RSA inflating third party claims

Fallows v Harkers Transport (a firm), Romford County Court, 2 September 2011

“The Fallows case involved a road traffic accident in which liability was not in issue. The claimant was insured by RSA which organised the repair to his vehicle and sought to recover the costs from the defendant’s insurers, Equity Red Star.

The judge detailed the historical system which the insurance industry operates, whereby the claimant’s insurers will obtain a quote, the defendant’s insurers will review it, they will usually accept it, and then the claimants’ insurers organise the repair and pay for it before making a subrogated claim against the defendants’ insurers for the amount of the invoice.

In this instance, RSA set up a separate company, RSA ARL, to undertake all repairs of vehicles insured by them. At times, they would use contractors, as they did in this case. RSA ARL paid the contractor but the invoice they submitted to RSA was for a higher amount. It was the higher invoice which was then submitted to Equity Red Star. There was no detail of the ‘extra charges’, save that they fell into the descriptions of ‘sundry allowances’ and ‘collection/recovery costs’. It appears that they were a fiction.

The judge found that RSA controlled RSA ARL and its business records. By using the above system, he found that the cost of repairing the vehicle increased by approximately 25%. These costs which resulted from simply inserting RSA ARL as an intermediary inflated the ultimate costs, by increasing the hourly rate and adding extra charges, one of which he disallowed as a fabrication and the other was not reasonably incurred. The effects of the extra charges were ‘simply to boost RSA group’s profits beyond the actual costs of repair by the margins inserted by RSA ARL’.

RSA’s lawyers adopted ‘ingenious’ arguments to avoid disclosure of documentation which would have shed light on the background to the final invoice. There was no justification established for claiming for an amount above the subcontractor’s invoice.

This case demonstrates that Jackson LJ’s view of the personal injury process is too facile. There are opportunities to make money out of personal injury litigation as claims management companies, sign-up agencies and medical agencies can all attest. Not all are a carbuncle on the process.

But while criticising claimant lawyers his lordship should consider the true nature of the RSA scam. This was not a tacky advert by a claimant lawyer in a local rag advertising ‘no pain, no gain’, but a deliberate and heavily resourced plan to make hundreds of thousands of pounds by deceiving other insurers. A separate company was formed; the administration was set up to handle hundreds of cases. One suspects highly paid tax lawyers would have provided guidance in relation to revenue aspects of the arrangement, and accounting processes implemented to handle the revenue stream. Very few organisations would have had the facility to set up this profit-making venture.

Life is rarely, as Jackson LJ appears to see it, in high definition. The edges are mostly blurred. The worst elements of both sides of the litigation experience should be extracted and disposed of. Mr Loveday’s actions were petty in the scheme of things and based on a foundation of crass naivety. He was imprisoned for his deception. RSA, on the other hand, committed a deliberate and substantial fraud on a grand scale. Their MD was not summonsed to attend court to account for their actions.

There has, save for the embarrassment through radio coverage, been little consequence.

The PI world has miscreants on both sides, but irrespective of what happens to claimants and their lawyers post-Jackson, one can be sure the insurers will continue to make significant sums of money. However, as the Fallows case demonstrates to his Lordship and others, when the mask of the insurance industry slips the face behind is rarely attractive.”

By Simon Allen, joint head of the national personal injury department at Russell Jones & Walker and managing partner of the Sheffield office.

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