Personal Finance: Counting the cost in the courtroom

Suing for compensation? You need some good insurance

Britain is being taken over by a "culture of compensation" with would-be claimants determined to win a pay-out for every little misfortune, a leading think-tank claimed this week.

In a report for the Centre for Policy Studies, Dr Frank Furedi warns: "The culture of compensation is increasingly becoming separated from legal principles. It is interested primarily in finding someone who can be found liable and who can pay - and not in the issue of responsibility."

But just as bad as a society where everyone sues one another at the drop of a hat is one where the vast majority of people are effectively denied access to courts. Until a few years ago, pursuing civil damages in Britain was a realistic option only for the very rich or the very poor. The rich could afford to pay lawyer's fees out of their own pocket if they lost the case, and the poor got Legal Aid. Everyone else was trapped in the middle.

That began to change in the summer of 1995, with the introduction of "no-win, no-fee" actions which mean you not need pay your own solicitor's fees if he fails to win the case.

Law Society spokesman David McNeil says: "You don't pay your solicitor's fees if you lose. However, there may be other expenses, such as the cost of expert-witness testimony, court fees, and the cost of insurance."

Unlike in the US, British law insists that the loser of a civil case pays both sides' costs. This makes it essential to take out a policy which will meet your opponent's legal fees if you lose. "`No-win, no-fee' is a bit of a misnomer," McNeil says. "It's really `No-win, no-your-own-solicitor's- fees'."

This arrangement is generally used for straightforward personal injury cases, arising from motor accidents, pavement falls or injuries at work. Solicitors are not obliged to take any case on this basis, and may ask you to pay a conventional hourly fee or take your business elsewhere. If you win your case, your solicitor will be rewarded with his normal fee (paid by your opponent), plus a "success fee" (paid out of your damages). Legislation to shift liability for the success fee to the losing party is currently in progress.

Other safeguards ensure that the success fee cannot exceed either 100 per cent of the main fee, or 25 per cent of the damages you win - whichever is the smaller.

McNeil says about 65,000 cases have been settled on conditional fees since the option was brought in. But even if you cannot persuade a local solicitor to take your case on this basis, a little-known clause in many household insurance policies could pay for the legal representation you need.

Legal expenses cover worth up to pounds 50,000 is included in many household insurance contracts, either as a cheap bolt-on extra or as automatic part of the main policy. This cover can be used in cases like a contract dispute over goods you have bought privately or to resolve a dispute between you and an inconsiderate neighbour.

Paul Asplin, the managing director of DAS Legal Expenses Insurance, says: "We ask that the case you want to take up has a reasonable prospect of success. It wouldn't make sense if we backed hopeless cases, like wanting to sue your neighbour because you don't like the fact that he wears a red shirt on a Sunday morning."

A "reasonable" prospect of success in DAS's case means a better than 50/50 chance you will win. "Fifty-one per cent would do nicely," Mr Asplin says. "It's quite a low test."

Similar cover often appears on motor policies, sometimes without the policyholder even knowing it is there. Here the money could be used to sue for the main policy's excess amount, damages for any injury you have suffered or the cost of hiring a replacement car. "At least half the motorists in the UK have got this kind of cover," says Mr Asplin.

Insurers got their fingers burnt when they first introduced this cover to the UK in the mid-1970s. Then they found the only people who bought the stand-alone policies were those who knew they had a claim just around the corner. Now the cover is sold only as as an add-on to mass-market policies. This gives insurers thousands of policyholders who never claim for every one that does.

Dr Furedi fears that the introduction of conditional fees will lead to lawyers here adopting the excessive practices of American law. But we still have some way to go.

In a New York bar several years ago, I picked up a promotional matchbook from a local law firm called Kresch & Kresch. This read: "1-800 LAWSUIT. Accident and injury cases only. Free consultation. No fee unless you win. If you or a loved one have been seriously injured through someone else's fault you may be entitled to $$".