Costs at the lower end of the market

The title is a polite way of an introduction to funding arrangements in volume work (aka the claims “factory” approach).

Overview of the department set-up

Normally a partner heads up this type of department with a small number of solicitors/FILEXs and a large paralegal volume.  The expected lifecycle of a paralegal in this situation is around 60-70% annual rate of attrition.

Work is separated according to value and seniority. The partner will work on high value work that tends to be funded by hourly rates, whilst the solicitors tend to assist the higher value work and run multi track claims independently.

Paralegals will be allocated small claims, with a couple of the higher-skilled paralegals being permitted to run fast track cases under supervision.

Funding

The partner will normally bring in fees based in claimant and/or defendant hourly rate work from insurer clients.

Solicitors will share some of the hourly rate work by carrying out tasks on the partner’s files, but the remaining files will be CCFA “no win no fee” funded.

Paralegals will run solely CCFA based files.

So how did the CCFAs make money before the Jackson reforms?

Firstly it is important to know that CCFAs are used with insurer clients in these types of departments.

Before 1 April 2013 the success fee uplift and small claims track at £5k allowed departments to make up the shortfall when a claim did not succeed. i.e. they could take the hit with the uplift for those claims that went nowhere.

This enabled the firm to run a higher number of costs bearing fast track cases. With more claims in the track, and success fee uplifts, there was no need to bill the insurer.

Some firms had a CCFA “full” and a CCFA “light” which essentially was this:

– CCFA “full” – a traditional no win no fee scenario with an uplift for cases that you considered had 51%+ prospects; and

– CCFA “light” were cases where the claim did not reach the 51%+ threshold but the evidence to date justified making further enquiries as it was reasonable to establish a couple of matters before taking a view on whether the case would be taken on a full CCFA or abandoned. An example would be interviewing witnesses or checking on a contract that was in effect. For these type of cases there would be a capped fee charged to the insurer client if the claim did not succeed (e.g. £1,000 regardless of how much time was spent on the file).

How have these departments adapted to the Jackson reforms?

In short, the insurers are now having to pay for instructing firms.

No firm in their right mind would demand that the insurer client pays the success fee. A 100% uplift could extinguish the damages! However there are a couple of ways of going about payments:

1 – a capped success fee uplift charged to the insurer. For example the insurer client pays 10% of “time on the clock” using a reduced hourly rate. A worked example of this would be a £40,000 multi track claim that settles with 60 hours on the file. The hourly rate used of £125 on the 60 hours and a 10% success fee would see a fee charged to the insurer of £750.00.

2 – a rebate to the insurer. This is a fixed fee paid by the insurer for each instruction depending on value (e.g. £100.00 for small claims; £500.00 for fast track and £1,000.00 for multi track). If the claim succeeds then the fee is paid back to the client for fast track and multi track claims. This means the firm always gets paid for each instruction. There is normally a kickback to the insurer with such arrangements; for example the insurer can profit share with the firm paying back a percentage at set amounts. For instance the firm may agree to pay the insurer client 10% of profits on their files once they have struck a certain figure (e.g. profit costs of £500,000 or £1,000,000.) This allows the insurer to recoup some of the payments they make on small claims.

3 – damages based agreements. This is normally used for “banded” cases. Examples would be cases that have the following ranges and percentages:

  • Cases up to £1,000 – 50% of damages billed as costs;
  • Cases up to £2,500 – 33% of damages billed as costs;
  • Cases between £2,501 – £5,000 – 25% of damages billed as costs; and
  • Cases between £5,000 and £10,000 – 15% of damages billed as costs.

Any key things to know?

Insurers hate paying out in these scenarios so do not invoice them for work. The best way to go about this is to reduce their damages and take your money for costs at source when you receive the settlement cheque.

This way you avoid the insurer reporting on their “legal spend” for that year. It allows them to maintain the revenue stream as purely incoming monies.

Over and out.

Legal Orange.

Advertisements

One thought on “Costs at the lower end of the market

  1. Pingback: CIVIL PROCEDURE, COSTS & SANCTIONS: LINKS TO RECENT ARTICLES AND POSTS | Civil Litigation Brief

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s