The claims of wrath: a story of continuing claims migration and farming

In 2017, Arfon MP Hywel Williams, lead a debate in Westminster on the issue of instances of failed retrofit cavity wall insulation (CWI) in Wales (after years of campaigning) because many of his constituents had suffered from damp and mould as a result. In addition, there have also been numerous press articles about CWI being a scandal and a blight on homes.

With over six million homes with retrofit cavity wall insulation, there will always be a small number of problems. CIGA reports a complaint rate of 0.47% against their guarantees, however, the problem is not (statistically) significant.

But all this comes at a time when claims management companies (CMCs) and claimant law firms are looking to diversify their businesses and income streams. Banning personal injury referral fees, personal injury court track changes, tariff damages, reduced costs, fixed costs extensions and DIY personal injury work through the Litigants in Person (LiP) portal.

These pressures are creating a migration in the world of claims legal services, with law firms and claims companies looking for new, fertile lands. As this migration happens claims in these areas increase, often rapidly, and can create problem behaviours.

We have seen in the travel industry how claims farming and a migration into a new claims area by CMCs and solicitors creates a problem. Claims relating to travel sickness reached epidemic proportions, resulting in wide-ranging responses, including from the Solicitors Regulation Authority SRA, who investigated and issued an open warning to those they regulate.

Last year the SRA updated its warning notice to those law firms bringing holiday sickness claims, stressing that it expects its regulated members not to conduct fraudulent or questionable cases.

The travel industry saw a 500% increase in claims. The SRA investigated over a dozen claimant firms in connection with their improper links with claims management companies and payment for referrals.

The SRA were concerned about firms pursuing claims without proper instructions from their clients and failing to properly assess the merits of a case prior to presenting them, in some instances even turning a blind eye to, or not properly considering the reliability of evidence. The SRA noted that a law firm’s failure to vet claims had a serious impact on the administration of justice and those subject to such claims.

The warning notice clarified the SRA expectations on law firms dealing with unmeritorious claims, the principles of which apply to all litigation, stressing that any breach may result in regulatory action. The notice included the following list of problems the SRA identified:

"We [the SRA] have seen firms:

Taking on matters whilst lacking competence and skill in the area of law.
Failing to ensure that they do not accept cases from introducers who are cold calling or failing to verify the source of the referral.
Entering into improper referral arrangements and allowing their independence to be compromised by, for example, favouring the interests of the referrer.
Failing to properly identify clients and confirm client instructions, including the verification of relevant documentation to support a claim.
Bringing a claim without first investigating whether it is valid.
Making unreasonable requests for disclosure from the defendant or their lawyers.
Failing to objectively assess and investigate adverse evidence.
Failing to properly advise clients about what will be expected of them when making a claim.
Submitting false or dubious claims in the hope of a settlement without further investigation by the defendant.
Seeking unreasonable costs – either from the client or the defendant."

All this is (understandably) grist to the mill for those that believe Britain suffers from a 'compensation culture'. For those holding that view it will come as no surprise that there is a new claim phenomena with the cavity wall insulation industry being targeted. But why now? What has happened to create the conditions ripe for claims?

During the last six years, The Energy Company Obligation (ECO) scheme placed an obligation on larger energy suppliers to deliver energy efficiency measures to domestic properties, including energy suppliers contracted with CWI installers to deliver a reduction in carbon emissions (measured in million lifetime tonnes of carbon dioxide).

With consumers effectively receiving no-cost insulation, the adoption was widespread and in a small number of cases problems can occur. All this creates a perfecting storm that gives the impression that CWI claims might be the Holy Grail of lucrative hourly rate work and referral fees. This migratum legalis (we made up this term) includes traditional personal injury firms developing their practices and new entrants to the market, set up purely to deal with CWI claims, often working closely or sharing ownership with claims referral sources.

In the last two years, CWI installers and their insurers have been inundated with an unprecedented volume of claims. This claims surge has been driven by the claims farming and referral industry.

There is no referral fee ban for CWI claims. As such, issue specific CMCs emerge. These CWI 'specialist' claims companies have an all too familiar bait: ‘Got cavity wall insulation? You can claim an average payout of £25k’. They call; they come knocking at the door. This is no-win no fee. "You are entitled to claim", "You have a claim" and "Everyone is doing this". To unsuspecting home owners you can see how a promise of tens of thousands of pounds might attract claims.

Let’s take a closer look at the claims. The claims presented typically allege that the CWI causes damp and mould. Of course, in some cases it can. However, we are increasingly finding cases where there is no evidence of damp as alleged or damage which is quite clearly attributable to other causes. Little or no attempt to properly evidence the cause of damage or the extent of the loss is commonplace.

Our investigations show how specific areas and homes are being targeted. Where retrofit CWI was sold door-to-door then claims in volume are following. Installation lists are being bought and sold resulting not only in nuisance cold calling, but in some cases claimants (in name only) do not even know a claim has been made on their behalf.

Claims are also being made against now defunct installers in respect of properties that either did not have retrofit CWI or the work was not performed by that installer. Relevant documentation designed to prove the involvement of a particular installer or confirm CWI installation is being forged. Even where there is damage causing loss, exaggeration is commonplace.

In addition, many of the same issues identified by the SRA in respect of travel sickness claims, and referenced in their warning, are present in CWI claims.

Is CWI the new whiplash/crash for cash/PPI/deafness/travel sickness/etc. (insert or delete as required)? Yes, it unfortunately could be.

Claims farming and a perceived necessity are driving CMCs and law firms into a migration into new areas of claim and legal work that feels greater in both scope and scale than we have seen before. CWI is just one of many emerging areas of farmed claims. As such it is necessary for those of us working in and for insurers and insureds who face these claims to be vigilant and ready for claim surges across different types of claim so that the usual problems (such as managing volume and fraud) can be properly managed.

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