Drivers face a car insurance hit and run

Pet insurance, page 3 Tens of thousands of drivers unknowingly face huge legal bills when they seek compensation after crashes as insurers restrict what they pay out for ahead of a change in the courts system.

Motor legal expenses insurance pays out to cover lawyers’ bills in the event that a victim of a car crash wants redress from the guilty motorist which is not covered by normal car insurance. Payouts are rare, because injured parties can recover their legal costs from the losing side without needing to touch their policies.

But from next April personal injury lawsuits worth up to £5,000 will be heard in the small claims court – Property market, page 2 where, unlike in the higher courts, legal costs cannot be recouped from the losing party – in an attempt by the Government to rein in the number of fake whiplash claims. These false claims have pushed up insurance premiums for all drivers by as much as 20pc, according to the Association of British Insurers.

The change will make it more expensive for insurers to pay out for legal fees, so many are cutting back what they cover. Matt Wood of By Miles, an insurance broker, said customers were being short-changed.

“It’s the Ronseal test – does it do what it says on the tin? Ultimately, these don’t,” he said. “When you buy these policies you want to be covered if you have a car crash.”

Personal injury lawyers normally charge 25pc of the compensation won, which could be up to £1,250 for a £5,000 claim.

Telegraph Money has found several motor legal expenses policies where the small print excludes paying out for lawyers’ costs incurred in the small claims court.

One insurer told this newspaper that brokers had asked it to water down the policies to ensure small claims were excluded. The AA, a motoring organisation, said it had spotted legal expenses insurance providers changing new policies to remove this cover.

Gordon Dalyell of the Association Millennial investor, page 8 of Personal Injury Lawyers, a trade body, said: “If some insurers stop providing legal expenses insurance for small personal injury claims, it pours cold water on the Government’s assumption that injured people can have their legal representation paid for by their insurance under the reformed small claims system from next April.”

Martyn James of Resolver, the complaints service, said this was part of a trend towards an increase in the number of insurers diluting policies to avoid paying claims.

“I am disappointed but not surprised,” he said. “It is a sad fact that whenever there is a change in law, or stance from an official body, insurance contracts react very quickly.”

Janet Connor of AA Insurance Services, a broker, said most drivers did not know they could be left worse off after a crash from next spring.

She said: “Many drivers will be unaware of the changes to personal injury claims from April, which are designed to push up to 95pc of existing whiplash injury claims through the small claims court.

“While some motor legal expenses providers are withdrawing legal support for these types of claim, we are committed to ensuring our customers have access to legal support.”