Claims Direct admits threat to payouts

Fresh problems at Claims Direct, the "no-win, no-fee" personal injury compensation business, were revealed yesterday when the company admitted that a new group of thousands of customers could lose their compensation awards, despite their claims being successful.

Fresh problems at Claims Direct, the "no-win, no-fee" personal injury compensation business, were revealed yesterday when the company admitted that a new group of thousands of customers could lose their compensation awards, despite their claims being successful.

Claims Direct fights personal injury claims on behalf of customers. Colin Poole, the chief executive, has warned that many customers, who have been led to believe that their compensation payouts were safe due to a change in the law, may see much of the money used to pay for compulsory insurance, which Claims Direct requires clients to take out.

When a new customer signs on with Claims Direct, he or she is required to take out an insurance premium, which costs £1,350. If a claim for compensation is lost, the premium is waived. However, successful claimants have in the past had to pay the premium out of their awards.

This situation, which emerged in November, led to criticism from consumer groups and newspapers, as well as the collapse of the company's share price.

About 40,000 customers have taken out policies with Claims Direct since April last year, when the new Access to Justice Bill changed the rules in a way that should allow Claims Direct to recoup the £1,350 premium from a third party that admits liability.

However, Mr Poole said that the company has only recouped the premium from third parties in "substantially less" than 100 cases since last April. In contrast, defendants have refused to pay these costs in about 500 instances. A number of insurers covering the liabilities of defendants have said they refuse to pay Claims Direct's insurance premiums because they are too high.

While only a handful of cases taken out since April have so far been settled in or out of court, up to 40,000 Claims Direct customers - two-thirds of the total number - could be affected by the problems. Claims Direct has seen its share price fall from a high of 353p last September to 33p last night, after slipping almost 10 per cent yesterday.

Claims Direct warned yesterday that if the insurance companies do not pay, it would take the money out of its customers' compensation packages.

Mr Poole said: "It is the client's liability to pay the premium. We will attempt to recover it, but if we cannot do it the cost will have to come out of the compensation."

While Claims Direct continues to negotiate with insurers, clients also face a bill for interest, charged at 16 per cent a year, on the outstanding premium.

The company now plans to bring out a new insurance policy which will guarantee customers the first £1,000 of their payment. However, the insurance will cost an additional £150.