Civil Liability Bill

Written evidence submitted by FOIL (The Forum of Insurance Lawyers) (CLB07)

FOIL (The Forum of Insurance Lawyers) exists to provide a forum for communication and the exchange of information between lawyers acting predominantly or exclusively for insurance clients (except legal expenses insurers) within firms of solicitors, as barristers, or as in-house lawyers for insurers or self-insurers. FOIL is an active lobbying organisation on matters concerning insurance litigation.

FOIL represents over 8000 members. It is the only organisation which represents solicitors who act for defendants in civil proceedings.

This response has been prepared specifically for the Committee.

Executive Summary

Whiplash

1. FOIL supports the provisions within the Bill. This submission does not consider all of the amendments that have been put forward but focuses on a number of key issues.

2. The current system for handling lower value RTA claims is dysfunctional: it encourages fraud and keeps claims volumes and costs high. Claims have become a commodity. A new approach is needed: the Bill is part of an important programme to reform and modernise the system for resolving lower value claims.

3. The creation of a new electronic platform with the provision of support and guidance for litigants in person will maintain access to justice for claimants bringing an RTA claim worth up to £5,000. An increase in the Small Claims Track (‘SCT’) limit to £2,000 reflects damages inflation.

4. A broad definition of the claims the Bill will cover and a tariff set by Parliament covering whiplash claims up to 24 months are key if the new regime is to tackle abuse and deliver the savings for policyholders which the government anticipates.

Discount Rate

5. The reduction in the discount rate to -0.75% has increased damages awards very significantly (sometimes adding several million pounds to the overall award) which has increased insurance premiums and costs taxpayers £1.2bn a year.

6. Claimants should receive 100% compensation: evidence from the Government Actuary shows that claimants are currently over-compensated by an average of 35%. In these circumstances it is important that the first review be undertaken as quickly as possible.

7. It would be completely inappropriate for the expert panel to directly set the rate. The assumptions included within the Bill are evidence-based and it would not be appropriate for them to be subject to review by the panel.

Part 1 of the Bill

A dysfunctional system

1. There can be few individuals within the UK who have not received an uninvited call indicating that they have had a motor accident and have a right to compensation. Many of those individuals have not had an accident. Whilst many ignore the message, some vulnerable individuals, told that compensation is available, are tempted to make a false claim, risking civil and criminal penalty.

2. Cold calling is a symptom of the current dysfunctional system for low value RTA claims. The introduction of Conditional Fee Agreements with recoverable success fees in 1998, together with the relaxation of rules banning referral fees in 2004, led to claims becoming a commodity. Claims Management Companies began to ‘farm’ claims and under such pressure fraudulent and exaggerated claims have inevitably increased.

3. Legislation and rule changes over recent years have sought to reform the system. Some say further reforms are not needed, that the current system is working satisfactorily, but it is clear from the CRU statistics that, whilst the incidence of RTAs has decreased, claims have significantly increased over the past decade and, even after recent reform, still remain high.

4. Even taking into account the recent falls in claims numbers, the average number of claims per annum over the years 2012-2018 is over 90% more than the average per annum over the years 2000-2005. FOIL believes that the fall in claim numbers over the past 18 months has been in anticipation of the proposed reforms – without them, including the current Bill and the increase in the SCT limit, claims volumes will increase again. It should be noted that the cost of individual claims has also increased – see paragraph 10 below.

Access to justice

5. It is important that genuinely injured individuals are able to bring a claim and obtain compensation. The provisions within the Bill on whiplash claims are not stand-alone, but part of a package of reforms to introduce a new system for handling lower value claims. Its introduction is in keeping with Lord Justice Briggs’ philosophy in his report on the Civil Courts Structure in 2016, to make less use of legal representation and more use of IT to achieve access to justice. Lord Justice Briggs has emphasised that on-line justice is not second class justice.

6. The Lord Chancellor‘s letter to the Justice Select Committee in August gave further details on the online platform. As a stakeholder, FOIL has been involved in the MOJ Steering group and sub-groups, working to develop the new electronic system, accompanied by comprehensive support and guidance, to enable it to be used effectively by litigants in person without legal representation. The government has committed to the development of a "supporting structure for the digitally disenfranchised". By delaying the introduction of the new system until 2020 the government has allowed time for the new process to be developed and thoroughly tested.

7. The introduction of the new electronic platform will allow claims worth up to £5,000 to be handled without the need for legal representation (and therefore without the need to recover legal costs). It should be remembered that outside personal injury, claimants handle their own claims worth up to £10,000 through the court process without recovering legal costs, with such claims often involving complex issues on law, evidence and procedure. The vast majority of RTA claims are straightforward, and are settled, with liability only rarely in issue.

8. The aim of the proposed increase in the SCT limit to £2,000 for EL and PL claims is to reflect inflation. It has been argued that, using CPI as the index, an increase in line with inflation would increase the SCT limit to £1,413, a figure below that of £1,500 which Lord Justice Jackson proposed in his report as the appropriate trigger for an increase in the SCT limit, but this is a mistaken approach.

9. In increasing the SCT limit in line with inflation, the aim should be to include the same category of claims within it now as were within it in 1999. FOIL would argue that, of the standard indices, RPI is more appropriate than CPI as RPI is used to update damages awards in the Judicial College Guidelines. It is that index which directly reflects the inflation increases applied to damages award since 1999.

10. In updating the guidelines, the Judicial College sets out to reflect not only inflation but also the decisions of the courts on quantum. This has led to increases in the recommended awards significantly in excess of inflation. To provide just a few examples, in the 2015 edition of the guidelines, when RPI since the last edition had been 3.4%:

· The top of the bracket for neck and back injuries lasting up the three months was increased to £1,860 – a rise of 20%. The starting point neck and back injuries lasting three months to a year rose to £1,860 – an increase of 20%.

· The top of the bracket for provisional awards for moderate lung disease increased from £7,800 to £13,750 – an increase of 75%.

· The top of the bracket for simple fractures and soft tissue injuries to the leg increased by 34% to £9,000.

The government has indicated that applying RPI from 1999 would increase the SCT limit to £1,810 by 2020, when the new regime comes into effect, with an increase to £2,000 allowing for some future proofing. Taking into account above-inflation increases to damages since 1999, there is ample evidence to justify the increase to £2,000.

11. To provide protection for claimants who have a lower value claim too complex to be handled without legal advice, the rules already allow for such claims to be moved to the Fast Track, where costs are recoverable. Under CPR r26.8, the court is required to take into account a number of matters when deciding which track is appropriate, including complexity, and can move cases out of the SCT where appropriate.

12. It should be noted that CMCs see an opportunity in the changes to the system and are likely to seek to increase their activity in this area. Effective regulation will be important to protect consumers.

The definition of whiplash

13. From its early consultations on the current reforms, the government has recognised that it is important to be clear about the claims which the reforms will affect, and for the definition to reduce the scope for affected claims to be displaced into other categories of claim, thereby evading the new regime and undermining the purpose of the reforms. Relying upon their experience in handling claims, FOIL members believe that both those aims are vital in putting in place an effective process.

14. One of the challenges of dealing with whiplash claims is that a whiplash injury does not present any observable symptoms that can be objectively diagnosed. In addition to soft tissue neck injuries, other injuries also share this characteristic and are often pleaded as part of a whiplash claim, including soft tissue injury to the back or shoulder, and to other parts of the body following impact with the dashboard or steering wheel; as well as headaches and tinnitus. Over past months FOIL members have seen a broadening of the injuries pleaded as part of a whiplash claim. If the definition of whiplash is too restrictive the abuses around soft tissue, non-provable injury claims will continue.

15. It is argued that the definition of a whiplash claim should be set by medical experts but, in the context of the Bill, whiplash is a medico-legal condition, not a medical condition. The definition must be addressed in the claims context. It is important that it is established by Parliament, set out clearly and drafted with appropriate legislative certainty.

The setting of the tariff

16. It has been argued that only judges can decide the correct amount of compensation for a personal injury. In fact, there is no ‘right level’ of compensation. Damages awards for the same injury are often different, across different jurisdictions, even within the UK. Judges can only reflect the current approach: it is for parliament to decide what that approach should be. If the amendment requiring the Lord Chancellor to consult with the Lord Chief Justice before making regulations on the tariff is accepted, the Lord Chancellor will be able to factor in the experience of the judiciary in putting forward regulations on the tariff.

17. It is important to note that the tariff only sets the damages award for ‘general damages’ for pain and suffering and loss of amenity – that portion of an award which reflects damage to the person. Awards for medical expenses, rehabilitation, vehicle-related losses (including hire), and loss of earnings will still be recoverable in full. By reducing general damages the tariff will remove some of the money flushing around the system which encourages ‘have a go’ fraudulent and exaggerated claims.

18. There is evidence to suggest that whiplash claims more than other general claim types have become over-valued, due in part to the 20% increases in damages for neck and back injuries highlighted in paragraph 10 above. It should be remembered that whiplash is a non-verifiable injury. Set against this background, the creation of a specific regime for whiplash claims is justifiable, in recognition of the levels of fraud, exaggeration and abuse of process which this sector has encountered.

19. The proposed tariff will affect claims for whiplash injuries lasting up to 24 months. In reality only a very few whiplash claims are for injuries lasting for two years; the vast majority are for claims of shorter duration. If the 24 month period were reduced to a shorter period, to say, 12 months, it would provide a powerful incentive for claims to be exaggerated to push them out of the new regime, to allow the current dysfunctional system to continue to operate.

Uplift of damages in exceptional circumstances

20. FOIL is concerned that claimants will seek to inflate claims by adding additional minor injuries to supplement a tariff award - introducing claims minor injuries detailed in paragraph 13 as totally separate and distinct injuries that are in reality part and parcel of the whiplash injury itself – to seek a "Tariff+" award when only tariff damages are appropriate.

21. FOIL believes that such conduct should not be permitted and acceptance of such practice would undermine the purpose of the tariff, and the overall aim of the reforms.

22. The provision in Clause 5 of the Bill allows for regulations enabling tariff damages to be increased in exceptional circumstances. The draft regulations propose that the maximum uplift should be 20%.

23. A tabled amendment would allow courts complete discretion on the application of this uplift. FOIL has previously expressed concerns at the uncertainty that such a discretion could generate, in its evidence to the Public Bill Committee on the same provision in the Prisons and Courts Bill in 2017.

24. However, with appropriate constraints (and an effective whiplash definition) this provision could control the anticipated abuse highlighted above.

25. If a claimant has genuine minor additional injuries then providing judicial discretion to uplift the Tariff award by up to 20% would ensure that claimants are appropriately compensated whilst avoiding the unintended consequence of "gaming" the tariffs.

Part 2 of the Bill

The impact of the current rate

26. The reduction in the rate announced by Liz Truss, in February 2017, increased damages awards very significantly. Claims for care costs for seriously injured claimants were already high, providing in the most severe cases for 24 hour care over many years. Following the reduction in the rate, FOIL members report that the sums paid for future care have increased significant, in one case by 225% - from £2.84m under the old regime, to £6.369m at present. In the case of LMS v East Lancashire Hospitals, the damages award for a 10 year old girl with cerebral palsy increased from £3,770,000 to £9,296,000, with those additional costs falling on the NHS. The GAD report confirms that under the current rate over 95% of claimants are overcompensated by an average of 35%.

27. Such significant increases have greatly increased the sums payable by public bodies including the NHS, and have affected insurance premiums. The Office for Budget Responsibility reported in March 2017 that "the Government has added around £1.2 billion a year to the RDEL reserve to meet the expected costs [of the reduction in the discount rate] to the public sector, in particular to the NHS Litigation Authority."

Who should set the rate?

28. In its consultation ‘The Personal Injury Discount Rate: How should it be set in future’, in May 2017, the government asked who should set the discount rate, setting out five options included ‘a panel of independent experts’ and ‘the Lord Chancellor following advice from an independent panel’. The option of ‘the Lord Chancellor following advice from an independent panel’ received most support from respondents, with 40% of the 122 responses on the point supporting that approach.

29. In its own response to that consultation FOIL stated that it was "important that political accountability for the setting of the discount rate is maintained and therefore the rate should be set by the Lord Chancellor or other appropriate Minister". FOIL remains of that view.

30. In setting out the arrangements for the appointment of the expert panel as part of the current provisions, the government has made it clear that members of the panel will not be representatives, but will be appointed as individuals. This approach strengthens the argument against the panel being directly involved in setting the rate: it would be completely inappropriate for a small group of individuals who cannot be held to account to be responsible for setting the rate.

Timescale

31. Much of the debate on the provisions in the Bill concerning the discount rate has focussed on the timescale for review. FOIL is supportive of the government amendments agreed in the Lords which will see the provisions on the discount rate come into effect upon Royal Assent and reduce the time for completion of the first review to 140 days, instead of 180 days. FOIL would be supportive of any further measures which could enable the new process for setting the rate to be introduced effectively within a shorter period. It does not support proposals to reintroduce a requirement to consult the expert panel for the first review in view of the delay this will create in carrying out the first review.

Review of the assumptions

32. The government has worked hard to obtain relevant data to ensure its proposals on the discount rate are evidence-based. The report from the Government Actuary’s Department (GAD) published in July 2017 is based on information gathered during the consultation. The evidence makes it clear that claimants do not, in reality, invest in government stock.

33. Claimant representatives, both legal and financial, are the best source of information on the investment decisions claimants make. Many claimant law firms which handle catastrophic injury claims have investment arms which advise claimants and handle their investments. In the consultations which have preceded this Bill, full opportunity has been given to claimant representatives to present evidence on claimants’ behaviour but very little has been forthcoming, supporting the widely-held view that if more evidence were put forward it would confirm that claimants invest in mixed portfolios. The failure of those who have access to the information to put it forward to date must be considered telling.

34. In these circumstances it is appropriate for the government to proceed on the basis of expert analysis of the evidence it has received, which has led to the development of the current assumptions. The same circumstances mitigate against the argument that as part of the process the expert panel should undertake a review of the assumptions.

September 2018

 

Prepared 12th September 2018