Public Sector - Road Maintenance: Smoothing things over


With a pothole being repaired every 33 seconds in England and Wales, Edward Murray reports on the issue of public liability claims concerning this road hazard.

A pothole is repaired every 33 seconds in England and Wales. This incredible statistic gives some indication of the scale of the problem facing local authorities and the efforts they have to make to literally smooth things over.

For example, last year the Local Government Association, which represents councils in England and Wales, calculated its members spent more than £60m filling in around 970 000 potholes. But the strain that deteriorated road and pavement surfaces place on local authorities is not merely from a maintenance and repair point of view — they also have the potential to spark significant waves of compensation claims due to accidents or injuries associated with them.

Potholes have long been a problem for the public sector. Back in 2002, Alarm — the national forum for risk management in the pubic sector — warned that council tax bills may have to rise because the cost of claims, linked to people tripping on uneven pavements and vehicle damage from potholes, hit a staggering £120m. According to figures released at the end of 2009 by the LGA, that figure has now fallen to £35m. But Professor Stephen Glaister, director of the RAC Foundation, was quoted on the BBC last month as saying: "In previous years, councils have spent almost as much money dealing with compensation claims as fixing the problem."

So, the worry is that the recent arctic conditions that engulfed the UK will see a return to these high claims costs. The vast majority of potholes are created by the continuous process of freeze and thaw, when water penetrates cracks in the road and then expands and contracts, breaking up the surface.

There is little doubt local authorities fear the bad weather of recent weeks will strain their resources for some time to come. In a statement made last month, the LGA said: "The worst conditions in 30 years have left roads exposed to a condition known as 'freeze-thaw', which damages the roads in wet and particularly freezing conditions. Water in cracks in the road expands into ice causing the surface of the road to break up and deeper than usual potholes to form. The public is being asked to urgently report any defects they spot to their local authority so that they can fix them as quickly as possible."

Over and above any cost involved in meeting successful claims borne out of these potholes, there are also significant resource issues for local authorities to deal with. The LGA claims that, in the year before last, staff spent a total of 40 801 days dealing with pothole claims — or the equivalent of 111 years. It is little wonder, therefore, that councils are focused on speedy repair to try and prevent claims originating in the first place and reduce the impact on resources, which are only likely to come under increasing pressure from spending and staffing reviews in the near future.

So, how can the public sector minimise claims arising from potholes and, when they do come through the door, deal with them effectively? The truth is that there is little councils can do to prevent people claiming if they have suffered damage or injury as a result of a pothole. At the moment, most feel making a claim is worth their while and claims farmers remain active in the market, urging individuals to push their case on a no-win no-fee basis.

However, local authorities are taking steps to destroy the image of being a soft touch — by not only informing the public they have access to a statutory defence for pothole claims, but have also introduced systems and processes that mean they can use it to good effect. Henry Bermingham, partner at Berrymans Lace Mawer, says councils are very keen to defend claims and, in tandem with their insurers, are happy to stand up to every case they think can be successfully defended. "What you see is an area where a robust line is taken and where cases can be defended they are," he comments. "Councils are not prepared to settle. In this market, dispelling the idea that councils are a soft touch is very important. They are not. Getting that message out is very important."

So, what is the defence available to them? Under the Highways Act 1980, local authorities are tasked with maintaining the roads in a manner that is reasonable. But under section 58 (see box, p28) they are not duty-bound to maintain them in a continual state of perfection. So long as local authorities can prove they have an appropriate management system in place to detect and eliminate potholes, then they are able to repudiate most of the claims arising out of them.

Important defence

This defence is very important for local authorities and Alan Hunter, head of technical claims at Zurich Municipal, comments: "It would be impossible for the local authorities to keep the highways in tip top condition all of the time. Therefore, they have been granted some leeway under section 58 if they can demonstrate they have a reasonable system of inspection." He adds: "If you can demonstrate you operate such a system — as well as having the records to document it and the fact your highway inspectors are all well-trained and motivated — then you enjoy the benefit of a statutory defence and are able to decline these claims."

In short, this means that many of the claims made can theoretically get kicked straight into touch. In total, Mr Hunter says Zurich Municipal repudiates somewhere between 70% and 80% of the claims it sees made on these grounds. This figure tallies closely with findings from the Chartered Institute of Public Finance and Accountancy, which say the percentage of closed claims repudiated is 79.4%.

The key to repudiation, therefore, lies in the ability to evidence an appropriate level of inspection has been carried out and that, once a pothole has been identified, reasonable efforts have been made to repair it. Mr Hunter says: "I think you will find local authorities have really taken on board the risk management message about the creation of systems, prioritisation of repairs, and the identification and analysis of risk. What they are also doing is creating the paperwork and documentary evidence to support a reasonable system of maintenance and prioritisation, with a hierarchy for gritting roads. They are very switched on to the professional risk management approach on this."

Not only does this strategy help local authorities create an effective system for maintenance and fighting claims that come through the door, it also helps them identify fraud in a much more successful way. The key to countering fraudulent claims is having fast access to accurate information regarding as many aspects of the claim as possible. This has not always been possible but, as local authorities, insurers and other interested parties have introduced better systems, life has been made easier.

Tackling fraud

Talking specifically about Zurich Municipal, Mr Hunter asserts: "We have a sophisticated fraud detection programme that involves handler training to identify anomalies. It involves trained investigators that may follow up something spotted by the handlers — some inconsistency, for example." He explains that there are often claims for alleged falls on footpaths at 11:30pm outside various pubs, or from people who say they have fallen over, but have bruised and cut knuckles, so the medical evidence is inconsistent. Others will claim they fell over at a certain location but the medical or ambulance records will reveal they were collected after a fight from a different place altogether.

Obtaining this information and pulling it together effectively is how local authorities will win the battle against fraud and things have improved significantly over recent years. Simon Johnson, London branch claims manager for Gallagher Bassett International, says: "Fraud procedures have definitely improved within local authorities, but this has also been aided by the insurance industry through the creation of fraud databases, such as Cue — the claims and underwriting exchange." Cue, alongside the likes of the Insurance Fraud Bureau and also the Fraudline service set up by loss adjuster Cunningham Lindsey, have all played their part in improving the level of co-operation between various parties and ensured everyone is moving in the same direction when it comes to fighting fraud.

Without this industry-wide effort it would not be possible to make significant and systemic inroads against fraudsters, as they would simply move to other council jurisdictions and claims handlers that represent the weakest link in the chain. As Brian Shaw, UK public sector practice leader for Marsh, says: "No single local authority could fight fraud in isolation, as fraudsters would simply attack those that are not so good."

Despite the improvements made by local authorities at weeding out fraud, and the creation of systems and processes to better inspect and repair the highways to facilitate reliance on the statutory defence against claims arising out of potholes, there is still an awareness that additional efforts need to be made. This has been graphically demonstrated by the financial impetus councils are putting into their efforts to improve the roads. For example, Glasgow City Council recently announced it was trebling its roads maintenance budget to £12m in an effort to blitz the potholes on its roads, while Buckinghamshire County Council has released £2m from its reserves to deal with the immediate need to repair potholes, which have appeared as an inevitable result of last month's snow and ice.

Looking specifically at the number of claims received by Buckinghamshire County Council in recent years, David Simons, its corporate risk and insurance manager, says: "In February 2008, 59 claims were received while in February 2009 there were 362 claims. The 'spike' for the current year is already beginning to be felt, with 115 claims received in the last two weeks, and I know from the contact centre there are potentially 'hundreds' in the system that insurance has so far not seen. But, then again, the recent cold spell is unprecedented being the worst, we are told, since 1981."

Mr Hunter also reports an increase in the number of claims, estimating levels to already be up by 60% on the same period last year. However, he is confident that the repudiation rate will remain the same. Even if this is the case, higher numbers of claims being made will still eat up time and resources and associated costs could be significant.

Another area where costs remain a big issue for the public sector is in claimants' legal fees. Lalitha Sriharan, an associate in the local government group at law firm Weightmans, comments: "If someone trips up, does not injure themselves too badly and has a month off work with a fractured ankle, you could be looking at damages between £5000 and £10 000. But it is the claimants' costs that are the really painful part. They can be double or triple the damages awarded. For even a simple trip, a council could be spending up to £30 000."

This view is supported by Mr Bermingham, who adds: "Claimant costs are far too high at the moment. We will defend these cases to trial for a few thousand pounds and yet the claimant solicitors seem to take £20 000 to bring them."

Civil litigation costs are already an issue under scrutiny — with Lord Justice Jackson having recently produced his final report and package of reform recommendations — and the outcome of this process, if implemented, could have a significant impact on cases currently backed by after-the-event insurance. Changes in this area would also impact the total costs incurred by local authorities in the cases they lose. Local authorities have come a long way in their battle with the pothole, but they need to redouble their efforts if they are to eradicate unnecessary costs associated with them for good.

Section 58 of the Highways Act 1980:

Special defence in action against a highway authority for damages for non-repair of highway.

(1) In an action against a highway authority in respect of damage resulting from their failure to maintain a highway maintainable at the public expense, it is a defence (without prejudice to any other defence or the application of the law relating to contributory negligence) to prove that the authority had taken such care as in all the circumstances was reasonably required to secure that the part of the highway to which the action relates was not dangerous for traffic.

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