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preventing fraud under no win no fee

Comment 23rd July 2010

Unfortunately, Conditional Fee Agreements are a huge enticement to those that wish to bring fraudulent claims, because with the use of an after the event legal expenses policy they provide a claimant with a consequence-free entitlement to litigate. If the claim fails, the Claimant’s solicitor does not charge his client and the insurance policy should pay the other parties costs.  Unfortunately if a policyholder (the claimant) has lied to his insurer (i.e. to say that he was in an accident when he was not) the insurer can void the policy on the basis of its policyholder’s misrepresentation and get out of paying the otherside’s costs. This means that Defendants that do their “job” of defending cases successfully, may not recover the costs for doing so. This loop hole costs defendants (including local authorities) thousands of pounds per case.

If the law, that already exists for vehicle insurance, is extended to cover after the event legal expense policies, so that in the event a claim fails, the insurer must pay the other party’s costs, defendants can be assured that it is financially worth defending fraudulent claims. The insurer will have a right to pursue their policyholder for the payout, which should deter some would be fraudulent claimants, and if not, at least encourage the after the event insurers to vet their policyholders properly before they underwrite the claims.

Why does this matter?

This measure would help to deter would be fraudulent claimants; encourage insurers to vet claimants before underwriting their claims; allow defendants, including local authorities, to recover their costs on claims that they successfully defend (saving public money) and encourage the defending of claims that may have otherwise been settled due to the risk on not recovering costs (also saving public money).

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