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Published 18 November 2016
After keeping the industry on tenterhooks for almost a year the Ministry of Justice (MoJ) yesterday issued its consultation paper on the removal of general damages and increasing the small claims limit to £5,000. The deadline for responses is very tight – by 6 January 2017.
The press release issued this morning referred to "a rampant compensation culture" with whiplash claims being seen as "an easy pay-day" noting that such claims have fuelled a "predatory claims industry".
Whilst this package of reforms has RTA personal injury as its focus, the changes to the small claims track limit are of wider impact and may well capture low value employers' liability, public liability and clinical negligence claims.
On 25 November 2015, the then Chancellor George Osborne announced in his autumn statement that:
"1.143 The government is determined to crack down on the fraud and claims culture in motor insurance. Whiplash claims cost the country £2 billion a year, an average of £90 per insurance policy, which is out of all proportion to any genuine injury suffered. The government intends to introduce measures to end the right to cash compensation for minor whiplash injuries, and will consult on the details in the New Year This will end the cycle in which responsible motorists pay higher premiums to cover false claims by others. It will remove over £1 billion from the cost of providing motor insurance and the government expects the insurance industry to pass an average saving of £40 to £50 per motor insurance policy on to consumers."
"3.103. The government will bring forward measures to reduce the excessive costs arising from unnecessary whiplash claims, and expects average savings of £40 to £50 per motor insurance policy to be passed on to consumers, including by: 1) removing the right to general damages for minor soft tissue injuries; and 2) removing legal costs by transferring personal injury claims of up to £5,000 to the small claims court."
This consultation reveals the detail behind this announcement. Whilst the MoJ is consulting on removing compensation for pain, suffering and loss of amenity (PSLA), it also proposes an alternative option whereby compensation for minor PSLA is set at a fixed amount of £400, or £425 if there is also a psychological injury component. No preference is expressed between the "no damages" and "low damages" options.
The MoJ makes it clear that it considers the level of compensation awarded for PSLA for minor soft tissue injury claims to be out of all proportion to the level of pain and suffering actually experienced. The proposed definition of "minor" is injuries of up to 6, or possibly 9 months (although 6 months appears to be the MoJ's preferred option), with or without secondary claims for psychological injury. The suggested definition of soft tissue injury is the one agreed for use in the RTA Protocol in 2014, subject to extending that definition to capture psychological claims as a primary injury. Special damage claims would still be recoverable.
If the MoJ proceeds with the option of removing compensation, it suggests a "diagnosis approach" could be used. The claimant would be required to wait for 6 months before obtaining the medical report, as an examination at that point would enable the expert to determine whether the claimant is still suffering symptoms. The cost of the "6 months" medical report would be recoverable; the cost of any report obtained at an earlier point in time would not. Alternatively a "prognosis approach" could be adopted, similar to the current system. Views are sought as to the preferable option.
The consultation also sets out a tariff for claims for PSLA up to 2 years in duration: an injury of 7-9 months duration would attract a proposed £700 (£740 if there is a psychological element); and up to £3,500 for a 19-24 month injury (or £3,600 if there is a psychological element) – see tables at paragraph 58 of the consultation paper.
The MoJ puts forward two proposals for increasing the small claims track limit. The preferred option is that it will apply to all personal injury claims. At paragraph 89 of the consultation the MoJ makes it clear that employer's liability accident and disease claims, public liability and low level clinical negligence claims would all be caught by this increase.
In making the case for this across the board increase, the MoJ points to other European jurisdictions giving the examples of Finland and Norway, where lawyers are not used for most minor personal injury claims. The proposed reforms would not preclude claimants from engaging a solicitor, but the legal costs would not be recoverable. This would be in line with the government's aim "to disincentivise minor, exaggerated and fraudulent claims" by removing unnecessary cost from the claims process. It is acknowledged that complexity in some claims may be an issue, but it is noted that such claims would not be allocated to the small claims track in any event.
The other option is to raise the small claims track limit for RTA claims only, but this is not the MoJ's preferred option. The new limit of £5,000 would apply (as now) to the PSLA part of the claim alone, and the MoJ specifically asks whether the limit "…should be increased beyond £5,000, and, if so, to what level."
The MoJ appears to reject the view that litigants in person would not be able to deal with their own claims, pointing out that there is a significant amount of material available to assist and that many have "before the event" (BTE) insurance cover. The MoJ does specifically ask for views as to how support could otherwise be offered to unrepresented claimants.
The MoJ also states an intention to ban pre-medical offers. The proposed ban is specifically limited to the making of such offers to settle RTA soft tissue injury claims. The MoJ is firmly of the view that these offers can encourage the making of fraudulent claims and that a report prepared by a MedCo accredited expert will be required in all such claims. The MoJ does though ask whether the ban should be wider, e.g. whether it should extend to EL/PL claims if they are to now fall within the small claims track limit. This would be a regulatory ban introduced by legislation; the MoJ seeks thoughts on the best method of enforcement, in particular by the Solicitors Regulation Authority or the FCA.
Other measures covered by the consultation are wide ranging and include credit hire; early notification of claims; rehabilitation; recoverability of disbursements and introducing a Barème type system of damages valuation.
Credit Hire: the MoJ makes it clear that the consultation is about more than just tackling fraud, it is also aimed at dealing with costs arising from minor claims and confronting the wider compensation culture and as such, it has decided to look again at credit hire. The MoJ seeks views on a number of options to control costs within the credit hire market. These options include a first party model of provision whereby the driver's own insurer provides the replacement vehicle regardless of cost; a regulatory model intended to introduce the formal regulation of credit hire providers which would permit the capping of costs and a ban on referral fees; an industry code of conduct which would build on the existing GTA; or a "competitive offer" model allowing the at-fault insurer to provide the vehicle at lower cost if they can do so.
The MoJ also considers the scope for further education of consumers as to the cost of dealing with credit hire claims and price comparison as well as increasing the transparency of credit hire agreements. It specifically asks for comments as to the best way to improve consumer education.
Early notification of injury / intention to claim: this idea flows from the Scandinavian system whereby claimants must demonstrate that they sought medical assistance within 72 hours of the accident. The difference in population size and the fact that the systems are first party is noted. The MoJ suggests that a system whereby a claim should be notified to insurers within a set period could be beneficial in addressing the problem of late notified claims, noting that it is potentially counter-intuitive to the aims of their reforms. It also notes a suggestion that claimants should be required to contact a medical professional within the first (say) 4 weeks after an accident, with the aim of reducing fraudulent or exaggerated claims. Failure to report would then raise a rebuttable assumption that the claim is minor. The feasibility of that approach is clearly an issue and the MoJ would need to consult with NHS England to understand the full impact of such a proposal.
Rehabilitation: it is noted that rehabilitation is not necessary or appropriate in every soft-tissue injury case and that claims for rehabilitation have increased since the Jackson reforms. The consultation specifically notes that it is important rehabilitation should not be routinely ordered for financial purposes, but should only be sought on the recommendation of a medical expert. Various options are proposed to tackle the issue: rehabilitation vouchers - these address the point of "phantom" attendance for rehabilitation, but may be complex to administer; all rehabilitation arranged and paid for by defendants - the MoJ notes that this would help speed up access to treatment and increase independence and transparency; no compensation payment towards rehabilitation in low value claims - the claimant would need to fund this and primary legislation would be needed to achieve this as at present there is no intention to restrict recovery of special damages; expand MedCo to include rehabilitation providers; and introducing fixed recoverable damages for rehabilitation treatment - the MoJ notes that this could be difficult and invites comment as to whether this would be achieved via a fixed cost per session or by fixing an upper value limit that cannot be exceeded.
Recoverability of disbursements: the proposal is to put the onus on the claimant to pay for the MedCo report at the outset and further views are requested as to how recovery of disbursements could be further restricted.
A points based / Barème approach: this is described as a potential future option and views are sought as to whether a system similar to those used in France, Spain and Italy could be developed for the UK. This section is in fact a "call for evidence" on this issue.
The Government's stated intention is to address all aspects of RTA claims that drive unnecessary costs. They aim to re-set the balance, such that these are not seen by the few as an easy pay-day and so that the many can benefit from reduced premiums.
More widely, the MoJ has indicated an intention to address the compensation culture and this consultation is clearly not the end of the process. Whilst the current proposals address "minor" claims, as this is where the highest volume of claims is found, the call for evidence on a wider points based system suggests that a simplification of all personal injury claims could follow.
Understanding how these reforms will work together as a package will be critical, and it is encouraging that the Government has already given careful thought as to how the package would work. For consideration (among other points) will be: does the removal of compensation work if you have the "prognosis" rather than "diagnosis" procedure?; how will the MedCo system be impacted if the claimant is required to pay for the medical report?; will a reduction in damages, rather than removal, reduce claims frequency sufficiently to enable real premium reductions to be delivered? The insurance industry will have to demonstrate it can deliver a workable solution that will still enable genuine claimants to bring valid claims.
A key part of the package will be the transitional provisions, on which the consultation paper is silent. Unless these measures have at least some retrospective effect, any impact on the cost of insurance for consumers may take some time to materialise.
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