Written evidence from the Law Society of England and Wales

Summary

1. The Law Society of England and Wales is the independent professional body that works globally to support and represent 170,000 solicitors, promoting the highest professional standards and the rule of law.

2. The Government has recently introduced the Prisons and Courts Bill that contains provisions to reform personal injury legislation by introducing a tariff system to compensate whiplash cases.

3. The Government has also announced its intention of increasing the small claims limit for all road traffic accident (RTA) claims up to £5,000, and for all other types of personal injury claims up to £2,000. These measures do not require primary legislation and will be introduced by Statutory Instrument once the Bill has received Royal Assent.

4. The Law Society has spoken extensively to its members about the potential impact of the introduction of a tariff system on their clients. We have also collected their feedback about the increase to the small claims limit for all RTA cases as well as for other types of personal injury claims.

5. We are concerned about the implications that these reforms have on access to justice. We therefore recommend that: 

• Victims of road traffic accidents, including whiplash, should be able to recover legal costs and access justice. Therefore, a fixed tariff system to compensate whiplash claims should be excluded from the Bill.

• If the Government is determined to introduce fixed levels of compensation, the proposed rates should be based on the average value or median value for that class of claims as prescribed in the Judicial College Guidelines.

• The Government should ensure that insurance fraud is tackled by proportional measures, for example banning cold calling by claims management companies.

• The Government should reconsider its decision to increase the small claims limit to £5,000 for all RTA claims, as it will effectively deny access to justice to all victims of road traffic accidents, including pedestrians, cyclists, and vulnerable road users.

• The Government should ensure that an adequate mechanism is in place to hold insurers to account, so they effectively pass savings on to consumers. The Government has no powers to enforce such measure and only few companies have indicated that they are prepared to do so.

• In relation to the increase of small claims limit for other personal injury claims, we do not object in principle to an inflation based increase. However, the Government should raise the limit to approximately £1,700, an inflation up-rate based on the Consumer Price Index (CPI).

The Government's reform to personal injury law

6. Last year, the Ministry of Justice (MoJ) published a consultation[1] proposing significant changes to personal injury law. The consultation closed in January and we submitted a response[2].

7. In line with the consultation outcome, the Prisons and Courts Bill, that is currently at Committee Stage in the House of Commons, contains provisions (Clauses 61-67) to introduce:

• A fixed tariffs system to compensate victims of whiplash and minor related psychological injuries, for example in case of travel anxiety or shock.

• A ban on offers to settle without medical evidence in RTA related whiplash claims only.

8. In the consultation response, the Government also announced measures to:

• Increase the small claims limit for all RTA claims up to £5,000.

• Increase the small claims limit for all other types of personal injury claims such as public liability, employers' liability and lower value clinical negligence claims up to £2,000.

9. The Law Society remains concerned about the Government's proposals to increase the small claims limit for all RTA claims up to £5,000.

10. We welcome that the Government has accepted in principle that all other types of personal injury claims should be treated differently to the majority of RTA claims. We accept that the £1,000 limit is significantly lower in real terms than when it was introduced in 1991.

11. For this reason, we do not object in principle to an inflation based increase. An inflation up-rate based on the Consumer Price Index (CPI) would raise the limit to approximately £1,700.

The definition of whiplash

12. The definition of whiplash contained in the Prisons and Courts Bill (Clause 61) is limited and gives powers to the Lord Chancellor to further define the nature of the injuries, their effects and the circumstances in which they arise in regulations.

13. The Association of British Insurers (ABI) has suggested that such definition should be extended to include injuries to the back[3]. We disagree with this position on the basis that including injuries to the back does not seem to have any medical basis.

14. According to the definition provided by the NHS, Whiplash injury is a type of neck injury caused by sudden movement of the head forwards, backwards or sideways. Common symptoms of whiplash include:

•         Neck pain and tenderness
•         Neck stiffness and difficulty moving your head
•         Headaches 
•         Muscle spasms 
•         Pain in the shoulders and arms 

Less common symptoms include pins and needles in your arms and hands, dizziness, tiredness, memory loss, poor concentration and irritability[4].

15. However, this definition does not specify whiplash in terms of an injury arising from a motor vehicle accident. We suggest that the following definition, which is based on the one outlined by Access to Justice, provides a more accurate description of what a whiplash injury is and could improve the Bill:

16. Whiplash injury means an injury suffered by an occupant of a motor vehicle where the significant physical injury caused is a neck strain resulting in pain to the neck that may radiate into the shoulders and arms.

Introduction of a fixed tariff system to regulate damages for RTA-related whiplash claims

17. We oppose the Government's proposal to introduce a fixed tariff system (Clause 62) to compensate whiplash claims.

18. The proposed fixed tariff (set out in the Government's response to the consultation) is far too low. For example, the tariff for whiplash injuries where symptoms persist for up to 3 months is a mere £225, whereas the current average settlement for a claim of this duration is £1,750.

19. The proposed tariffs include a minimal notional sum - the original consultation proposal was for an additional £25 for a linked psychological injury. This is highly inadequate and does not take into account that psychological trauma can be significant even if the physical injury is minor, especially for children.

20. Compensation should be commensurate to the severity of the injury sustained and should reflect actual pain, suffering and loss of amenity. A 'one size fits all' approach is unfair as it penalises those who are suffering from more complex symptoms.

21. If the Government is determined to introduce fixed levels of compensation, the proposed rates should be based on the average value or median value for that class of claims as prescribed in the Judicial College Guidelines.

The impact of raising the small claims limit

22. The tariff system contained in the Bill, combined with the proposals to increase the small claims limit for all RTA claims, means that all victims of road traffic accidents with an injury worth less that £5,000 would not be entitled to recover legal costs. This will impinge on the right to receive redress of all victims of road traffic accidents, not only victims of whiplash, including pedestrians, cyclists, motorcyclists and other road users.

23. If they are victim of a road accident, people riding bikes and walking across the road rarely claim for whiplash, as they are more likely to have broken bones and similar injuries. According to Cycling UK, 70% of cyclists' claims are less than £5,000[5]. Examples of injuries worth less than £5,000 include[6]:

• Fractured ribs (up to £3,300)
• Neck injuries lasting up to 12 months (Maximum £3,630)
• Back injury lasting up to 3 months (up to £2,050)
• Minor wrist fracture (£3,960 maximum)

In addition to this, there is no evidence of fraudulent claiming, as the nature of the injuries is clearly verifiable. 

24. The Government’s proposals would therefore create a greater inequality of arms between accident victims and insurance companies, which will always have an experienced litigator representing them.

25. As the ABI itself acknowledged in the evidence session to the Justice Select Committee on 7 February[7], it is reasonable to assume that an increase in the small claims limit would lead to an increase of litigants in person in the small claims court.

26. As fewer claimants will instruct solicitors as a result of the proposals, it is likely that the courts and defendants will need to put additional resources into dealing with claims with poor or no merit, placing an additional burden on court resources.
27. Solicitors have a valuable role to play in filtering out spurious unmeritorious claims. As most personal injury claims are conducted on a 'no win, no fee' basis, they have no interest in taking on weak claims unless in exceptional circumstances.

28. In addition to this, although it has streamlined the personal injury claims process to some extent, the Claims Portal is designed to be used by claimant and defendant representatives where liability has been admitted, and is not accessible for litigants in person.

29. There is also a likelihood that claims management companies (CMCs) and 'professional' McKenzie friends would increase their share of the market. Unlike solicitors, McKenzie friends are not required to be regulated or insured, and they do not need to have any legal qualifications. CMCs are similarly subject to minimal regulation.

30. Under the Solicitors' Code of Conduct (Cold Calling) Amendment Rule 2009, it is an offence for solicitors to make unsolicited phone calls and send unsolicited texts[8]. We believe that unregulated CMCs and McKenzie friends do not offer the professional standards and protection that consumers need.

Measures to tackle fraud

31. The Government has stated that the reforms have been introduced to tackle 'the problem of the industrialisation' of whiplash claims. We welcome appropriate measures to tackle fraud and we support the Government's proposal to ban pre-medical settlements for whiplash claims without medical reports set out in Clause 64 and 65 of the Prisons and Courts Bill.

32. However, there is little evidence on the prevalence and value of fraudulent claims. According to an analysis conducted by the Association of Personal Injury Lawyers (APIL) of the 2015 figures from the ABI, fraudulent claims only account for 0.25% by volume or 1% by value of motor accident claims[9].

33. The measures set out in the Prisons and Courts Bill will prevent genuine claimants from bringing their claims. We believe that they are disproportionate to the problem they are seeking to address and that the Government needs a more compelling reason to introduce a change to tort law than perceived fraud. 

34. To tackle fraud, we believe that the Government should:

• Ban cold calling by CMCs.
• Impose stricter regulation on CMCs.
• Encourage insurers to actively challenge and seek punitive measures for claims they believe are fraudulent.
• Encourage the Information Commissioner's Office (ICO) to provide guidance on data sharing practices in relation to insurance fraud.

35. The Government argues that proposals in the Prisons and Courts Bill will reduce annual insurance premiums by an average of £40. These savings are based on the estimated 'pass through rate' which is the proportion of savings insurers would pass on to consumers, estimated by the Government at 85%.

36. Pass through rates are difficult to predict and it is not clear how the 85% savings rate has been calculated by the Government. We are skeptical that this level of pass through will be achieved.

37. In addition to this, there is no mechanism in place to hold insurers to account to effectively pass savings on to consumers. Only a few companies have indicated that they are prepared to do so and the Government has no powers of enforcement.

38. In its evidence to the Justice Select Committee and to the Bill Committee on 28 March, the ABI was unable to provide assurances that cost reductions for insurers would be passed on to consumers. The ABI stated that 'if one insurance company fails to pass on those savings to consumers and their competitor does, people will switch'.[10]

39. We believe that this issue is too important to be left to the market. Of all the ABI members, only three have indicated their commitment to reducing premiums based on the consultation outcome. In our view, in the absence of a mechanism to hold them to account, the insurance sector's commitment does not provide enough reassurance that consumers will benefit from the reform.

40. A report commissioned by the Law Society, APIL, and the Motor Accident Solicitors Society (MASS), from economic consultants Compass Lexecon, found that the methodology used for the Government's impact assessment was biased towards the insurance industry. We disagree that increased profits for the insurance industry should be considered as a wider public benefit, whilst at the same time losses to other stakeholders, such as solicitors and medical reporting organisations are not included[11].

41. Therefore, when these savings are considered in relation to the losses to claimants arising from the proposed reductions in compensation, the net financial benefits to the public as consumers and taxpayers are at best minimal or even outweighed by the costs.

Discount rate for personal injury compensation

42. Although the discount rate is not part of the inquiry, we felt that it was appropriate to outline our position in light of the consultation paper published on 30 March.

43. The change in the discount rate has been recently reviewed by the Lord Chancellor from a rate of +2.5% to -0.75% which came into effect on 20 March 2017. We therefore welcome the review of the discount rate and will respond to the consultation.

44. The +2.5 % rate was set in 2001 by Lord Irvine and had never been varied since, despite economic shocks in the wake of the 2008 financial crisis, so the review was long overdue.

45. Lump sum settlements for people who have been injured or died in accidents that are someone else's fault have long been subjected to a discount rate to reflect the anticipated net return on investment of that lump sum over the period of the loss for which it is awarded. Lawyers take account of the discount rate when calculating future losses as a result of a personal injury or a fatality. So, for example, it could be based on projected earnings.

46. Despite the assumption inherent in the discount rate, for many years no claimant with a lump sum who invested it solely in gilts could possibly have made that lump sum award last long enough to pay out all the costs for which the damages were awarded.

47. The House of Lords in Wells v Wells set the standard of assuming investment in a portfolio that offers the least risk to investors in protecting an award of damages against inflation and market risk[12]. The House of Lords in Wells and Lord Irvine had worked on the basis that this was best achieved by a portfolio containing 100% gilts.

48. The purpose of the law of tort is to put the claimant back into the position they would have been before the injury. In practice, in the case of serious injury, that means an award to compensate for the lost earnings and a lifetime of care and equipment costs to mitigate the effect of injury caused by someone else's fault.

49. It is a very important part of our justice system for people catastrophically injured through someone else's negligence to know that the wrongdoer will pay what is necessary, and for that cost to be spread widely throughout society through insurance.

31 March 2017