UK: Recent Developments For Personal Injury Claims In England And Wales

Last Updated: 26 February 2018
Article by Sophie Allkins and Ruth Bailey

Most Read Contributor in UK, December 2018

2017 saw a number of decisions that highlight an appetite for reform in the legal framework surrounding personal injury claims in England and Wales. Although in most respects these have not yet resulted in concrete changes which bind defendants, insurers will want to consider the impact of them on strategy and quantum for claims which are still at an early stage.

The changing discount rate

Where personal injury (including fatal accident) claims involve an element of future loss, the amount of damages paid by a defendant is adjusted to avoid overcompensating (or undercompensating) a claimant who receives monies as a lump sum. A discount rate is applied to adjust the award to take into account the return expected over time when this lump sum is invested. As an example, in a loss of earnings claim, a claimant might be entitled to his or her lost salary (say £20,000 per annum) for a five year period in which he or she is unable to work. If he or she receives the full £100,000 up front as a lump sum settlement, the claimant is able to invest this money and earn interest from the investment. At the end of the five year loss period, the claimant has received £100,000 (£20,000 annual salary times five years) plus the interest that has been earnt, resulting in an overall overcompensation.

To try to ensure that a damages award accurately compensates the claimant, a discount is applied to the loss period amount to produce an adjusted multiplier. The multiplier values are set out in standard form actuarial tables known as the "Ogden Tables". Historically (since 2001), the discount rate had been set at 2.5%, which reduced the amount of the lump sum damages payment a defendant insurer had to pay at trial or settlement. However, in March 2017, the then Lord Chancellor, Elizabeth Truss, changed the discount rate to -0.75%. This was in response to concern from claimant groups that the 2.5% rate (which had been set at a time when the Bank of England base rate was around 5%) overestimated the likely return on a lump sum investment that a claimant could achieve leading to under-compensation in practice.

The effect of the March 2017 change has been to significantly drive up the value of personal injury claims for defendant insurers in England and Wales, much to the delight of claimant lawyers. However, since the decision was announced there has been a widespread view that, whilst a rate change may have been necessary in light of the change in economic circumstances since 2001, the swing to -0.75% is too severe and does not reflect the investment habits of claimants. Rather than being undercompensated, they are now overcompensated at the expense of defendants.

There is light at the end of the tunnel, however, for defendant insurers. In September 2017 the Ministry of Justice announced plans for an overhaul of the discount rate procedure following a lengthy consultation process. The central issue is whether claimants should be treated as "very risk averse" or "risk free" investors, for which a very small (or even negative) discount should be applied (as with the current -0.75% rate), or "low risk" investors, which would result in an increase in the discount rate. Draft legislation was subsequently published which proposed applying a rate based on a "low risk" return, which, if passed, could see the discount rate move to between 0% and 1%.

Predictably, this announcement was welcomed by defendant insurers whilst claimant lawyers were rather less enthused by the proposals. The draft legislation has not yet been put before Parliament and, given the competing priorities of Brexit, there is no certainty about when the provisions will come into force. At the end of November 2017, the Justice Committee published the findings of their pre-legislative scrutiny of the proposals. Although supportive of the aims of the legislation, the Committee proposed a number of changes to the draft wording and urged the gathering of further evidence about how claimants invest their lump sum damages in practice. Whilst an initial Ministry of Justice implementation target of early 2018 is looking unlikely, there is hope that changes will be made by the end of 2018/early 2019.

What does this mean for defendants?

Although 2017 has been a year of Government flip-flopping in terms of what the discount rate should be, it is important to note that the discount rate remains for now at -0.75%. Whilst it is a matter for each insurer as to how they wish to reserve, it would seem sensible to continue to reserve at -0.75% until a new rate is set, especially for claims which are at a more advanced stage and expected to go to trial before the end of 2018.

However, September's announcement has provided an opportunity for defendants with claims in their relative infancy. For claims which would otherwise go to trial after the end of 2018, insurers may wish to push for settlement using a discount rate in the range of 0-1%. Recent experience suggests, whilst claimant solicitors remain resistant on this point, that it has been possible to explore settlement using this range. This also accords with the view from our colleagues at the bar, who report anecdotally that judges have been willing to approve settlements calculated on this basis. Unfortunately, the prospect of delayed implementation has tempered this in recent months as claimant firms use November's report to argue that the rate change is too remote to apply to current cases. In this respect, defendants of more complicated claims may be in a comparatively favourable position as longer hearing requirements are likely to be listed for trial further in the future due to the constraints of court diaries.

Bereavement award: Jacqueline Smith v Lancashire Teaching Hospital NHS Trust

At the end of November, the Court of Appeal handed down judgment in the case of Jacqueline Smith v Lancashire Teaching Hospital NHS Trust. The claimant, Jacqueline Smith, sought damages from the defendant NHS Trust following the death of her partner, John Bulloch, as a consequence of the admitted negligence of the NHS Trust.

Mr Bulloch and the claimant had not been married but had lived together for a period of 11 years prior to his death.

Under the Fatal Accidents Act 1976 ("FAA 1976"), the surviving spouse (or parent if the deceased is a child) can claim a statutory award (currently £12,980) for bereavement damages as part of their claim against a defendant. This is only available if the claimant and deceased were legally married or were in a civil partnership.

The claimant did not at first bring a claim for bereavement damages against the NHS Trust, since she was not entitled to this remedy at law. However, when her claim against the NHS Trust was compromised she joined the Secretary of State into the proceedings and brought an action for bereavement damages (in the then statutory amount of £11,800) or, if the court could not interpret the FAA 1976 to allow her the award, a declaration that the FAA 1976 was incompatible with Articles 8 and 14 (right to family life and freedom from discrimination respectively) of the European Convention on Human Rights.

Though the Court of Appeal declined to award the claimant damages, it did make a declaration of incompatibility under s.4 of the Human Rights Act 1998. In giving the leading judgement, Sir Terence Etherton, Master of the Rolls, said that:

" is the intimacy of a stable and long term personal relationship, whose fracture due to death caused by another's tortious conduct will give rise to grief which ought to be recognised by an award of bereavement damages, and which is equally and analogously present in relationships involving married couples and civil partners and unmarried and unpartnered cohabitees."

What does this mean for defendants?

Strictly speaking, nothing as yet. A declaration of incompatibility does not itself change the law and it will be down to Parliament to look at amending the FAA 1976 to widen the definition of those entitled to seek bereavement damages. However, it has highlighted the perceived inequality of this provision and this may provoke a legislative response from the Government over the course of 2018.

In the short term, defendants should anticipate increased pressure from claimant lawyers to allow for an award of bereavement damages in settlement offers where the claimant and deceased were cohabiting for a period in excess of two years. Whilst insurers may wish to allow this sum on a goodwill basis as part of the wider negotiation strategy, it is important to note that this remains at defendants' discretion.

Cracking down on whiplash and holiday sickness claims

Following the General Election in June 2017, the Government has set out further plans to reform low-value whiplash and soft tissue personal injury claims procedure in the Civil Liability Bill. The reforms aim to cut down the number of minor, often exaggerated and sometimes fraudulent whiplash claims clogging up the court system. Proposed reforms include the introduction of a tariff of compensation for injuries of less than two years' duration, a fixed recoverable costs regime, and an increase to the small claims threshold (£5,000 for whiplash and £2,000 for other personal injuries) and a ban on the making of Part 36 settlement offers prior to medical evidence.

Draft procedural reforms following the Ministry of Justice consultation on holiday sickness claims are expected in early 2018. ABTA, the Travel Association (ABTA) estimates an increase of five hundred percent since 2013 in claims for gastric illness from holidaymakers. The Solicitors Regulation Authority issued a warning notice about the rise in unmeritorious holiday sickness claims, putting claimant lawyers on notice that the unscrupulous practices of claims management companies will be a target of both the reforms and the SRA's disciplinary powers. Holiday sickness claims are likely to be brought under the fixed recoverable costs regime proposed by Lord Justice Jackson and hopefully streamlined with the amendments necessary to the Civil Procedure Rules and protocol.

What does this mean for defendants?

In the case of both whiplash and holiday sickness claims, claimant legal costs can often run to double the claim value and vary wildly in each case. Examples cited in the Jackson Report (see further below) in respect of holiday sickness claims with claim values of £1,000-£1,500 when settled, were followed by costs claims in the region of £3,000-£6,000. The creation of fixed upper limits for both damages and costs in these types of cases will benefit defendants by introducing an element of certainty. Whiplash and soft tissue claims are often difficult to defend due to the nature of the injuries involved. The reform, in particular a proposed ban on Part 36 settlement offers prior to medical evidence, will discourage fraudulent claims. In terms of holiday sickness claims, once a date for the reforms is announced (likely April 2018), defendants may expect to see a short term spike in claims being notified prior to their entry into force.

A new "intermediate" claims track?

Together with the reforms mentioned above, Lord Justice Jackson's supplemental report on costs proposes the creation of a new "intermediate" claims track for cases of modest complexity above the fast track up to £100,000 in value. This reform would extend the fixed costs regime (FCR) above the current £25,000 limit. Many lower value injury claims currently see claimant costs far outstripping the claim value and placing these claims into a FCR regime will be helpful to defendants and insurers, particularly when reserving for costs. However, reform will need to be streamlined with amendments to claims procedure and protocol in order for the desired effect to be realised.

What's in store for 2018?

2018 is shaping up to be an interesting year for personal injury practitioners in England and Wales, and airlines and insurers with claims in this jurisdiction may find tactical advantages to timing the resolution of disputes around the anticipated changes highlighted above. The appointment of David Gauke, a qualified solicitor, as Lord Chancellor and Secretary of State for Justice is to be welcomed when considering the ambitious reforms underway and in consultation. Overall, 2017 has demonstrated an appetite for reform to the legislative framework for dealing with personal injury claims, but it remains to be seen with the challenges of Brexit whether these will come to fruition in the next 12 months.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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