Lord Briggs gave the unanimous decision of the Court today that the insurer was liable for the solicitors’ costs in cases in which it had struck direct settlements with claimants represented by the firm. As these modest value claims were processed via the claims portal and under the provisions of the low value road traffic accident (RTA) pre-action protocol, the decision is clearly of significance given the sheer numbers of cases resolved in this way. Although the decision is based on principle rather than policy, it nevertheless makes a very direct reference to “the careful balance of competing interests enshrined in the RTA protocol”.

Despite the claims in question being pursued in the twenty first century setting of the portal and the protocol, the first case cited by Lord Briggs pre-dates the French Revolution. The key principle engaged involves the solicitors’ equitable lien (or charge) in respect of costs.

Lord Briggs approved the much more recent formulation of this principle in the 2013 appeal Khans Solicitors v Chifuntwe, which held that “the court will intervene to protect a solicitor’s claim on funds recovered or due to be recovered by a client or former client if (a) the paying party is colluding with the client to cheat the solicitor of his fees, or (b) the paying party is on notice that the other party’s solicitor has a claim on the funds for outstanding fees”.

He found that Haven was clearly on notice that Edmondson would be looking to the insurer for recovery of costs, not least from the fact that the claims were notified via CNFs placed on the claims portal by the firm. Further, he found that its clients did have a residual liability to pay Edmondson’s costs despite the claims being funded by CFAs. His reasoning on this point is subtle but important:

“the client care letter did not destroy the basic liability of the client for Edmondson’s charges expressly declared in the CFA and Law Society’s standard terms. It merely limited the recourse from which Edmondson could satisfy that liability to the amount of its recoveries from the defendant … [the letter and the CFA] are shot through with clear assertions of the client’s responsibility for the firm’s charges in the event of a win in the litigation, which is defined to include a settlement of the claim under which there is an agreement to pay the claimant damages.”

The upshot is that it is now beyond doubt that insurers are liable for costs in these circumstances, whether under the RTA protocol (as here) or under the EL & PL protocol.

If, however, the Government’s whiplash and small claims reforms are implemented, insurers would no longer be liable for costs in motor claims valued at less than the increased small claims limit of £5,000. Lord Briggs noted that “more than 90% by number of RTA cases are for damages below that level” and said, without hint of judicial understatement, that the reforms may “greatly affect” the scope of the RTA protocol.

It seems that the probability is that these reforms will mean insurers will have to deal with greater numbers of litigants in person and/or people using claims management companies to process their claims. The scale of these sorts of effects will very likely become clearer over the medium term as the whiplash reforms progress and as the formal regulation of CMCs moves from the Ministry of Justice to the Financial Conduct Authority.