This piece provides an overview of the upcoming reforms, and also an indication as to what issues will arise when the whiplash reforms are finally implemented.
The Civil Liability Bill ("the Bill") has passed through the House of Lords and is expected to receive Royal Assent within the next 2 weeks.
Continued lobbying by claimant representatives is now likely to focus on reducing the proposed increases to small claims track limits. However, in the expectation that these changes will proceed, the focus will now divert to the likely impact of the reforms on claimants, claimant solicitors and insurers.
With other pieces of legislation, we have seen a surge in claims prior to the legislation coming into effect and thus, a subsequent drop-off. The Civil Liability Bill will be no different in the motor volume arena. Claimant solicitors will see profit margins for low value motor claims likely fall off a cliff once the full package of reforms take effect. Unscrupulous claimants and third party agents will see their damages for whiplash claims fall dramatically too.
As the Government has engaged the creation of a new portal to service increased numbers of litigants in person, this will delay the implementation of the whiplash reforms until April 2020 at the earliest. Changes to the small claims track limits for personal injury claims are also expected to follow this timescale.
Once the reforms are concluded, there may be increased numbers of larger value litigated claims presented and possible group and test actions by those looking to circumvent the new restrictions.
New claims portal
The new 'litigants-in-person' portal is being developed by the Ministry of Justice, the ABI and stakeholders in the aftermath of the Bill. This portal will deal with the expected increase in unrepresented whiplash claimants once the small claims track limit is increased. The portal will be the main avenue for redress for whiplash claims with a prognosis of 0 – 24 months.
The development of this new portal will delay the implementation of the whiplash reforms until April 2020. Doubts have been expressed about whether this timescale remains feasible and may be extended further.
Before implementation, concerns must be addressed about those without internet access being prevented by bringing claims. The process of bringing a claim, and obtaining medical evidence etc., must also be simplified for claimants. The precise method by which litigants will obtain medical evidence via Medco has yet to be confirmed. Medco will have to amend its current system as it is currently configured for represented claimants. There will have to be considerable discussions with appropriate stakeholders to ensure that litigants are not left at a disadvantage when obtaining medical reports.
The new claims portal will be accessible by any party, not just the claimants or solicitors. We expect that claims management companies will try to exploit any gaps in the market, as has been seen with PPI claims. Even with the most simplified system available, it cannot be guaranteed that claimants will not ask third party agents to progress their claim.
Definition of whiplash
The Bill defines a whiplash injury as a sprain, strain, tear, rupture or lesser damage of a muscle, tendon or ligament in the neck, back or shoulder, or soft tissue injury associated with those areas. Those injuries will now be subject to a tariff system (discussed below).
However, whiplash injuries may be excepted from the tariff if it is a part of or connected to another injury, and that other injury is not an injury of soft tissue in the neck, back or shoulder.
Due to that exception, it is entirely possible that some may exaggerate their claims, in order to bypass the tariff system. As an example, a claimant alleging a head injury along with a soft tissue neck injury could argue they are excepted from the tariff system.
Whilst the increased small claims track changes would still apply to these claims if valued at under £5,000, having claims considered under the Judicial College Guidelines, rather than the defined tariff system does offer a financial benefit. To claimants, they would receive increased damages. To their representatives, this may mean an increased share of any damages under the terms of a damages based agreement.
When the reforms are implemented, we expect they may be satellite litigation on these issues.
As set out above, the introduction of the tariff system within the Bill – alongside the changes to the small claims track – may significantly alter the business models of claimant solicitors and claims management companies. By ensuring that small claims costs will only be payable for RTA-related injuries under £5,000, claimant solicitors are likely to find it financially unsustainable to continue to run those claims. Therefore, parties such as CMCs will look to move into the marketplace.
The tariff system may also affect the decision making process inside insurance companies. Insurers often use automated systems to calculate offers when the details of an injury were input. Such systems would now be redundant in this new tariff based system.
For a 6 month whiplash claim currently, insurers would expect to pay upwards of £2,000 plus costs. Under the tariff system, this would reduce to £450 plus small claims costs. This would represent significant savings for insurers.
However, the prospect of exaggeration or inflation of whiplash claims must not be dismissed simply because the tariff system is in place. Exaggerating a 6 month claim to 13 months, would result in a £1,400 increase in compensation. Insurers, however, would still be paying significantly less in compensation plus costs than they currently are.
Those still handling these claims post 2020 will seek to maximise profit, aiming to move claims out of the tariff limits of 24 months.
Prognosis creep is already a live issue, but insurers may see more second and third medical reports to get the prognosis over 2 years. Whilst a 23 month whiplash injury falls in the tariff of £2,000 plus small claims costs, a 24+ month injury would likely receive £7,000 plus standard costs.
In addition, third party agents may also look to drive claimants to allege other areas of injury, such as knees, arms, tinnitus, headaches, PTSD, in order to move claims out of the tariff system/small claims track.
Small claims track
The proposed increases to the small claims track will be carried out via secondary legislation. The small claims track limit for RTA-related claims will be increased to £5,000. The effects have been noted above and we expect that claimant solicitors will be forced to look for alternative and profitable revenue streams.
One such stream may be EL/PL claims. The increase in the small claims track for EL/PL will be restricted to £2,000. This reflects the complex nature of liability in some of those claims, necessitating legal representation. Due to this smaller increase, claimant solicitors, who find themselves pushed out of the RTA market, may instead look to focus on EL/PL claims.
However, the claims volumes for EL/PL claims are not as great as those of RTA, and therefore few firms are likely to be well placed to take advantage.
Brexit to play a part?
The ongoing issues regarding Brexit and the strength of the Government may have unexpected ramifications on efforts to reform whiplash claims.
It is not outside the realms of possibility that a snap general election is called, and a Labour or coalition government results. A new government may choose to abandon or reduce the proposed increases in the small claims track. It should be noted that during debates in the Commons, Labour MPs proposed an amendment (which was rejected) to the Bill limiting increases in the whiplash small claims limit to inflation (CPI).
The proposal also advanced that the limit would only increase when inflation had increased the existing rate by £500 since it was last set.
Whilst unlikely at this time, any changes in the proposed track limits would minimise the effect of the Civil Liability Bill on the small claims market by ensuring costs are still recoverable on smaller value claims. Insurers have much to continue to lobby the government for.