There are generally 5 ways that a personal injury claim can be funded
- Conditional Fee Agreement (No Win No Fee)
- After the Event Insurance (ATE)
- Legal Expense Insurance (LEI) also known as Before the Event Insurance
- Trade Union Funding
- Private Funding
Conditional Fee Agreement – How does no win no fee work?
The vast majority of personal injury claims are funded by a Conditional Fee Agreement (‘CFA’), commonly known as a ‘no win, no fee’ agreement.
What does no win no fee mean? This is a written legal funding agreement between you and your solicitors that is in place for claimants who cannot afford legal representation; the agreement is legally binding. The advantage of a CFA is that you do not need to pay your legal fees upfront. Having a claim funded by way of a CFA means that if your claim succeeds, you will receive damages and the defendant’s Insurers will have to pay your legal fees.
To compensate your solicitors for the risk they are taking by not getting paid if your claim is unsuccessful, the law allows your solicitor to charge a success fee if the case is won hence the name ‘no win no fee’. The law governing personal injury claims changed in April 2013, under the new CFAs solicitors can deduct up to 25% of your damages plus the cost of the ATE Insurance. The success fee is limited to past losses and damages for your pain and suffering and will be deducted from your compensation upon settlement.
Law firms will only enter into a conditional fee agreement after the merits of the case have been carefully considered so that their risk is minimal.
In the unfortunate event that you do not win your case because liability is denied and the merits of the case are deemed to be poor, then you are not liable to pay your own legal costs.
It is important to note that there are circumstances where you would become responsible for your solicitors’ costs. This would happen if you breach the terms of the CFA for instance by misleading your solicitor, by being dishonest, by giving fraudulent information or if you fail to co-operate at all times.
What is After the Event Insurance?
If you enter into a CFA, your solicitor will recommend you take out an After-the-Event insurance policy, this is an accompanying legal expenses insurance policy that is in place to protect you from an adverse costs order. The policies firms use are self-insured which means that, if you lose you do not need to pay. The cost of the policy is paid at the conclusion of the case when you win.
If you were to lose your claim you would be expected to pay for your solicitor’s costs, your own disbursements and expenses but also for defendant’s costs, this would therefore be a considerable amount of money. However, if you have the benefit of an ATE then, the ATE providers would indemnify you for payment of your costs, disbursements incurred and the Defendant’s costs. An ATE policy therefore removes the financial burden of having to pay costs if your claim is not successful.
When taking out the ATE policy, there will be a premium, depending on the type of ATE, you may have to repay the premium upon settlement. The level of premium payable depends on the type and level of cover sought and assessment of the risk. The amount of the premium will increase if your claim is litigated. Since the law changed in 2013, the premium is no longer recoverable from the losing party.
Legal Expense Insurance (‘LEI’) known as ‘Before-the-Event insurance’
This type of insurance policy is purchased before an accident takes place and is often attached to other insurance policies such as motor, household or travel insurances or even credit cards.
If you have the benefit of a LEI then, you do not need to enter into a CFA. When you start a claim, you would need to tell your solicitor there is the possibility that you may already have insurance. You should provide your solicitor with a copy of the policy, the policy will need to be reviewed by your solicitor to ensure the policy can cover you and to may sure the amount of the cover is sufficient. Your insurer may stipulate which firm of solicitors you have to work with.
Trade Union Funding
If you belong to a trade union, you may be entitled to receive free access to legal advice as part of your membership. If you belong to your trade union and have paid membership fees you will need to let your solicitor know as you would probably be entitled to a free initial interview to decide whether you have a case which is likely to succeed.
This was the traditional method for paying legal fees but this is now the least popular method in personal injury claims as the vast majority of clients cannot afford such fees. In this instance, solicitors’ fees are calculated taking into account the hours spent on the case, the hourly rate which depends on the solicitor’s experience.
With this funding option, you are liable to pay the legal fees upfront whether you win or lose.