2 Ministry of Justice proposals to tackle
Use of small claims procedure
8. The Government's proposal to raise the small claims
threshold for whiplash claims (or personal injury claims more
generally) from £1,000 to £5,000 was the most controversial
aspect of the package of measure published by the Ministry of
Justice in December 2012. Broadly speaking, insurers were in favour
because most whiplash claims would be caught by the change and
would thereby be simpler and cheaper to deal with: solicitors
were against the change, citing concerns about access to justice.
9. We acknowledged that there were good arguments
for and against the change. On balance, we did not support the
proposal at that time. We thought it likely that access to justice
would be impaired; claims management companies would find a way
to enter the process, fuelling another boom in their activities;
and use of the small claims track could prove counterproductive
in efforts to discourage fraudulent and exaggerated claims.
We recommended that, before reconsidering this matter at some
later date, the Government should:
the impact of the electronic portal for submitting personal injury
claims on claims management and costs;
· Consider further
ways in which litigants in person could be assisted to use the
small claims process, particularly in order to counter the inequality
of arms likely to arise in personal injury claims; and
· Consider ways
in which use of the small claims track could be combined with
the routine submission of expert evidence, such as a medical report,
to help restrict opportunities for fraud and exaggeration.
10. Whilst still favouring the change to the small
claims threshold, the Government accepted our recommendation that,
on balance, it was preferable not to proceed with the change at
present. We welcome the Government's willingness to engage with
the scrutiny process and to change its position as a result of
the arguments put to it, particularly in relation to access to
justice and possible counterproductive effects of the change.
11. The Government said that it would:
Seek to ensure that adequate safeguards are developed
to protect genuine claimants from any detrimental effects relating
to access to justice or to the under-settling of claims from any
future rise in the limit
We recommend that the Government inform us of
what work is underway or planned to develop adequate safeguards
to protect claimants from adverse consequences of raising the
threshold for using the small claims procedure for personal injury
12. The Government has proposed that medical reports
for whiplash injury claims
should be supplied by independent medical panels (comprising accredited
professionals) using a standard report form, and should be available
equally to claimants, insurers, and (for contested claims) the
courts. We broadly
agreed with this proposal and said:
accredited professionals need not all be doctors;
· the practitioners
instructed to prepare such reports must be provided with information
about the accident and the claimant's medical records;
· the MoJ should
explain whether it wishes to mandate for general use the standard
medical report form already used for whiplash claims processed
using the electronic portal, or introduce an altogether new form.
· a random audit,
perhaps by an existing regulator, of at least a proportion of
medical reports prepared each year is essential.
13. The Government broadly agreed with these points,
although it acknowledged that the provision of information about
the accident and the claimant's medical records would have cost
standard report form used in the electronic claims portal will
be replaced by an "improved" form, following consultation
with interested parties.
14. The MoJ said that precise details of how these
recommendations would be implemented would be developed "at
pace". A stakeholder
group has been established to undertake the work. The evidence
we received demonstrated that there are numerous complex matters
to be resolved. The
MoJ recently gave stakeholders just 26 days to comment on various
detailed changes to the road traffic accident protocol and civil
procedure rules, with the intention of the changes being made
in July and implemented in October.
Details of how medical panels will be established-such as the
qualifications doctors need to have in order to be accredited
or how medical reports will be audited-remain unclear. The Government
has committed to publishing details of the scheme and a full impact
assessment in due course.
15. Although we welcome the Government's obvious
desire to get on with establishing independent medical panels
as soon as possible, we are concerned that numerous detailed matters
are being decided hastily and, in some cases, without much consideration
of different options. We recommend that the Government publish
for consultation comprehensive proposals for how medical panels
will work, in time for the new system to be introduced by next
16. We wish to comment on two further issues in this
area which have been raised with us by witnesses. Firstly, in
proposing to introduce independent medical panels for whiplash
reports, the Government is seeking to "address the links
which may impair the independence of medical examiners, so that
they are not paid by those who favour a certain outcome in their
diagnosis and so that they do not have other financial interests
in the outcome of the claim".
However, this may run counter to other legal changes introduced
by the current Government to enable legal practices to be owned
by non-legal entities, in what are known as "alternative
business structures" (ABSs).
For example, Co-operative Insurance said:
We foresee the situation whereby an accredited
practitioner could be employed within one entity of an ABS, and
the claimant solicitor being another entity within it. We believe
that this would be wholly unacceptable, as for the system to be
'fit for purpose' it is crucial that independence and transparency
are truly in existence.
17. We wrote to Chris Grayling MP, the Secretary
of State for Justice, on this point and he replied:
We do not believe [the Government's commitment
to addressing links which may impair the independence of medical
examiners] to be at odds with our support for ABS, but clearly
we have to come up with arrangements that address concerns around
independence, particularly where a [medical reporting organisation]
is owned by, or associated with, an ABS. As a minimum, financial
links between organisations involved in the claim process should
be open and transparent. This means looking at ways to improve
transparency in relation to payment for reports so that experts
are paid on completion of the report and regardless of the outcome
of the claim.
The MoJ has subsequently published detailed proposals
to ensure that "there should not be a financial link between
the party commissioning the medical report and any intermediary
organisation through which the report is provided (or indeed with
the medical examiner), other than for payment of the examination/report".
In our view, medical reporting organisations should be prohibited
from providing reports on whiplash and other soft tissue injuries
for claims being pursued by solicitors belonging to the same business
structure. Furthermore, a robust accreditation system should provide
mechanisms for penalising practitioners whose work is influenced
by their view of what the claimant might want in a report. We
welcome the Government's intention to act in this area.
18. We also noted concerns from Xpede Medical, a
small medical reporting agency employing one member of staff,
that the Government's proposals would favour larger firms at the
expense of smaller ones. Xpede said:
There could be a tender process requesting medical
legal agencies to bid for the tender. This process would mean
small startup companies should as mine will have to spend tens
of thousands of pounds just to prepare to run for the tender process
small companies like mine will close down leaving only
the big companies, including the ones owned by personal injury
solicitor firms, to run for tender.
Xpede also expressed concerns about the costs of
accreditation for medical staff.
We recommend that the Government explain how it will prevent
small firms being squeezed out by the introduction of independent
medical reporting panels for whiplash and related injuries.
Challenging fraudulent or exaggerated
STRIKING OUT EXAGGERATED CLAIMS
19. In our most recent report on whiplash we drew
attention to the case of Summers v Fairclough Homes
Ltd, which was decided by the Supreme Court in 2012.
In this case, an employee exaggerated the extent of injuries he
had suffered at work in order to claim £800,000 in damages.
Although the courts have the power, in exceptional circumstances,
to strike out claims which have been grossly exaggerated, in this
case damages of £80,000 were awarded in relation to the genuine
injury. Insurers raised this case as an example of undue leniency
which might be said to have the effect of encouraging exaggerated
20. We acknowledged the force of the argument that
gross exaggeration of a claim should lead to it being rejected
outright, even if there were grounds otherwise to award compensation.
However, we noted that this is a complex area of law and judicial
decisions invariably rest on the facts in individual cases. We
asked for the MoJ's view on this matter. It said:
The courts' approach reflects long-established
legal principles which have implications across the spectrum of
tort law. The Government understands that the issue has been raised
with the Law Commission for possible consideration as part of
its forthcoming 12th programme of law reform. The Commission will
be discussing proposals for its programme with the Ministry of
Justice shortly, and we will consider further whether to support
its consideration of this issue.
The Law Commission is currently considering whether
or not to undertake work in this area.
21. On 7 June, the MoJ announced that it would introduce
measures "requiring courts to throw out compensation applications
in full where the claimant has been fundamentally dishonest-to
stop people who have had an accident from exploiting the system
by making bogus claims or grossly exaggerating the extent of their
injuries", unless a substantial injustice would arise as
a result. No further
details of how or when this change would be made have been released.
22. We support, in principle, the Government's proposal
to require courts to strike out compensation claims where it can
be shown that a claimant has been "fundamentally dishonest"
by, for example, exaggerating the claim. Several witnesses also
supported the change and suggested that the UK could follow the
example of the Republic of Ireland in legislating on this matter.
However, there was also widespread recognition that the legal
issues are complex and deserved detailed consideration by the
Law Commission. We
call on the Government to clarify how and when it intends to introduce
measures requiring courts to throw out compensation applications
in full where the claimant has been fundamentally dishonest. Although
we broadly support this initiative we would caution against hasty
legislation: the legal issues need to be fully thought through
so that the eventual solution is effective and does not have unintended
INDUCEMENTS TO CLAIM
23. Many witnesses-solicitors as well as insurers-argued
that solicitors should be prohibited from offering inducements,
such as cash or tablet computers, to people considering making
claims. It was suggested that inducements to claim could encourage
people to make fraudulent claims.
Claims management companies were prohibited from offering such
inducements in 2013.
24. We raised this matter with the Solicitors Regulation
Authority, which said that "there was insufficient evidence
for the imposition of a ban on solicitors offering inducements
to claimants". It drew attention to the principles which
solicitors are required to follow which, it argued, should ensure
that the provision of inducements did not diminish public trust
in the legal profession.
25. On 7 June, the Government announced that it planned
to ban solicitors from offering inducements to claim.
No further details of how or when this ban will be implemented
have been published. Inducements to claim are likely to have
encouraged fraudulent claims so we support the Government's intention
to ban them. We call on the Government to publish details of how
and when this change will be made.
26. We have commented previously on how insurers
sometimes offer to settle whiplash claims before a claimant has
been subject to a medical assessment.
This can make financial sense for the insurer, given the cost
of defending whiplash claims and the difficulties in doing so
successfully. However, it is widely accepted that this practice
could encourage the submission of fraudulent or exaggerated claims,
particularly towards the end of the three-year period in which
such claims can be made.
For example, the Association of Chief Police Officers told us
that the practice of offering compensation without there being
a medical examination "does not help to weed out any fraudsters
who may be uncomfortable about faking an injury to a medical examiner".
27. In its response to the consultation on the Government's
whiplash proposals, the MoJ said it was "attracted to introducing
a rule to ensure that a medical examination and report is completed
before a claim can proceed".
Some insurers have reacted cautiously to this proposal. The Association
of British Insurers said insurers would need to have confidence
that medical reports were worthwhile, fees for reports would have
to be controlled, and, in some cases, such as with very minor
injuries or claims for injuries sustained months or years earlier,
reports would add no value. It warned that:
Any move to prevent the ability of offer to settle
claims before a medical report has been obtained and before the
proposed reforms to the medico-legal reporting system are implemented
will only serve to increase insurers' claims costs which will
ultimately put increasing pressure on car insurance premiums.
The Government has recently restated its intention
generally to prohibit pre-medical offers but is consulting on
whether they should be permitted if a claimant has obtained their
own medical report, outside of the system for independent panels
currently being designed.
28. We are in no doubt that fraudulent and exaggerated
claims have been encouraged by the insurers' practice of paying
out for whiplash claims without requiring a medical examination.
We strongly agree with the Government's intention to prohibit
such offers, as part of the new system for independent medical
panels for diagnosis and reporting.
29. Problems caused by claims for injuries sustained
months or years ago could be ameliorated by reducing the period
in which claims can be made or by requiring firmer contemporary
evidence of the impact of the injury. We have made the case for
these changes previously, although the Government has not yet
been persuaded. In our view, these changes will be required to
make the system work effectively.
30. It is unfortunate that the ABI should argue
that action to tackle fraudulent and exaggerated claims, by insisting
on medical examinations, will increase premiums. We would have
hoped for a firmer commitment from the industry to driving out
fraud. In our view, money saved from reducing fraudulent and exaggerated
claims should more than compensate for any extra costs resulting
from more stringent requirements for dealing with whiplash claims.
CLAIMS FOR PSYCHOLOGICAL DAMAGE
31. Axa Insurance drew our attention to claims for
psychological reactions to road traffic accidents, which, like
whiplash injuries, may be difficult to diagnose objectively. Axa
Restricting the scheme to soft tissue injuries
runs the risk of moving the problem to other areas. Although psychological
reaction to alleged physical injury is unusual and accounts for
less than 1% of all motor claims registered with the Compensation
Recovery Unit of the Department of Work and Pensions, allegations
of travel anxiety or some form of psychological reaction is a
common additional feature in many whiplash claims. In the context
of low value road traffic accidents an undesirable situation could
arise where, in future, there is a robust medical assessment process
supported by an accreditation and monitoring process in place
for physical injury, but a separate and potentially less rigorous
approach in respect of reports addressing any psychological reaction
to a road traffic accident.
32. The ABI told us that it was concerned that some
solicitors were increasingly ordering additional medical reports
on psychological injuries, adding significantly to the cost of
In a number of cases, unqualified individuals
are testing claimants for psychological injury. In addition, the
questionnaires being used to assess claimants are insufficiently
rigorous to reach a robust clinical diagnosis of traumatic anxiety,
depression or adjustment disorder without a review being undertaken
of the claimant's medical history and records to assess the impact
of any pre-existing psychological injury. In addition, even if
a psychological injury results from an RTA, there remain doubts
as to the effectiveness on the claimant's recovery of providing
cognitive behavioural therapy so soon following an RTA
The ABI went on to say that "where a claim for
psychological injury is made, that claim is often being advanced
for the benefit of the claimant's solicitor rather than the claimant
themselves given that the former is seeking to maximise the fee
income that can be derived from the claim".
33. The ABI suggested that separate psychological
reports were ordered in around 2% of whiplash, neck and back injury
claims, twice as many as before 2011.
The Motor Accident Solicitors Society said that its own survey
had shown that separate psychological reports were requested in
4% of cases. It concluded that "this is clearly an area that
requires closer investigation in the future".
Once proposals for independent medical panels for whiplash
injuries have been implemented and shown to work, the Government
should be prepared to extend their scope to other types of injury
if necessary. We also recommend that the Government press the
Solicitors Regulation Authority to stop some solicitors from playing
the system to maximise their income from unnecessary medical reports.
34. In our first report on the cost of motor insurance,
we recommended that the insurers should fund a police unit specialising
in tackling insurance fraud. In July 2011, an Insurance Fraud
Enforcement Department (IFED) in the City of London Police was
set up, funded to the tune of £9 million over three years
by the ABI. Additional funding has since been secured from Lloyd's
of London. IFED deals
with all forms of insurance fraud and in relation to motor insurance
has focused its efforts on 'cash for crash' scams, particularly
those in which criminals deliberately cause accidents in order
to make claims. We were told that "organised crime groups
often have close links with professional enablers including: car
replacement companies; car repair body shops; motor engineers;
doctors and solicitors".
35. We are in no doubt of the value of IFED as one
element in the fight against motor insurance fraud. As the Association
of Chief Police Officers argued, IFED "has introduced the
very real possibility that insurance fraudsters will be investigated,
arrested and prosecuted. This is acting as a deterrent and making
insurance fraud a less attractive proposition".
IFED's funding beyond this year appears to be uncertain. We
expect the insurance industry to continue funding the police Insurance
Fraud Enforcement Department in the long-term: we recommend that
the Government oversee IFED's funding arrangements to make sure
that the unit has a long-term future.
36. We have previously called for greater sharing
of data-between insurers and the Driver and Vehicle Licensing
Agency (DVLA) and between insurers and claimant solicitors-to
help tackle fraud. The MyLicence database, enabling insurers to
check DVLA data in real time has just gone live.
Data sharing between insurers and solicitors could help identify
claimants with a record of making claims. Progress has been slow
and the Government has recently called for work on detailed arrangements
to be completed by the summer.
We are pleased to note that better data sharing to tackle motor
insurance fraud is now beginning. We share the Government's wish
to see results as soon as possible, but it will also be important
to get the details of the scheme right. In particular, data sharing
should be compulsory: otherwise, only the most reputable firms
will take part and the impact on fraud will be limited.
13 CMI 3, paragraphs 50-54. Back
First reply to CMI 3, paragraph 42. Back
The Government intends to apply this system to "similar road
traffic accident soft tissue injuries, such as those to the back
and neck" as well as to 'classic' whiplash claims: First reply to CMI 3,
paragraph 9. Back
A consultation on arrangements concerning whiplash injuries in England and Wales,
Ministry of Justice, December 2012, Cm 8425 (hereafter Whiplash
consultation) Part 2. Back
Further reply to CMI 3, p7. Back
Further reply to CMI 3, p4. Back
First reply to CMI 3, paragraph 13. Back
For example, see submissions from Express Solicitors (CMI0005)
paragraphs 9-17, AXA Insurance (CMI0006) section 2, Your Legal
Friend (CMI0008) paragraphs 11-15, Co-operative Insurance (CMI0011),
Aviva (CMI0013) paragraphs 5-20, Association of Personal Injury
Lawyers (CMI0014) paragraphs 1-8, Royal and Sun Alliance Insurance
plc (CMI0015) paragraphs 15-26, Forum of Insurance Lawyers (CMI0016)
paragraphs 3-14, Enterprise Rent-A-Car (CMI0019), Irwin Mitchell
Solicitors (CMI0020) p3 and p5, Association of British Insurers
(CMI0025) paragraph 7 and Motor Accident Solicitors Society (CMI0028)
paragraph 13. Back
First reply to CMI 3, paragraph 17. Back
Whiplash consultation paragraph 12. Back
For example, see Keoghs (CMI0007) section 1. Back
Co-operative Insurance (CMI0011). Back
Letter, 12 March 2014. Back
Letter from Lord Faulks QC to stakeholders, 2 May 2014, section
Xpede Medical Ltd (CMI0024). Back
CMI 3, paragraphs 56-58. Back
Further reply to CMI 3, pp5-6. Back
For example, Aviva(CMI0013) paragraph 44, Forum of Insurance Lawyers
(CMI0016) paragraphs 15-18, DWF LLP (CMI0021) paragraph 12, Ageas
UK (CMI0023) paragraphs 4.1-4.2, Association of British Insurers
(CMI0025) paragraphs 30-31 and the Motor Accident Solicitors Society
(CMI0028) section 9. Back
For example, Keoghs (CMI0007) section 2, Zurich Insurance (CMI0010)
section 2, Aviva (CMI0013) paragraph 33, Royal and Sun Alliance
Insurance (CMI0015) paragraph 31, Forum of Insurance Lawyers (CMI0016)
paragraph 20, Association of British Insurers (CMI0025) paragraph
28, Motor Accident Solicitors Society (CMI0028) paragraph 18.
First reply to CMI 3, paragraph 29. Back
Solicitors Regulation Authority (CMI0031). Back
CMI 3, paragraph 63. Back
For example, Association of British Insurers (CMI0025) paragraph
ACPO (CMI0027) paragraph 29. Back
First reply to CMI 3, paragraph 24. Back
Association of British Insurers (CMI0025) paragraph 27. Back
Letter from Lord Faulks QC to stakeholders, 2 May 2014, section
AXA Insurance (CMI0006) paragraph 2.1.a. Back
Association of British Insurers (CMI0033). Back
Association of British Insurers (CMI0033). Back
Motor Accident Solicitors Society (CMI0032). Back
Association of Chief Police Officers (CMI0027) paragraphs 1 and
Association of Chief Police Officers (CMI0027) paragraph 23. Back
Association of Chief Police Officers (CMI0027) paragraph 35. Back
Submission from the ABI, Motor Accident Solicitors Society, Association
of Personal Injury Lawyers and the Law Society (CMI0035) and reply
from Lord Franks QC dated 7 April 2014. Back