AMM 101 CLAIMS MANAGEMENT

Assignment 5
Short Question
1. Insurance Fraud is detected through "fraud indicators". Identify the common and general fraud indicators
that are suspicious presence. (10 marks)
Experienced claims handlers are able to identify a large number of fraudulent claims relatively easily; they
do so because of the existence of one or more so-called fraud indicators. Some of the more common ones
are as follows:
Frequent change of insurer.
This gives the impression that they are hoping to avoid the attention of a particular insurer and disperse
the information held on them by frequent changes.
Uncharacteristic increase in the level of cover.
For example, a request to add accidental cover mid-term.
Unclear ownership of goods.
In particular, of motor vehicles. This suggests that either an item does not exist or else it has been
'borrowed' for claim purposes.
Financial difficulties.
Whilst these are not always readily identifiable to an insurer, information may come to light, e.g. where
there is a loss of cash claim and bank statements, provided to substantiate a cash withdrawal, show a
substantial overdraft.
In addition, presence of the following will also cause suspicion:
prevarication by the insured;
excessive pressure to settle;
an inconsistent story which may suggest that the insured is, perhaps, fabricating facts;
inconsistencies between the information supplied at quotation and that given when the claim is made;
lack of co-operation - this is on the basis that the genuine insured who has nothing to fear or hide is likely
to co-operate to remedy their loss as soon as possible;
poor documentation - e.g. a total lack of receipts or paperwork to substantiate purchase; and
conversely
perfect documentation, which appears almost 'too good to be true' to the experienced claims handler.

These indications are very important in bringing to the attention of the claims handler the existence of a
claim which may not be entirely as it first seems or perhaps, more accurately, may not be as the claimant
would have it appear.
Some insurers have produced fraud indicator manuals for their staff highlighting the above list, which is not
exhaustive. What is covered in these manuals is likely to vary according to whether the insurer's portfolio is
personal or commercial business.
2. Discuss the Legal Remedies available on fraud. (10 marks)
Where the pitfalls are overcome and an insurer succeeds in proving fraud against a claimant, a number of
remedies become available. The main ones are as follows:
Cancellation of the policy (from the date of the fraudulent claim). Clearly, the insurer will not wish to
remain on cover in circumstances where fraud has occurred and this remedy facilitates the insurer's
inevitable wish to bring the contractual relationship to a prompt end.

 Avoidance of the policy abinitio (i.e. from the very beginning of the contract). Legally, the effect of
such action is that the law treats the contract as never having existed.
In certain circumstances, the insurer has the right to retain any premiums paid on policies where
fraud is subsequently discovered. We shall discuss this in more detail below.
Damages may also be available to an insurer who suffers loss directly attributable to fraud by the
insured.
Various criminal remedies, for example confiscation of property or term of imprisonment.
i) Avoidance of the policy ab initio
A contract is rendered voidable at the option of the injured party wherever fraud is present. The effect of
this is that the contract is rescinded and the injured party can recover their outlay, which will be the claims
payment. This is very useful where fraud is only discovered after a claim has been paid. The policy is then
considered void ab initio, which means that the policy is treated as if it never existed and the parties are
each put back in the position they would have been in but for the contract.
Whilst we have said that fraud will result in an insurer being entitled to avoid a contract ab initio, it is
important to note that completely innocent non-disclosure or misrepresentation will not give rise to any
remedy. This is similarly the case where the insured's conduct falls short of good faith but yet does not
amount to fraud. An example of the latter might be found where a false or exaggerated claim is made but
is born out of negligence rather than any deliberate act on the part of the insured.
Avoidance and declinature
We must of course be careful to distinguish between the avoidance and declinature of claims. The burden
of proof of a loss lies with the insured and insufficient evidence may entitle an insurer to decline to pay a
claim. Where an allegation of fraud is raised, the insurer is entitled to avoid the whole policy and the
consequences go beyond the mere loss of the claim moneys.
The insured may find themselves uninsurable for the future where this is the case and, for this reason alone,
the courts require insurers to meet a very high burden of proof of fraud.
Express warranties
Warranties are often contained in insurance contracts. Warranties must be strictly complied with; even slight
deviations from the facts contained in the warranty will create a right for the aggrieved party to avoid the
contract.
Frequently warranties are incorporated into the contract by a statement in the policy that the proposal is
the basis of the contract and on the proposal form there is a declaration by the insured as to the truth of the
answers given. At one time the declaration stopped at this point but in recent years insurers have amended
such a declaration so that it now includes the words to the knowledge and belief (of the proposer). This has
softened the effect of the warranty.
Cancellation of the policy
This is a weaker remedy than avoidance from inception in that, although a particular claim may be
avoided, in effect the contract is affirmed in respect of matters leading up to the fraud where there may still
be a policy liability.
Contrast this with the situation where the policy is avoided from inception and the contract is treated as
never having existed.

ii) Retention of premiums

There is frequently dispute between insurer and insured as to the ownership of premiums in cases of fraud.
Section 8A(3)(a) of the Marine Insurance Act 1906 states that:
Where the policy is void or is avoided by the insurer as from the commencement of
the risk, the premium is returnable, provided there has been no fraud or illegality on
the pan of the assured.
Where the insurer can prove fraud, they will therefore be rightfully entitled to retain any premiums paid.
iii) Damages
The case of La Banque Financiere de la Cite 5A v. Westgate Insurance Co. Ltd (1990) says damages are not
a suitable remedy where fraud is present. In that case, it was said that the only remedy properly available in
such circumstances was rescission of the policy and the recovery of any premiums paid. It stands for
subsequent cases either to reinforce or reverse this premise.
iv) Fraud against reinsurers
The remedies available to a reinsurer in cases of fraudulent pre-contractual negotiations are the same as
those available to an insurer where the insured has been fraudulent towards them.
v) Affirming the contract
An insurer may have reasons for choosing not to avoid or terminate a policy, even where the law will clearly
permit them to do so, and they may be content simply to avoid the fraudulent claim while the policy
continues. The insurer will be prohibited from avoiding the policy once they have affirmed the contract.

3. Briefly explain the following:

i. Who are eligible to complain to the Financial Ombudsman Service(FOS)
Another way of resolving disputes between consumers and financial firms is to turn to the Financial
Ombudsman Service (FOS). However, the FOS wilt only become involved once all usual negotiations have
been exhausted. The FOS provides a free, independent service, which is flexible and informal. It is impartial
and decides each complaint on its own merits. It is independent of government and financial firms.
From 1 December 2001, under the Financial Services and Markets Act 2000 (FSMA), the Financial Services
Ombudsman Service became the statutory Ombudsman scheme covering most areas of personal finance.
Although the original Insurance Ombudsman Bureau could only deal with complaints from private
individuals, the FOS has an expanded brief and also handles complaints from:
mirco-enterprises, i.e. businesses employing less than ten people and with a turnover or balance
sheet value not exceeding 2 million;
charities with an annual income of less than l million; and
trusts with a net asset value of less than 1 million.
ii. What are the time limits of such complain made to (FOS) (10 marks) 11/12
If policyholders wish to refer a dispute to the Ombudsman, they must first confirm that all usual negotiations
have been exhausted. This means that the claimant must have referred their complaint to the very highest
levels of management and still be dissatisfied with the response. Also any legal proceedings must have

been withdrawn. This is because the FOS will not become embroiled in legal proceedings. Finally the matter
must be referred to the Ombudsman within the earliest of:

six months of the date on the firm's letter advising the claimant of its final decision regarding the
complaint;
six years after the event complained about; or
three years after the complainant knew, or should have known that they had cause for complaint.

iii. "WooIf Reforms" brought about the changes to The Civil Justice system in England. Why is there a
need to change the old system and what does the new regime brought about in the new system?
(10 marks)
The Civil justice system in England and Wales has been subject to a major overhaul which came into effect
on 26 April 1999. The changes were the result of a detailed review by Lord Woolf, Master of the Rolls. These
changes, which are now enshrined in the Civil Procedure Rules (CPR), are commonly called the 'Woolf
Reforms'.
The Civil Justice system in England and Wales has always had a reputation for being just, fair and of the
highest quality. However, after widespread consultation among legal practitioners and court users,
including the insurance industry, Lord Woolf concluded that the system was also too slow, too expensive
and inaccessible to too many people. Lord Woolfs final report, called 'Access to justice', which was
published in July 1996, recommended that there should be widespread changes to the system. In summary,
the changes which Lord Woolf proposed were as follows:
Litigation should be avoided wherever possible. If litigation is necessary it should not be
adversarial and there should be co-operation between the parties.
Litigation should be simpler, faster and more certain.
Litigation should be affordable. In particular, costs should be 'proportionate'. This means that they
should bear some relation to the value and complexity of the individual case.
the courts, and the entire legal process, should be more user friendly.
Lord Woolfs recommendations were incorporated into the Civil Procedure Rules (CPR).
The CPR is underpinned by the 'Overriding Objective'. This objective is to deal with the case 'justly'. This
means that, insofar as is possible, both the court, and court users, must ensure that:

the parties are on equal footing;

expense is kept to a minimum;
the case is dealt with in a way which is 'proportionate', bearing in mind:
the amount of money involved,
the importance of the case,
the complexity of the issues, - the financial position of each party;
the claim is dealt with expeditiously and fairly; and
the claim receives its fair share of the court's resources, and no more.

The parties to the dispute have an obligation to help the court achieve the overriding objective. The court is
also given wide ranging powers of active case management which it must use to achieve the overriding
objective. Active case management is defined as including:
encouraging co-operation between the parties;
identifying the issues at an early stage and deciding which need full investigation and which can
be disposed of quickly;
encouraging the use of alternative dispute resolution methods if appropriate; and

 fixing timetables, controlling the progress of the case and giving directions to ensure that the
claim proceeds quickly and efficiently.
The court may make orders on its own initiative either with or without the parties being present.

iv. Common claim settlement is by way of Lump Sum payment. Discuss the alternate way available
in claim settlement with its advantages and disadvantages. (10 marks)
The vast majority of claims are settled by way of a lump sum payment. Most litigated claims are settled prior
to trial with both parties having negotiated a lump sum payment. If the claim reaches trial and the claimant
is successful, the judge will usually award a lump sum payment.
Structured settlements and periodic payments are different ways of paying damages. Instead of making a
lump sum payment to the claimant, the defendant may invest a sum of money which is designed to make
a series of payments to the claimant over a period of time. This can be utilised in serious personal injury or
death claims.
As a consequence of the complexities and high value of serious personal injury/death claims, it is sometimes
more practical to pay the claimant a smaller lump sum, investing the remainder of the award to make a
series of payments to them in the future. This has a significant bearing on liability insurers. In circumstances
where they insure a company that is liable to a claimant and a structured settlement is applicable, the onus
is on the insurer to administer the structured settlement payments. The key elements can be summarised as:
claimant receives a reduced lump sum payment;
in addition the claimant receives sums of money payable by regular instalments; and
the instalments are guaranteed for life.
The concept of structured settlements has been available to insurers and claimants since the last century.
For reasons that we will explore later in the chapter, the vast majority of claims continued to be addressed
by insurers with lump sum payments, even when structured settlements may have been possible.
The courts now empower judges to make periodic payments at their discretion. Here, a claimant may be
awarded either a lump sum by a judge, or, if the judge so chooses, the claimant may be awarded sums of
money on an ongoing basis for a period of time. For example, a claimant who has an ongoing loss of
earnings of 1,000 per month for an estimated twelve months, may now be awarded 1,000 per month for
the next year, rather than a lump sum as has traditionally been the case. Periodic payments can be
awarded in any injury claim, regardless of size.
The advantages of structured settlements are as follows:
Tax benefits - Income derived from the investment of a lump sum payment awarded by way of
damages would usually be taxed in the claimant's hands. However, HMRC has agreed that tax
can be avoided in the case of structured settlements. The result is that insurers are able to buy
annuities for less than they would otherwise have to pay the claimant.
Security against market fluctuation - Structured settlements neutralise the vagaries of a fluctuating
economy. Annuity payments provide a reliable and constant stream of payment.
Security against life expectancy risks. Annuity payments last for the whole of the claimant's
lifetime. Under a structured settlement the gamble of life expectancy is effectively transferred
from the claimant to a life office. The advantages here are two-fold in that compensation is

ensured to continue for the entirety of the claimant's life, while any dispute between the parties
as to the length of the life expectancy is defused.
Security against dissipation. Under structured settlements the capital element is 'locked away' and
the funds, therefore, cannot be squandered. The claimant is unlikely ever to become a burden
on the public purse at some future date, as may be the case where a lump sum is paid and
eventually exhausted. In addition, the arrangements may provide for the escalation of the
annuity at predetermined future dates so that it is possible to anticipate events such as
education, marriage and children.
Increased benefits where life is impaired. Where the claimant's life expectancy has been
impaired, a higher level of income can be secured from an annuity because the life office
expects to make payments for a shorter time. Transferring the risk to a life office may create a
higher income for the claimant where life has been impaired, when compared with the income
possible from investing a conventional lump sum outside the annuity market.
Removing the burden of administration. Structured settlements relieve a claimant of the
responsibility and burden of investing a lump sum and avoid the costs associated with
administering it thereafter.
The disadvantages of structured settlements are as follows:
Requirement to prepare a complex advance budget for life. Structured settlements do not avoid
the need for forecasting. In fact they may place an undesirable emphasis on this aspect which is
avoided where lump sums are used. Whereas with the latter the claimant has to deal with
anticipated future needs by managing the lump sum and making payments to meet the needs
as required, a structured settlement requires experts and advisers to prepare a complex advance
budget for life.
Inflexibility. Once determined, structured settlements cannot be changed - they only have initial
flexibility. Therefore, the pressure to 'get it right' at that initial stage is extreme. Payments from
annuities may come on stream at the wrong time or not be needed at all. Prognoses may prove
to be incorrect, affecting decisions previously made about lifestyle. The problem is ameliorated to
a degree by building a contingency fund into the structure.
Risk of dissipation does not disappear. Structured settlements do not completely remove the risk
that the moneys thereby provided will not, in fact, be adequate to meet the claimant's needs.
The claimant, unless subject to supervision by the Court of Protection, is still able to squander any
moneys they receive, even if intended for specific purposes. However, it should be noted that
with regard to the latter at least, the claimant is in no different a position to the ordinary wage or
salary earner.
The cost of care may move ahead of RPI. Although structures are linked to the RPI via the indexlinked annuity, this cannot guarantee that costs of future care will always be met. Historically, the
cost of care has always moved ahead of the RPI. To this extent, the shortfall has to be made up
from the contingency fund.
A structured settlement may not be desired by the claimant. A structured settlement, although
apparently benefiting a claimant, may simply be undesired by the individual claimant. For
example, a severely injured claimant may wish to take a large lump sum in order to move to
another country to take advantage of educational or business opportunities there. However, the

recent changes in law do not enable one party to insist upon, or the court to order, a structured
settlement save with the consent of both parties.
A structured settlement may not be desired by the insurer. Finally, the insurer may be unfamiliar
with the concept and reluctant to embrace the administrative burden and costs associated with
it. Often, where large settlements are concerned, there will be reinsurers involved and both they
and the insurers see the payment of a lump sum as being easier to manage.

v. Litigation in foreign country have serious challenge to Insurers. Discuss such difficuIties,(10 marks)
13/3B
There will be cases where it is not possible to avoid litigation in a foreign country. A solicitor will instruct
foreign lawyers as agents, but they will still have to bear certain dangers in mind.
The following are the most obvious ones:
Limitation periods -Foreign limitation periods may be shorter or longer than the English equivalents. 9
Causes of action Some countries may not recognise a cause of action which is part of English law.
Others may allow claims which would not be actionable here.
Remedies-Remedies may differ. For example, some countries exercise much tighter control over the
defendant's property pending trial than we do and give creditors greater rights to an early
judgment.
Time - The time it takes for an action to come to trial can vary widely within European States and
globally. There is a vast difference between, for example, the pace of German and Italian litigation.
Costs - In most countries, costs follow the event but this is not always the case, for example, in the
USA. Even where costs are awarded to the winner, they may be based on the value of the claim
rather than the amount of work involved. Contingency fee systems are common.
Judicial expertise - In some countries the judges will have considerable commercial expertise, being
local businessmen themselves. Alternatively, the judges may be aided by lay assessors.
Bad faith - This concept is prevalent in the USA and Canada. Insurers may have to pay an additional
sum to the policyholder in the event that they are treated unfairly by the insurer. Such awards may
or may not be recoverable under the insurer's reinsurance treaty, which in turn may be subject to
further jurisdictional agreements.
Quantum - In respect of injury claims, different jurisdictions place differing values on the same injury.
In addition, certain elements of an injury claim may attract a higher value overseas or alternatively
be completely irrecoverable.
Miscellaneous - There may also be different rules on, for example, whether a claim carries interest or
on the enforcement of judgments.

Long Question
1.

Identify and briefly explain the types of ADR available and the advantages and disadvantages of ADR
(20 Marks) 11/4-11/6

There are a number of different forms of ADR available.

1) Mediation and conciliation
These terms are generally considered to be largely interchangeable. The only real difference
between the two \s that the conciliator in a conciliation will be more pro-active than the mediator in a
mediation. Rather than letting the parties find their own way to the settlement, the conciliator will suggest
areas the parties should consider and even the terms they feel should be agreed. Many mediations
become conciliations at the parties' request, if they feel the negotiations require an increase in momentum.
Typically, in a mediation procedure there is provision that a third party selects a mediator who is
provided with the written statements of both parties. They discuss the case in detail with each of the parties
and tell them what their opinion is on a strictly without-prejudice basis. It is always within the power of either
party to prevent the mediator from passing information to the other which they consider to be confidential.
It is the intention that the discussion between the parties will identify the real issues of disagreement and,
therefore, conducted at the same time and in the same building so that the mediator is free to move from
one meeting room to another whilst the parties still do not have to meet formally. It is a vital part of this
process that the parties are represented at the mediation by people who have authority to reach an
agreement on the day.
2) Mediation-arbitration
This form of ADR allows the parties to agree to submit their dispute to mediation and, in the event of
not reaching an agreement, to refer the matter to arbitration. The person who acts as a mediator may,
therefore, go on to become the arbitrator if the matter is not settled and costs are saved where the
inevitable duplication is avoided. Where the arbitration clause in a contract allows for only one arbitrator
and not two, there is a risk that the mediator will become privy to confidential information belonging to
either of the parties during the course of the discussions and therefore compromise the position as arbitrator
later.
3) Mini-trial or structured settlement procedure
Here the parties appoint a neutral person to sit as a chairperson of a tribunal composed of the
chairperson and a senior representative of each of the parties. It is important that the representatives are
not people immediately connected with the dispute but that they also have authority to reach a
compromise as and when they see fit. They sit as a panel and read all the details of the case represented to
them by both parties. Following this, they negotiate with each other and the independent arbitrator with a
view to settlement.
4) Expert appraisal
Parties can refer their dispute to an expert in that particular field for them to give an opinion. Whilst
this opinion will not subsequently be binding upon the parties, the expert can none the less influence their
approach to subsequent negotiations.
5) Judicial appraisal

The Centre for Dispute Resolution has a scheme whereby judges and senior counsel are available to
give a preliminary and speedy view on the legal position as between the parties. The parties can then
subsequently decide whether or not the opinion will be binding.
6) Expert determination
This is considered by many to be something of a halfway house between arbitration and ADR
because, as in arbitration, the parties select experts to decide the case for them. They agree to accept the
decision which is made with the ultimate sanction of breach of contract. However, the expert's decision is
not enforceable as a court order and the expert will not possess the powers of an arbitrator under the
Arbitration Act 1996.
Advantages of ADR
It was stressed by Lord Woolf in his report on the reforms to the civil justice system that there was a
great need for a less adversarial approach to litigation and that solicitors should be encouraged, wherever
possible, to discuss with their clients the possibility of using ADR instead of litigation. The 1996 Practice
Statement on Alternative Dispute Resolution states that the settlement of actions by means of ADR achieves
the following:

it significantly helps to save litigants the ever-mounting cost of bringing their actions to trial;
it saves them from the delay of litigation in reaching finality in their dispute;
it enables them to achieve settlement of their disputes while preserving their existing
commercial relationships and market reputations;
it provides them with a wider range of settlement solutions than those offered by litigation;
it makes a substantial contribution to the more efficient use of judicial resources.

a) Speed and cost effectiveness

ADR is significantly cheaper than both arbitration and litigation, not least because of its enhanced
speed. The parties do have to pay for the third party's services but this will normally be significantly less than
the cost for the time that, for example, the individual's lawyers would spend in preparing and presenting a
case. The client also saves time where less document preparation is necessary. ADR should not, however,
be considered a 'bargain basement' option: if lawyers are involved in representing clients they will still wish
to be fully prepared, which will, of course, entail time and cost, albeit reduced.
b) Flexibility
The parties can choose one of several forms of ADR available to them and they do not have to
comply with any statutes or rules of court in doing so. Nor are there any case law precedents to limit the
decision. However, parties to ADR naturally cite statutes and case law where appropriate in order to further
their cause.
c) Preserving business relationships
ADR, like arbitration, has the benefit of being heard in private. It is therefore particularly useful, where
the parties wish to continue with their business relationship after the dispute has been resolved. It is often
much easier for them to do this when they have chosen a non-confrontational method of solving their
particular problem.
d) Commercial reality
The mediator, who is wholly unconnected with the dispute, is able to support settlement terms which
the parties would perhaps be too subjective to envisage for themselves but would be willing to accept
when proposed by an independent third party.

The overall advantages of ADR over litigation can be listed as:

greater flexibility;
cost savings;
greater confidentiality;
more control retained by the parties;
stronger commercial focus to negotiation;
enhanced independence of the mediator; and
greater speed of resolution. t

The disadvantages of ADR can be briefly summarised as follows.

a) Non-binding nature
The parties are not bound by the procedure. It is a general principle of ADR that no one can be
forced to resolve a dispute by any form of ADR which is against their wishes, and most ADR agreements
allow either party to withdraw at any stage in the proceedings. This means that it may be necessary,
ultimately, to resort to litigation.
b) Non-enforceability
Awards are not enforceable. ADR procedures do not provide an equivalent to s.66 of the Arbitration
Act 1996 (which is dealt with in section F) and therefore ADR awards cannot be enforced by the courts.
However, if the parties do agree to terms suggested as a result of ADR and have entered into a contract on
this basis, there is always the possible option of suing for breach of contract where one party subsequently
reneges on the agreement. Standard practice in ADR procedures provides that no agreement will be
binding upon the parties unless it has been made in writing and signed by both parties.
c) incomplete disclosure
Facts may not be fully disclosed. There is no equivalent procedure to that of discovery in ADR and it
is therefore possible that a dispute will be resolved without all of the facts ever becoming known. The
obvious conclusion is that the wrong decision may be made. However, many business-people are prepared
to take a commercial view on the basis that the quickness and relative cheapness of the procedure may
well be worthwhile in the longer term.
d) Non-universal application
ADR is not always appropriate; it requires both parties to be willing to solve the problem. In particular,
ADR is not appropriate where the client needs an injunction to protect their interests or where there is no
real dispute and the matter is simply one of, for example, debt collection. In addition, it is not appropriate
where the client is eager to obtain a ruling on a specific point of law so that there will be certainty for future
similar cases. Cross-border disputes can also be problematic if one or more of the parties comes from a
territory that is unfamiliar with the forms of ADR. However, this is becoming less of an issue as the process is
becoming used with greater frequency in more territories.
e) Choosing ADR
Not all disputes are appropriate for ADR. Legal precedents are required in some cases to clarify
certain ambiguities, and court is the only forum which can properly achieve this aim, since decisions made
in ADR are binding only on the parties in dispute. However, ADR is a positive commercial alternative, or even
complement, to litigation in a large number of cases. What is essential is the willingness of the parties to
resolve their dispute.

10

Solicitors are becoming more practised in suggesting the possible use of ADR whenever a dispute in
a commercial matter arises. Where the client expresses an interest in using this form of dispute resolution, this
should subsequently be used unless there is an obvious bar to doing so - for example, an injunction is
required or the contract dictates arbitration as the h'rst means of dispute resolution as is the case with some
reinsurance contracts. Notwithstanding this, there is no point in proceeding where it is obvious that ADR will
fail
2.

Why do Insurer Iitigate? Discuss also the advantages and disadvantages in having a litigation team? (20
marks)
12/3-12/4

Litigation is the word used to describe the use of the Civil Justice system (i.e. the courts) by parties to a
dispute to hear, and adjudicate upon, their difference of opinion. The person who commences litigation is
known as the claimant and the person who defends litigation is known as the defendant. The advantages
of litigation include:
It gives the parties access to the knowledge and experience of the judiciary. The Civil Justice system
in England and Wales has a reputation for producing just, fair and high-quality judgments (i.e.
decisions). It is also usual for the court to give detailed reasons for its decision which can help the
parties avoid making the same mistake in the future, or settle similar claims between other parties
before they get to trial.
The court's judgment is enforceable against the losing party. In the event that the losing party does
not pay the damages awarded by the court the winning party can take steps to recover that
money. Those steps might include obtaining a charging order over the assets of the losing party
(which prevents those assets from being sold without payment of the debt) or the seizure and sale of
the losing party's goods.
Generally speaking, costs follow the event. This means that the winning party will be awarded their
legal costs, although the rules of court are such that a winning party rarely recovers the total cost
incurred in prosecuting or defending the claim. In addition, the court has discretion to make
alternative costs orders where either party acts unreasonably or ignores an offer to settle the claim.
Litigation is an involuntary process. It can be used to force a party to a dispute to deal with a claim
which they might otherwise wish to ignore. Negotiation and mediation are voluntary processes and
often allow parties to prevaricate in the hope that the dispute might go away.
The rules of court provide a mechanism for curtailing disputes in respect of which there is no
reasonable defense. This process is known as summary judgment. The rules of court also allow the
parties to deal with certain issues or aspects to the case, such as quantum, in isolation, by way of a
preliminary hearing.
The courts have the power to award interest on damages at rates which are fixed by statute.
However, there are a number of disadvantages to litigation. These include:
the procedural requirements and the work required to interview witnesses and reconstruct the facts
after the event make it very expensive;
litigation tends to be slow for the same reasons as mentioned above and it may take years for a
complex dispute to reach trial;

11

 litigation is a public forum so if an insurer or an insured is criticised, or the subject matter of the
dispute is commercially sensitive or might cause some embarrassment, litigation may be very
unwelcome;
the court can only resolve disputes by reference to the law so, although commercial considerations
may be very important to the parties to a dispute, they are of little interest to the courts who are
bound by statute and precedent; and
insofar as insurance is concerned, the remedies which the courts can order tend to be limited to
damages and/or declarations so they are unable to order commercial compromises, even though
that might be the most preferable way forward for the parties to the dispute.
Advantages of instructing a lawyer
The areas of expertise which a lawyer can bring to the claims process include:
an objective assessment of the merits of the claim or defence and an assessment of what evidence
needs to be collated in order to successfully prove or defend the claim before, and to the
satisfaction of, the civil courts;
an objective assessment of the amount in dispute and what damage, if any, the actions of the
defendant may have caused;
the collation, management and preservation of documentation and other evidence;
the instruction of appropriate experts in order to provide advice on technical aspects to the claim or
defence;
the development of a claim strategy and tactics for the future conduct of the claim;
advice on which is the most appropriate dispute resolution process for the particular claim. If
litigation is inappropriate (e.g. because the claim concerns a particularly sensitive set of facts) then
a lawyer will help the claims handler decide whether the claim ought to be resolved by alternative
means such as arbitration or mediation;
ensuring witnesses attend to give oral evidence;
advice on policy issues such as notification, material non-disclosure and aggregation;
advice on specific defences such as limitation (where claimants are barred by statute from bringing
claims which arose out of events prior to certain specific periods); and
providing guidance on practice, procedure and the presentation of the claim or the defence.
Disadvantages of instructing a lawyer
When a claim is litigated, insurers usually have little option other than to instruct a solicitor to protect
themselves from falling foul of court procedure. However, in today's environment of reducing litigation,
insurers would be wise to consider alternative options.
The disadvantages of instructing solicitors are:
Cost - Many firms charge higher hourly rates than certain experts (such as engineers) and barristers.
Solicitors may focus on the technical aspects of a claim without an eye for the economics of early
settlement. Most insurers have experienced lawyers running technical legal arguments and
ultimately spending more on costs just to prove a point, rather than negotiating an early settlement.
Insurers and adjusters are just as able to consider policy points and instruct experts.
For advice (such as policy interpretation) that requires legal input, insurers may find that
approaching counsel direct is quicker, cheaper and avoids the layering of costs when the solicitor
acts as no more than a post box.
Lack of expertise. Few lawyers are experts in the complex technical areas that are often the subject
of litigation (for example, design and build/construction litigation).

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