- A definition for whiplash.
- The ability for the Lord Chancellor to amend the definition of whiplash every three years.
- A tariff system, set by the Lord Chancellor, for whiplash damages up to two years, to be reviewed every three years.
- Court powers to award an uplift on the tariff for exceptionally severe injuries, or if the circumstances are exceptional.
- A ban on pre-medical offers on whiplash claims that will be monitored and enforced.
Civil justice reforms - a game of two halves
The Civil Liability Bill passed the Lords without amendment on 20 November 2018 and will become law as soon as it is granted Royal Assent.
We welcome the new law with regard to the discount rate as it reflects the government’s belief that there is sufficient evidence to change the rate now. However, with regard to the whiplash measures (when taken in the round) - we are of the view that opportunities will remain to game the system and we will see fraud emerge in other guises.
We review the reform landscape and argue that - whilst positive steps have been made - we are far from finished.
The passing of the Civil Liability Bill will provide compensators some much needed certainty, particularly around the Discount Rate. They can now start to take proactive steps to adapting their claims handling models to accommodate the proposed measures. However, the government should not be lulled into thinking that once the Bill is passed that PI reform is ‘job done'.
Deborah Newberry, Head of Corporate and Public Affairs
We are on the cusp, yet again, of significant changes to the civil justice system in England and Wales. The Civil Liability Bill (the Bill) brings forwards two key strands of reform: (i) further change to managing whiplash claims and (ii) a new framework for calculating the discount rate.
The wider reform package includes an increase to the smalls claim limit for personal injury claims, an expansion to the fixed costs regime and digitisation of the courts. All of this is against the background of a post-implementation review of the last piece of legislation that brought about wholesale reform - the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
Key measures of the Bill
Definition of whiplash
To include soft tissue injury to the neck, back or shoulder. Exceptions include a soft-tissue injury connected to another injury and any other injury. Vulnerable road users are excluded, which includes anybody who is neither driving nor a passenger in a vehicle, i.e. pedestrians, horse riders and motorcyclists.
Part 3 of the Bill provides that insurers provide information to the Financial Conduct Authority (FCA) on savings, such as claim costs and premium income by April 2024.
Additional elements of the whiplash package
- An increase to the small claims limit:
- £5k for road traffic claims (vulnerable road users excluded).
- £2k for other personal injury claims.
- New online portal for whiplash claims. Most likely supported by rules that are different to the Civil Procedure Rules for the anticipated insurgence of litigants in person.
- FCA regulation of claims management companies (CMCs).
The whiplash reforms have been pushed back a year to April 2020, allowing time to undertake large-scale testing of the online systems.
Justice Minister Rory Stewart is misguided to say that the Bill will remove unnecessary complexity, costs and damage arising from the activities of claims management companies. The MoJ, along with the FCA who will regulate CMCs from next year, will need to stay alive to how the market works in order to prevent fraud and claims farming.
Martin Stockdale, Partner
By providing a definition of whiplash injury the risk is that attention is drawn to what is outside of the definition and outside the tariff. Further, any opportunity to amend the definition, should these shortfalls be realised, is currently limited, as the procedure appears arduous and changes are confined to soft-tissue injuries to the neck, back and shoulder.
Undoubtedly as claimant lawyers seek to retain their current level of remuneration they will seek to test the definition of whiplash leading to test litigation.
Ian Davies, Partner
Overall, too much attention remains focused on one type of loss - specifically whiplash. This overcomplicates the system and allows for more opportunities to game it. We are already observing an increase in the proportion of non-whiplash related injuries reported through the Claims Portal, and our fear is that we will continue to see this behaviour. Pain and suffering should be the focus and not the type of injury.
Further opportunity to manipulate the system is provided with the discretionary uplift to the tariff in ‘exceptional circumstances’, yet to be defined.
Another concern, is that the introduction of a tariff based system relating to quantifying some heads of loss and the increase in the small claims limit, will remove the vital vetting processes to help weed out unmeritorious claims. Those processes include those currently provided by regulated claimant lawyers who remove these ‘bad for business’ claims. The government suggests that cases can be done without the need for lawyers. However, the experience from other sectors demonstrates the reality: claimants are unlikely to manage their own cases and will look to CMCs, who will continue their claims farming behaviours including cold calling.
With less checks and balances on the system, the potential for fraudulent claims activity is brought into focus. Whilst the whiplash reforms may limit the unit cost of fraud, will they limit the volume and therefore the overall cost of fraud, and unmeritorious claims?
Some comfort can be offered by the FCA taking over the regulation of CMCs from April 2019. We are, however, mindful that CMCs are effective in navigating new obstacles and we would like to see other related companies, such as credit hire and rehabilitation companies brought under the FCA remit. Monitoring and analysing behaviours will remain imperative.
While the reforms may deal with some of the issues surrounding whiplash it is likely to focus the attention of many CMC’s and claimant firms on the non-injury related loses and the opportunity to gain referral fee income from those areas.
Discount Rate Reforms
- The Lord Chancellor is to set the rate.
- The first review must be started within 90 days of enactment of the Bill.
- The Lord Chancellor must decide the rate 140 days after the review period commenced and the Government Actuary and Treasury will be consulted.
- Each subsequent review must be started within five years of the last review and will have a 180 day review period. The Lord Chancellor will consult an expert panel and the Treasury.
Speaking at the ABI Motor Conference on the same day the Civil Liability Bill completed its final hurdle, Lord Keen suggested the first review will commence as soon as is practicable and will be conducted by the Lord Chancellor in consultation with the Government Actuary.
In addition, Bob Neill MP (Chair for the Justice Committee), has said that as long as the legislative process follows its expected course, the new rate will be in place during the second quarter of 2019. His view was that the rate will be set at between 0% and +1% and his hunch is that it will be +0.5% (a calculated split it down the middle). However, there is upwards pressure from the State of Jersey, where a higher rate of 1.8% has been proposed for future losses of 20 years or more, based on similar economic considerations.
Neill also mentioned that Scotland are on a slightly different path and will end up with a rate at around 0.5% lower than England and Wales which will come into play six months afterwards.
The clearer statutory footing for setting the rate should lead to a fairer outcome. It is also pleasing that the delays with the whiplash reforms to April 2020 have not impacted upon the move to carry out the first review as soon as possible.
The government appears determined to find out whether the use of PPOs can be increased and has asked the Civil Justice Council to look into their use.
Any encouragement for PPOs will need to ensure that claimants confirm their preferred form of award and PPO model at the start of the process to avoid claimants exploiting the current flexibility in order to sidestep cost consequences.
Mark Burton, Partner
Early election is also needed to facilitate interim funding and ADR attempts - as the claimant’s preferred model will dictate the size of the retained lump sum, which is frequently dependent upon the purchase of suitable accommodation.
Civil justice timeline
We are a long way from George Osbornes’ 2015 autumn statement, as the then Chancellor of the Exchequer, when he suggested an outright ban on ‘minor’ whiplash claims. Since then we have seen the Prison and Court Bill come and go, and in its place the Civil Liability Bill, secondary legislation and anticipated rule changes.
The effects of LASPO are only just starting to be fully felt, and despite the shortcomings that remain, LASPO has, when looked at in the round with other reform changes (such as the extension of fixed recoverable costs), reduced costs and created a more streamlined process. The Government response remains outstanding, and with the Ministry of Justice cuts, it will remain to be seen what changes, if any will be proposed.
Overall, the reform to the discount rate is to be welcomed – not least as the current rate significantly over-compensates and the review mechanism will better reflect a real-world approach to how claimants invest their damages. The expert panel provides comfort that, going forward, the Lord Chancellor will benefit from receiving independent and authentic advice of investment strategy.
For the whiplash measures, the accompanying regulations will need to provide some missing detail around the definition of whiplash injury, and provide some clear guidance to the judiciary as to what circumstances could be considered ‘exceptional’ in order to justify an award uplift. Failure to do so could create a risk of frictional litigation between parties.