Figures released by the ABI in May reveal that the value of fraudulent insurance claims uncovered by insurers in 2013 rose to a record £1.3bn, an increase of 18% from 2012. Insurers detected a total of 118,500 bogus or exaggerated insurance claims. This is equivalent to a staggering 2,279 claims each week.
The Government is quite rightly concerned by the ever increasing cost of fraudulent and grossly exaggerated personal injury claims. The knock on effect that this has on insurance premiums is significant and it has therefore decided to take action in the form of The Criminal Justice and Courts Bill.
The bill passed through the House of Lords committee stage on 30 July and a line by line examination of the bill was concluded on 27 October. A Third reading – a final chance to amend the Bill – is scheduled for 10 November.
Sections 56 to 60 (strictly still “clauses” until the Act is passed) cover civil proceedings relating to personal injury and set out (a) the consequences of fundamental dishonesty and (b) a ban on inducements to make personal injury claims.
The current position is set out in the Supreme Court decision of Summers v Fairclough Homes which gives the court power to strike out the entirety of a claim, including any award for genuine injury, where a claimant grossly exaggerates the extent of his injury.
However, this power to strike out a claim entirely is only to be exercised in very exceptional circumstances. Indeed, in Summers the fact that the claimant fabricated the extent of his injury in an attempt to increase the value of his claim to £840,000 from the £88,000 eventually awarded was not sufficient to see the claim struck out, even though the court accepted that the claimant had acted dishonestly.
The new position under 56(2) of The Criminal Justice and Courts Bill will be that in any personal injury claim where the court finds the claimant is entitled to damages, but is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the claim taken as a whole, it must dismiss the claim entirely unless it is satisfied that the claimant would suffer substantial injustice as a result.
It will remain up to the courts to determine fundamental dishonesty. However, it is worth highlighting that the court need only be satisfied on the balance of probabilities that a claimant is fundamentally dishonest. Once fundamental dishonesty is established the court must strike out the entirely of the claim unless the claimant would suffer substantial injustice.
Substantial injustice is not defined and it is therefore going to fall to the courts to determine when a claimant will be seen as suffering substantial injustice. No doubt in time we will see many cases dealing with this issue.
In addition, s56(2) applies to both the claimant’s own claim and any related claim. As such, a claimant who dishonestly assists with a third party’s related claim will have his own claim struck out, even if his own claim was brought honestly.
The Bill certainly appears to be a much more robust approach to dishonesty than that set out in Summer, whose claim would no doubt have been struck out under s56 unless he could prove that it would lead to a substantial injustice.
So what are the cost consequences to a claimant for such a dismissal? s56(4) states that the court must place a value on what a claimant would have been awarded in the absence of a strike out and s56(5) states that a claimant will only be liable to a defendant for any costs that exceed the amount of this valuation.
A claimant will therefore (to some extent) indirectly receive his “genuine” damages which will in effect be set off against the defendant’s costs.
The purpose of s56(5) is to ensure that the sanctions against the claimant are proportionate, and to prevent a defendant, who has in fact been negligent notwithstanding the claimant’s behaviour, from avoiding any culpability.
However, it should be noted that this new provision is in conflict with CPR 44.16 (which was introduced along with the Qualified One Way Cost Shifting (QOCS) provisions in April 2013), which states that orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest. It is not yet clear how this conflict will be resolved.
The Government is also concerned that some law firms are helping to encourage exaggerated or fraudulent personal injury claims by offering inducements such as free gifts or increased payments to potential claimant’s in return for their business. As such s57 of the Bill has been introduced to prohibit such practice.
The Bill does not create a criminal offence or a civil right of action, but empowers the relevant governing bodies to take action against those found to be in breach. For solicitors such action could include being struck off.
The introduction of s56 of The Criminal Justice and Courts Bill is a welcome development in the fight against fraudulent and exaggerated claims. Claimant’s will now be forced to come to court with clean hands or face the risk of losing out on damages to which they are genuinely entitled. Defendants will also feel more empowered to fight such claims on the basis that such a claimant will not always be a winner.