NU Online News Service, April 6, 2:30 p.m. EDT
Civil litigation reforms in the United Kingdom that could reduce legal costs for insurers are credit-positive, says a report from Moody's Investors Service.
The overhaul of the civil justice system is the first in 15 years, said Justice Secretary Kenneth Clarke in an announcement at the end of March.
Moody's says the changes have "far-reaching" implications for the "increasingly litigious culture in the U.K., where claims can be pursued under no win, no fee arrangements." With the reforms, claimants will shoulder more financial burden by having to pay their own legal costs regardless of the outcome.
The changes are based on a review of the legal system conducted by Right Honourable Lord Justice Jackson, which looked at how to improve access to the courts while maintaining control of costs.
Reserving volatility will be reduced by a change to establish fixed settlements for certain types of cases, Moody's says. Additionally, a claimant's success fees and after-the-event insurance premiums are no longer recoverable from the defendant, whose insurer could have been liable to pay these fees.
Clarke says the U.K. civil justice system had gotten "out of kilter." Slow courts, out-of-control costs, unnecessary litigation and the no win, no fee agreements meant "greater payments to lawyers than to claimants."
The news is not all good for U.K. insurers, says Moody's. To offset more costs borne by the claimant, awards for general damages for personal injuries should increase 10 percent compared to settlement levels now—a negative for insurers, Moody's says.
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