An accident waiting to happen

The collapse of the personal-injury-claims firm The Accident Group exposes the nefarious nature of an industry that the Government refuses to regulate, says Jon Robins

The boss of The Accident Group, Mark Langford, achieved tabloid "bogeyman" status last week when he was discovered teeing off on a Marbella golf course (near to his £3m villa in Spain) shortly before his company took corporate insensitivity to a new low with the now infamous text message: "Unfortunately salaries not paid - please do not contact office - full details to follow later today." But it was not just those 2,700 staff dispensed with by mobile phone that the claims giant left in the lurch but - yet again - thousands of accident victims.

Catherine Davis, a 42 year-old mother of two from Cheshire, is one example. A couple of years ago she was being driven back from a friend's house when the car skidded on a wet patch of road, mounting a kerb and smashing into wall. Catherine suffered bad whiplash and sprained both wrists in the crash.

Three days later an Accident Group representative happened to knock on the door of her home in Reddish, Stockport. "At that time they were coming around to our estate about every two weeks for two months straight," she recalls. "They asked if I'd had an accident in the last three years and I said 'No' at first because, although I was in pain, it never occurred to me to claim." Catherine signed up to The Accident Group's policy and before the rep left, he also suggested that her 13-year old daughter might have a potential claim against a neighbour whose dog had bitten her.

Catherine received a cheque for £328.23 some 18 months after the car accident. It was only then she realised that the total damages amounted to £2,400. She wrote to The Accident Group, which paid her a further £171.77. As she points out, the defendant insurer admitted liability straightaway. "Now what I want to know is where the rest of the money has gone?" says Catherine. "It seems as though I had the accident but they get the money and that can't be right."

It is not even a year since the "no win, no fee" pioneer Claims Direct called in the receivers, leaving tens of thousands of customers with little or no damages to show for their pain.

"How many lessons do we have to learn and how many collapses in the market are we going to have to see before the Government decides that this is an industry that can't be self-regulated?" asks Professor John Peysner, professor of civil justice at Nottingham Law School. Only three years ago the former army officer Brian Blackwell completed his report into the need of regulation in this area. Professor Peysner drafted that report. The claims market was very different back then and, as he concedes, the report missed the point by targeting unqualified claims assessors that took 30 per cent of their clients' damages for handling a case. It missed the bigger problem: the unpredicted appearance of the massive "claims farmers".

The Accident Group was responsible for the catchphrase of the "no win, no fee" era - "Where there's blame, there's a claim" - and stormed onto the scene, conquering 25 per cent of the personal injury market in less than two years. The company claimed to be one of the fastest-growing UK businesses and reported an increase in turnover of 179 per cent last year to £243m. But last week its parent company, the Amulet Group, announced that it is to go into administration following "continual battles with the insurance industry".

We have been here before. In July 2000, the once pioneering but now discredited Claims Direct floated on the stock market, netting its two founders, former cabbie Tony Sulman and the solicitor Colin Poole, in the region of £60 million. Within less than two years that company was history.

So will this latest fiasco stiffen the resolve of ministers to tackle the claims companies? Apparently not. The Lord Chancellor's Department believes "the commercial health of an individual company is not a reflection of the state of the industry generally, which is more than able to absorb the loss of The Accident Group". It backs "a voluntary approach and a degree of industry self-regulation". PricewaterhouseCooper, the Accident Group's administrators, reckon the half a million outstanding claims will still be processed.

The Government seems happy with this new style of legal market capitalism offered by the withdrawal of legal aid and the extension of conditional fees. "Provided that claims management companies and their intermediaries act responsibly and with probity they can expand access to justice to people who may not otherwise have the means," the Lord Chancellor's Department argues.

The BBC's Watchdog programme has been a vociferous critic of claims companies. Last November it told the story of Lee Loughman, who, it claimed, "can be in two places at once: he can fall off kerbs while watching television; he can even be in bus crashes without leaving the house." An Accident Group salesman was caught on hidden camera cold calling after a bus crash and exhorting Lee to put in a bogus claim.

"The Accident Group got found out too often and people stopped believing in them," says Watchdog's editor, Doug Carnegie. "The demise of The Accident Group is not the death of 'no win, no fee', but it should rightly be the death of these company-driven claims." According to Carnegie, not a day has passed since the programme ran its first investigation into The Accident Group without employees contacting the programme with further stories backing their concerns. "I don't think that there was any defence for what we saw," Carnegie says. "Representatives were going like vultures through council estates knocking on doors persuading people to claim for falls that they never had."

For the legal profession, this latest corporate disaster is an opportunity for solicitors to distinguish themselves from the claims farmers. The Law Society is appealing to people to go straight to solicitors and miss out the middleman who, in its words, "are no better than touts". Janet Paraskeva, the Society's chief executive, also believes "intermediary organisations" should be regulated. "If a client makes the choice to use an intermediary then fine, but it's when the intermediary employs people to encourage claims that it's dangerous," she says.

However, it wasn't the consumer scares that ultimately did for Claims Direct and The Accident Group but the vexed issue of recoverability. Under recent access to justice legislation, claimants can recover solicitors' "success fees" (the reward for the risk of taking the case on "no win, no fee") and the cost of the insurance premium, from the other party.

Both Claims Direct and The Accident Group effectively wrapped up their operational costs in their insurance premiums in an attempt to pass that on to the defendant insurance industry. But last month, a judgment in the High Court ruled against this practice, effectively slashing The Accident Group's premium from £997.50 to £450. The ruling effectively left a gaping hole in The Accident Group as a viable business.

Alastair Fernie, a solicitor at Tranters Freeclaim in Manchester who is advising Catherine Davis and 150 other accident victims with grievances against claims companies, believes that key sources of income for the likes of The Accident Group have now been cut off. "The recent ruling is an indirect form of regulation that will starve this model of claims company of funds. That will provide greater protection to the consumer," he argues.