As we move into a new decade what claim trends do we expect to see? Michael Mitchell and Sarah Holland have considered the types of claims we have been seeing over the last 12 to 18 months and make some predictions for the coming year.
Lenders’ claims to continue
It will be no surprise that one of the most significant and expected trends of the last 18 months has been claims brought by lenders. This is set to continue through 2010 and beyond as lenders look to recoup the huge losses they have suffered through falling house prices, defaulting borrowers and a scarcity of buyers. Solicitors tend to be the primary targets and are often easy pickings with breaches of the Council of Mortgage Lenders’ Handbook identified all too frequently. Lenders also of course target valuers for alleged negligent, or even fraudulent valuations. Mortgage brokers tend to come into the frame in instances where mortgage fraud is evident.
Repossessions are continuing to rise steadily, although at a lesser rate than feared, and we expect claims by lenders to rise even more quickly. In 2007 there were 25,900 repossessions; in 2008 there were approximately 40,000 and the latest figures for 2009 show approximately 48,000 repossessions. As the majority of the claims we are currently seeing arise out of repossessions which occurred in 2007, we expect many more claims to come.
A worrying development in these types of claim is the use of conditional fee agreements by the lender to fund the claims. CFAs take away, to a large extent, the costs risk for the claimant associated with bringing the claim. Recovery of substantial success fees from the defendant has a considerable impact on a claim’s quantum.
We expect that it will be some time before we see a decline in these types of claim.
Claims by investment companies and financial institutions
Once again the corporate sector is “rocking” as a result of the economic downturn with levels of corporate insolvencies having increased by some 33 per cent over the last year and anticipated to rise by a further 3 per cent in 2010. The result of this increase (not seen in the UK since 1993) has been a sharp increase in claims brought by investment companies and financial institutions as they look to recover some of their losses.
The back-end of 2009 also saw the beginning of what we believe will become a deluge of claims brought by investors against fund managers for negligent portfolio management as well as mis-selling claims against IFAs. As investors see their investments disappear or become eroded through fraud (such as in the Keydata Investment Services collapse) or through the shortage in worldwide liquidity (as in the case of the suspended Arch Cru Funds), the claims will begin to flow in.
These are areas where claims activity will continue to escalate through 2010.
Claims against construction professionals
We have also seen an increased number of claims against construction professionals. These are more likely in a recession for a number of reasons:
- contractors are more frequently going into administration and their clients then seek to recover losses from the insured professionals, quite often by way of collateral warranties;
- clients or contractors find themselves in situations where there has been a loss on a project and they bring claims against their design team in an effort to “share the burden”; and
- professionals who seek to recover outstanding fees frequently find themselves on the receiving end of counterclaims alleging negligence or breach of contract, quite often in the hope of “doing a deal” on the fees.
We expect these types of claims to continue to increase well into 2010.
Other types of claim which are on the increase as a result of the depressed economic climate include claims arising out of interventions by the Solicitors Regulation Authority (SRA). Interventions often result in claims arising due to the delay in transactions completing whilst the process of intervention takes place, such as a delay in registering a conveyancing transaction.
In addition, time limits can be missed such as the strict time limits applicable in respect of leases under the Landlord and Tenant Act and limitation periods in personal injury cases whilst cases are being transferred by the intervening agents.
There is no doubt that claims across the financial and corporate sector will continue to rise throughout 2010. Whilst there are “green shoots” of recovery across the world economies including the UK, history has demonstrated that the peak of the “claims spike”, following a recession, is not reached until an economy is well into its recovery phase. As such the classes of claims identified above are more than likely to increase consistently in 2010 and into 2011.