On 25 May, the Government closed its consultation period seeking evidence about the feasibility of extending the low value road traffic accident (RTA) Portal process (the Portal) to motor, employers' liability and public liability claims up to the value of £25,000. A month later, the Ministry of Justice (MoJ) published the report by Professor Fenn evaluating the Portal.

Professor Fenn was asked to examine the impact of the Portal on general damages, costs and speed of settlement on RTA claims. The main findings include a six per cent reduction in damages and a three to four per cent decrease in costs.

Fenn urges caution about extension, not least due to the small number of data providers and the limited time period of Portal operation. However, knowing the Government seems determined to proceed with extension in time for the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act target date of April 2013, this article examines the main findings of the report and looks behind the data to observations the Government should be alive to.

Of priority is the need to fix fast track costs. Whilst the fixed costs under the Portal are a good starting point, there is a clear need to ensure all costs regimes are integrated and there is no benefit to "opting out" of one system to gain greater costs in another.

If the issue of fixing fast track costs had been tackled first, most of the reasons for the current raft of civil reform would have melted away. A reduction in portal fees, together with removal of referral fees will, however, provide an appropriate recompense for work and ensure access to justice but without the currently inbuilt incentive to pursue inappropriate claims.

The link between damages awards and solicitors' costs and incentives needs to be looked at urgently. Whilst Fenn touches upon incentives for insurers to settle otherwise properly contestable claims on economic grounds, there are, in practice, strong incentives on claimant firms to pull matters out of the RTA portal. More balance is required.

Download Kennedys' response to the MoJ consultation about Portal extension (PDF, 113KB) 

Findings

Professor Fenn compared 44,000 RTA claims in the year before the Portal became operative (in May 2010) with 47,000 claims which post-dated it. Data was provided by three claimant firms and two insurers.

The main results are:

  • 6% decrease in general damages since introduction of Portal
  • 3-4% decrease in average costs
  • 5-7% decrease in average delay to settlement - i.e. case lifecycle
  • Exit of approximately 50% of claims notified during first year of Portal

Reasoning

With a finding that the Portal has produced a decrease in average costs of only three to four per cent, suggestions that the current allowance is too high and does not reflect the operating costs of efficient claimant law firms (in particular, at Stage 1), appear legitimate. One could go further and suggest that this is particularly so given the context of such very high claimant costs awards in litigated Part 7 proceedings, particularly in the North West court circuit.

It would have been interesting if Professor Fenn had taken into account average claimant’ costs awards in litigated fast track motor cases, both nationally and then compared region with region.

Similarly, it would have been interesting if Fenn had drawn any correlation between his statistical analysis and the data from the Compensation Recovery Unit regarding the steep incline in the number of motor injury claim notifications since early 2010 (when the Portal became active).

The report suggests that the finding of reduced damages may be due to the fixed costs regime under the Portal which incentivises claimants to settle claims at a lower value (in the absence of additional fees for continuing to negotiate).

Indeed, when claimant lawyers are incentivised to not allow claims to roll on and gain additional fees, settlement at an appropriate level of damages is far more likely. That an appropriate level of damages within the portal is less than the inflated damages that defendants have felt obliged to pay outside of it, should not really come as a surprise.

Although the report concludes an improved life cycle, it is not as significant as we expect the MoJ and other interested parties would have liked to have seen. Whilst the analysis is silent as to where the delays are taking place, we would highlight clear "hotspots" of delay. For instance, once the response to the Claim Notification Form (CNF) at Stage 1 is sent back, claimant representatives often delay matters for several months before then taking matters forward. This situation leads to a practice whereby insurers make a payment of £400 on the admission of liability, but are then left waiting to see whether the claim progresses to Stage 2 (or at all).

Interestingly, Fenn considers the introduction of the Portal has led to administrative benefits of communication. Whilst perhaps correct in theory, in practice, the picture can be different. As well as Stage 1 delay (noted above), in the absence of an express provision for late service of the claimant’s documentary evidence (under Practice Direction 8B 7.1), the claimant tends to only "start" Stage 3 once he is satisfied that his case (including his medical evidence) is entirely assembled. Therefore, the Portal itself can be a bar to negotiations as the claimant’s solicitor waits until the very last stage of the (Stage 2) timeframe, giving the insurer no meaningful time to consider a settlement figure before the claim moves to Stage 3.

One can only hope that settlement times will improve with increased operational time of the Portal and necessary modifications.

Exiting the Portal

Professor Fenn concludes that approximately half the claims were settled within the process and the remaining half exited the process. Looking at when exits took place – he concludes the 50 per cent drop out rate was made up of 15 per cent exit within Stage 1, 30 per cent exit at/just after Stage 1 and five per cent exit during Stage 2.

Fenn suggests that one possible explanation for the high exit rate is because the fixed costs payable by defendants under the Portal are actually higher than under the Fixed Recoverable Costs Scheme (FRSC) for RTA claims under £2,000. He suggests it, therefore, pays the defendant to exit the Portal (irrespective of a willingness to concede liability) in claims over £2,000.

That may be so. However, as highlighted at the outset, there are other underlying behaviours around exiting which are vital to be added into the mix of necessary modifications. Some of the key ones we identified at the time of the response to the MoJ included:

  • Fraud concerns - including staged/induced incidents, phantom passengers, phantom policyholders, low velocity impacts etc.
  • Removal of a case by the claimant without discussion as soon as the insurer seeks more time to investigate liability.
  • Attempts to correspond by email, letter or fax as part of negotiations.

It also needs to be remembered there remains an incentive for claimant lawyers (as well as the defendant insurer) to exit the portal and avoid the portal fees.

Overall, therefore, integration between the FRCS and all other related costs regimes are clearly important – to ensure that all and any costs system avoids any incentive to cost build and/or for either party to exit the Portal. As highlighted above, non portal fast track fees must also be fixed against a background mechanism which is more robust for ensuring claims both enter and stay within the portal, thereby avoiding the incentives that claimants currently have to exit.

Professor Fenn’s report can be downloaded from the Justice website.