Insurers may lose £1bn in 'no win' judgment

The future of "no win, no fee" personal injury compensation claims will be decided this week in the High Court, in a case that could force liability insurers to stump up as much as £1bn.

The future of "no win, no fee" personal injury compensation claims will be decided this week in the High Court, in a case that could force liability insurers to stump up as much as £1bn.

A judgment is expected on the examination of 18 test cases heard in the High Court between the personal injury compensation specialist, The Accident Group (TAG), and a number of personal liability insurers. TAG has 250,000 cases in the pipeline, whose ability to win damages could be affected by the decision.

Groups such as TAG arrange for a solicitor to take on the case and insurance cover to pay for the other side's costs should the claimant lose. The premium for the insurance cover, in TAG's case £950, is recoverable if the claimant wins.

The parties are wrangling over the legality of the arrangement by which no fee is paid if the claimant loses the case, known as a conditional fee arrangement.

The insurers argue the conditional fee arrangement rules are being breached because the TAG agent that sells the insurance policy is not a solicitor, which the law requires.

A county court judgment in Peterborough in August ruled that insurance premiums as well as solicitors' costs were unrecoverable because of this breach. Since this ruling, insurers have held back from repaying the insurance premium to customers. Should the court find in favour of the insurers, claimants winning their cases would lose £950 from their damages to pay the insurance premiums. Solicitors would also not be able to recover their costs.

It is expected, however, that the judge will find in favour of TAG. This would mean insurers would have to pay back around £1bn in insurance premiums and legal expenses.

Personal injury insurance firms such as TAG have sprung up after the abolition of legal aid in 2000 and letting customers pursue claims without paying expensive legal fees upfront.

The industry has taken a knocking after the high-profile collapse of Claims Direct. It became known as "Shames Direct" when customers discovered their compensation was being all but wiped out by Claims Direct's fees.