is a considerable factor in awards. Strict time limits should apply to all filing of documentation. The consequences of not adhering to these time scales should be automatic and strict penalties should apply. The onus would be on the offending party to seek further time in which to file the documentation required. 20

21 Process Stage Inefficiency Result Comments 12 Duplication of Medical expert witnesses Evaluation 6.11 L.D.P 7.5, Disclosure Claimant solicitors tend not to share reports which makes it necessary for defendants/ representatives to seek report from independent medical attendant. Unnecessary duplication. Refusal puts the defendant at a disadvantage, as the Courts tend to accept the views of the treating medics over those of the defendant s experts. In the vast majority of cases medical reports are eventually exchanged or agreed before cases called for Hearing. A procedure should be agreed whereby there is total transparency in the evaluation process. All medical evidence received by either side should be shared at earliest stage. 13 Duplication of Liability expert witnesses Investigation 6.11 L.D.P 7.3, 7.7, 7.18, 7.23 Often both parties carry out investigation independent to each other. Unnecessary retention of Engineers to investigate and report. Additional costs. Claimant solicitors should detail at earliest possible time the allegations being made and claimant should provide reasonable assistance in the investigation process. Defendant should be up front regarding the their attitude to liability and seek to avoid unnecessary costs. 9 Disclosure 21