Civil Liability Act 2018—a welcome injection of reality on PI discount rate

Civil Liability Act 2018—a welcome injection of reality on PI discount rate

Personal Injury analysis: Following the enactment of the Civil Liability Act 2018 (CLA 2018) in December 2018, Andrew Parker, partner at DAC Beachcroft, examines its reforms to whiplash injury claims and its new mechanism to change how the personal injury discount rate is set.

What are the key changes which will arise as a result of the coming into force of CLA 2018?

CLA 2018 is in two parts—CLA 2018, Part 1 deals with whiplash reform and is probably the more radical in concept while CLA 2018, Part 2 changes the basis on which reviews of the discount rate for personal injury claims are conducted, which is less radical but probably more significant in financial terms.

Crucially, CLA 2018, Part 2 is already in force and the clock is ticking for the first review as a result of changes made during the parliamentary process which have sped up the timetable. Within a maximum of 230 days starting with Royal Assent on 20 December 2018, the review will be complete and should lead to a new discount rate being set on a ‘real world’ basis. The latest date on which the new rate can be set is 6 August 2019, although we can expect the review to proceed more quickly in view of the likely impact on NHS liabilities.

CLA 2018, Part 1 will come into force on a date set by regulations, not expected to be before April 2020. It will introduce a set tariff of damages for low-value whiplash injuries to the neck, back and shoulder of up to two years in duration. The figures within the tariff will be set by regulation, after consultation with the Lord Chief Justice, but are expected to be much lower than the current level of common law damages.

There will also be a ban on making, seeking or accepting pre-medical offers to settle whiplash claims, so as to ensure that all such injuries are subject to objective medical reporting via MedCo.

Although not part of CLA 2018 itself, there has been much debate about the planned change to the small claims track limit for personal injury claims, which the government has committed to introduce when CLA 2018, Part 1 comes into force. The new limit will be £5,000 for road traffic accident claims and £2,000 for other personal injury claims. Claims involving vulnerable road users (pedestrians, cyclists and motorcyclists) will be excluded and so will remain at the current limit of £1,000 for damages for pain and suffering.

Are the changes a desirable development? What problems are they designed to deal with? How effective are they likely to be in addressing these?

It is essential that the basis for reviewing the discount rate is put on to a sensible footing. Insurance and other compensator interests have argued fervently against the previous basis of very low risk investment and that being tied to yields from index-linked government securities (ILGS), which led the government to set the current rate of minus 0.75% in February 2017. Equally, there had been pressure prior to that date from claimant interests to reduce the previous rate of 2.5%, which was said to be artificially high.

The reality should lie somewhere in the middle between these extremes. And reality will be the central feature of the new mechanism, with the rate based on actual returns from actual investment, treating claimants as cautious low-risk investors but no longer tied to very low-risk. The use of ILGS as a proxy for the appropriate returns had become deeply flawed, in that no claimant would be advised to invest solely in ILGS or indeed in any single asset class.

CLA 2018, Part 1 is set to bring the epidemic of whiplash claims under control. Claim numbers have reduced from the artificial highs around the implementation of the Jackson reforms in 2013, but still exceed 500,000 a year when our roads and cars are generally safer than ever.

The introduction of a set tariff for damages for pain and suffering is a welcome development in the law. This will set seven figures for injuries of different duration, from the lowest bracket of up to three months to the top bracket of 18 to 24 months. This introduces certainty and clarity for both claimants and defendants; too much time is spent arguing over minute differences between cases where the difference in value is minimal.

The figures announced in the government’s impact assessment start at £235 for injuries up to three months but are tapered, so that at the top bracket the figure will be £3,910. The tariff includes any minor psychological injuries arising from the accident.

Are there still any grey areas practitioners will need to watch out for?

One obvious area is that there will be other minor injuries which fall outside the tariff. No court has had experience of valuing other injuries alongside a fixed tariff and so no guidance is yet available for courts, practitioners or parties. Some guidance is needed to support the clarity and certainty of the tariff.

What are the implications of CLA 2018 for practitioners and the personal injury sector more widely?

The main point is that claimants are less likely to need an end-to-end service, with the plans to build a new portal suitable for claimants in person already well advanced. Unbundled services, limited to advice on liability or possibly on quantum, may be the way forward.

With reduced damages and no recoverable costs within the small claims limit, solicitors will need to justify the value of their services alongside a portal, which should be free for claimants to use.

What do you expect the impact on the insurance sector will be?

A late amendment to CLA 2018 introduced measures to require insurers to report on savings achieved as a result of the new legislation and to confirm that those have been passed on to consumers. This follows a public commitment by the vast majority of major insurers to pass on savings.

The policy justification for CLA 2018CLA 2018, Part 1 in particular—is that it will deliver benefits to consumers in reduced motor insurance premiums. A reduction in the number of whiplash claims is expected, although insurers will need to watch out for any resulting growth in other forms of claim.

Insurers may well find themselves dealing directly with more claimants acting in person and will need to dedicate resources to such engagement. The new portal, which is being funded by the insurance industry, will need to provide sufficient guidance to make the claim process easy to follow.

How does this fit in with other developments in this area of the law? Do you have any predictions for future developments?

Once the first review of the discount rate has taken place, there will be a programme of regular reviews every five years. This should ensure that movements of the discount rate after 2019 will be more measured. The possibility of a change in the rate at some unknown point in the future will become much less of a factor influencing the timing of settlement discussions.

There needs to be continued progress towards joined-up regulation of all those providing services in personal injury claims. Solicitors and barristers, insurers, medical experts and those providing claims management services are already regulated—medical reporting organisations, rehabilitation and credit hire companies are not.

The Financial Guidance and Claims Act 2018 will transfer the regulation of claims management services to the Financial Conduct Authority in April 2019 and this is seen as a positive development in ensuring that claims management companies and others providing such services do so in a compliant way. So-called paid McKenzie friends, who may have set up to avoid solicitor regulation, are likely to find themselves caught by claims management regulation instead.

The ban on pre-medical offers will place a premium on the quality of medical reporting. The role of MedCo in overseeing accreditation of experts will therefore be an increasingly important one.

Andrew Parker is a partner and head of strategic litigation at international law firm DAC Beachcroft.

Interviewed by Robert Matthews.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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