Written evidence from DGM Solicitors

 

Executive Summary

DGM Solicitors is a trading name of Infinity Law Ltd. The firm employs around 20 staff and represents in excess of 1500 clients each year, mainly victims of Road Traffic Accidents.

We represent our clients under a Conditional Fee Agreement and following the abolition of recoverable success fees, we now charge our clients a maximum of 25% from their damages (to include VAT) at conclusion of their claim. We fund medical reports and court fees in advance and also the risk of not recovering our fees in the event that the claim is unsuccessful.

 

The definition of whiplash and the prevalence of RTA-related whiplash claims

 

  1. “Whiplash” has come to mean any soft tissue injury sustained in a car accident. Section 5 of the bill only defines it as an upper torso injury. The Government should be clear on its definition and if it is to include all soft tissue injuries or just upper torso.

 

  1. The prevalence of whiplash claims is not clear. CRU figures suggest it has dropped but neck and back injuries have increased. Government states the number of reported accidents is falling but numbers of whiplash claims are rising. In 2013 the limit for these claims increased from £10,000 to £25,000. There was inevitably an increase in the number of CNF’s submitted. Yet the Government has quoted these figures as evidence of an increase in claims.  These examples of gathering statistics are demonstrably flawed.

 

  1. If the prevalence of whiplash claims is to be considered accurately then there needs to be some benchmark with which to compare and also some agreed parameters. 

 

  1. Government is concerned with the level of whiplash claims and that “the number is too high” but so far there is no reference to what is actually a reasonable level or number? With no benchmark or real statistics with which to compare, the statement and the basis of these proposals is inherently flawed. 

 

  1. For us the simple way to ascertain if there has been an increase or drop in the level of claims for whiplash is to simply ask the ABI to provide the number of RTA claims they receive each year (irrespective of whether there is an injury claim). If that figure has increased in the last 10 years and that increase is in line with the increase in personal injury claims for whiplash then it is safe to say that there is no real increase. 

 

  1. The following factors should also be considered when addressing prevalence of whiplash claims:

 

  1. These statistics must be considered and more research carried out to decide if there is even problem with the prevalence of whiplash claims in the UK.

 

Whether or not fraudulent whiplash claims represent a significant problem and, if so, whether the proposed reforms would tackle this effectively

 

  1. The main issue we have noticed over the last 5 to 10 years in any proposal to address fraud is in fact the definition of fraud itself. There is no doubt that deliberately “staging” or “inducing” an accident, so called “cash for crash”, is indeed fraud.  ABI data is so wide in its definition of fraudulent claims that many genuine claims fall into this category. This distorts the figures and there can be no accurate figure until an industry wide definition of “fraud” is identified, especially if it to form the basis of such drastic changes to law and people’s rights.

 

  1. Insurers are criticised for not doing enough to combat fraud or pursue fraudulent claimants. Where a claim is proven to be fraudulent insurers should pursue the individual for their costs in full and referred to the CPS for criminal proceedings to be considered. This will send a strong message out to the fraudsters. Instead, insurers are happy for a Claimant to discontinue the claim. Insurers should take more responsibility for their failings rather than blame the cost of investigating or defending a claim for the reason they pay out.

 

  1. Assuming fraud is to be described as induced, staged or phantom passengers then we can say anecdotally that this problem is reducing and we see very few of these claims in the 1500 or so personal injury claims we deal with each year. The introduction of LASPO particularly banning recoverability of success fees and introducing fixed costs makes running claims that appear to be fraudulent, no longer worth the time, effort and cost. Increases in court fees mean it can cost a law firm upwards of £5,000 in disbursements to take a claim to trial and in many cases the fixed recoverable costs is less than the disbursements incurred making it uneconomical to take the risk. As a firm and in our discussions with other law firms there is no longer any appetite to run these types of cases.

 

 

  1. The introduction of Section 57 of the Criminal Justice and Courts Act 2015 also stops attempts by Claimants to exaggerate their claim. This is being used more and more by insurers and is bedding in well. We have examples where we have put Section 57 to a Claimant and they have in turn accepted a heavy reduction, or dropped an aspect of their claim that could be considered exaggerated. This has led to reductions in pay outs from insurers. Although these examples are rarely publicised anecdotally this is now very common - overall we are of the view that it is working well. It is a shame that the efforts of the Government and the industry in implementing these changes as well as Medco have not been allowed sufficient time to take effect.

 

  1. Technology is now playing a huge role in detecting and preventing fraudulent claims. For example the increasing popularity of CCTV in commercial vehicles has  reduced the number of induced accidents involving those who target HGV and other commercial vehicles. A quick search of YouTube will show many examples of individuals being caught out by this type of footage. Black boxes also detect G –Forces and vehicle locations, which again helps detect fraud. 
  2. Given insurers’ current attitude towards defending claims it is difficult to see what incentive they will have to fight fraudulent claims should these proposals be introduced. It will be far cheaper to pay say £1,000 and no costs rather than argue fraud and incur the expense of their own legal and investigation fees; past experience proves that insurers will take the cheaper option. The Government needs to consider how insurers will react to the tariff and the increase in the small claims limit. Profits for insurers will inevitably increase and so too will the opportunity to make further savings by failing to deal with claims effectively particularly those where fraud has been identified.

 

  1. Although the question addresses fraud in whiplash, it is worth noting that the most lucrative opportunity to gain financially for staged/induced accidents is in fact through the vehicle related losses (hire, pre-accident value and storage) these can be 10 or 20 times the current level of compensation for whiplash. Notwithstanding the advances in technology and detection of fraud, fraudsters will simply adapt and continue to operate.  

 

The provisions in Part 5 of the Bill introducing a tariff to regulate damages for RTA-related whiplash claims, with an uplift in exceptional circumstances; and banning the settlement of claims without medical evidence.

 

  1. A tariff is dangerous in our view and simply pigeon holes every injury with no or very limited scope for discretion. An injury lasting 6 months and 1 day would attract the same level of compensation as an injury lasting 9 months under the proposal. There does not appear to be any formula to the figures. Some awards represent reductions of 60% of current awards whilst others drop 87%.

 

  1. The figures proposed are derisory and leave victims of RTA injuries with sums that are so low in some cases that any medical evidence may costs significantly more than the damages they are seeking to recover.

 

  1. Injuries sustained in the same accident involving two people will be subject to a huge disparity E.g., a driver that suffers a serious whiplash injury that lasts 12 months having an effect on his daily life and ability to work is only entitled to £1,190. If the other passenger in that car suffers a slight injury to his arm or knee with full recovery within 5-6 months, limited effects to his daily life and no time off work would be awarded around £4,000-4500. That cannot be right. In practice this will cause problems for Claimants who have significant neck injuries but minor secondary injuries which will perversely attract more compensation.  

 

  1. The proposed uplift in exceptional circumstances is derisory. All injuries are exceptional circumstances and by introducing a term into the bill is merely an acknowledgment that the levels of compensation proposed are far too low. This term will also lead to satellite litigation increasing costs and wasting court time particularly as these claims will now be in the small claims track.

 

The impact of raising the small claims limit to £5,000 for RTA-related whiplash claims, and of raising the small claims limit to £2,000 for personal injury claims more generally, taking account of the planned move towards online court procedures

 

  1. We are unsure of this question. It is our understanding that the small claims limit for RTA injuries is to be raised to £5000 for all, not just RTA-Whiplash injuries as the questions suggests. We will answer the question based on our assumptions as there is not sufficient space to deal with question if it is a separate proposal.

 

  1. An increase to £2,000 in non RTA claims is unlikely to have any material change to claimants. Injuries in the work place tend to be higher value non-soft tissue injuries in any event. Overall it is sensible approach.

 

  1. The same approach ought to be applied to RTA claims. It is unfair to single out victims of RTA accidents. The injuries are no less painful or difficult to prove. A claim valued at £5000 can still require 2 or 3 medical reports. The costs of these reports together with an issue fee can easily exceed the value of the claim itself as well as raise complex causation and quantum issues. In a small claims environment no CMC or law firm would be in a position to fund these disbursements on the Claimant’s behalf. This will leave the Claimant without access to proper legal representation or even the means to bring their claim in the first instance.

 

  1. Higher value claims will fall into the insurance industries’ hands leaving the Claimant undercompensated in many cases. Insurers cannot be trusted to deal with these claims particularly where the Claimant is vulnerable or they are keener on settling their claim sooner rather than being given proper advice as to the true or potential value of their claim.

 

  1. Insurers say they will fund a medical report upfront for the Claimant. But what if liability is denied? What if they fund the first GP report but the Claimant requires a second specialist report or an MRI scan? Insurance companies routinely refuse to pay for rehab in catastrophic injuries or even release interim payments towards a claimant’s loss of earnings even when the Claimant has legal representation, so we remain very sceptical that they will do anything to assist a LIP.

 

  1. Much has been said of the job losses which we do not propose to expand on. What hasn’t been discussed is the wider impact of this loss of revenue from RTA claims. The increase in court fees, disbursements and general overheads makes it very difficult for a law firm to operate effectively in other areas of personal injury where cash-flow is not as readily available as RTA. The knock on effect to medical agencies, After The Event Insurers and barristers will impact on the wider personal injury sector. The modest profits generated by RTA, allows a firm, even the larger practices, to conduct higher value work that can take several years to settle. Most PI claims are dealt with under a CFA with firms, barristers and medical experts having deferred payment terms. Without the cash flow of RTA many firms will struggle to fund serious and complex claims which will in turn have an effect on those individuals. 

 

  1. An online court system is welcome but it must be said that the majority of claims where liability is admitted early are dealt with at a stage 3 hearing under Part 8 of the CPR. These hearings take less than 10 minutes in many cases. Briggs LJ has expanded on this in his response to the Consultation and we would refer the committee to his findings. An online Court system may in fact take longer and cost more than the present system. 

 

 

  1. The small claims track is not designed for personal injury where one individual is pursuing a claim against a large organisation, an organisation that specialises in claims – that is their business model after all. The SCT is designed to resolve small business disputes or relatively straightforward matters with both sides being on equal footing i.e. they have limited or no experience in court.

 

  1. An individual injured in an RTA should not be faced by the prospect of losing at trial for failing to prepare, having costs orders against them or having to make applications to the court for amendments to proceedings or missed deadlines.  These costs remain the same be it in the SCT or FT and where a Claimant has no proper representation they may find themselves in a strange position where they are required to pay adverse costs to an insurance company which in fact outweighs their own damages. This will happen more often where ill advised Claimants or LIPs are conducting litigation.

The role of claims management companies in respect of these matters.

 

  1. Claims Management Companies (CMCs) will fill the vacuum left by qualified solicitors and regulated law firms. The smaller CMC’s that are the source of many fraudulent claims will have free reign to run or indeed encourage fraud or spurious claims. 

 

  1. Genuine Claimants with genuine injuries that give honest accounts of their injuries to the medical expert will be awarded, in most cases, less than £500 whereas those individuals and CMC’s willing to play the system will still enjoy large levels of compensation.

 

  1. Cold calling will not stop. CMC’s will continue to badger the public and more so if they are able to profit directly from the running of these claims in the small claims track.  Cold calling is a major issue and something the public are far more concerned with rather than the cost of motor insurance –which is roughly a week’s average wage (as it has been for many years).

 

  1. The regulation of CMC’s may seem stricter since Legal Ombudsman has taken over but the individuals behind these firms remain the same. Any efforts to close these rogue firms will be ineffective, they will simply open up the following day in another name.

 

  1. CMC’s are likely to cause problems to the court system. They may well abandon claims when it becomes apparent that the cost becomes too high. There could be risks of CMC’s dealing with higher value claims which at best they could simply miss but more sinisterly they could turn intentionally ignore the signs of a serious injuries or the recommendations of the medical expert in order to keep the claim rather than direct a Claimant to a solicitor. With no professional indemnity to cover the Claimant it will fall upon the state to meet the needs of those victims.    

 

  1. The insurance industry and Government originally cited fraud as the driver behind reforms but it is now widely accepted that the reforms are nothing to do with fraud but instead are just measures to curb the number of claims and the cost to insurers. The Government must be reminded that many insurers make significant profit from non-risk income such as arrangements with law firms, CMC’s, medical agencies, hire companies and repair garages. This income is likely to dry up should these reforms be introduced so any losses will need to be propped up by premium income. 

 

  1. Insurer profits are at record highs. Admiral Insurance is and has been one of the best performing stocks since it floated in 2004. Its share price has risen rapidly, along with profits, from 287.50p in 2004 to 1,990p today. Interestingly as an insurer it only offers motor insurance and includes ALL income (not just underwriting) from its activities - unlike other insurers that divert these revenue streams to subsidiary companies. The story is similar with other motor insurers so it begs the question -is the problem really that bad!? Admiral is an example of the eye watering profits insurers enjoy under current legislation despite most stating they lose money on motor insurance.

 

  1. Overall these changes are likely to benefit insurers most. The level of fraud will not change and may even go on undetected because there is no incentive for insurers to investigate them.

 

  1. The public will not notice any significant drop in premiums and cold calls will not stop. Instead, they will notice a huge drop in their compensation and overall they will lose trust and confidence in the industry generally.

 

  1. We strongly recommend that the Committee consider the majority of the proposals within the “Alternative Claims Framework” proposed by A2J. In particular abandoning the tariff system but increasing the small claims limit to £2000 across the board. This together with the recent reforms will do more to combat fraud and exaggerated claims rather than the blunt instrument proposed that will penalise the genuine Claimant whilst doing little to address the real problems in the sector.

 

 

31 March 2017