Rewriting the rulebook

The Ministry of Justice's bid to dramatically reshape the personal injury claims system in the UK has sent shockwaves through the industry, and, as Lynn Rouse reports, its proposals to introduce widespread fixed fees and strict timescales have met with wildly differing reactions

Last month, the deadline passed for responses to the Ministry of Justice's paper Case track limits and the claims process for personal injury claims. And rarely has a single consultation paper prompted such posturing and positioning on the part of key stakeholders. In essence, the proposals for reform contain a radical overhaul of the current system, hinging on fixed fees and fixed timescales. The aim is to eradicate disproportionate costs, particularly in lower value personal injury claims.

As the paper states: "Research has indicated that, while the pre-action protocols have been beneficial in many ways, they have had the effect of frontloading costs. The process that the parties are required to follow can quickly drive up legal costs at an early stage. The defendant/insurer is often not notified about a claim until the claimant lawyer has carried out a considerable amount of investigative work. If the defendant/insurers then admits liability much of the work that has been done, and the costs have already accumulated."

But Phil Dicken, head of insurance at Hugh James solicitors, fears that the proposals could unravel some of the good work achieved through the 1999 civil procedure reforms. "The reason that front-loaded costs were created is that the process was not completed; those reforms stopped short of meeting the most critical aspect - fixed fees."

Although Justin Jacobs, head of liability at the Association of British Insurers, agrees to an extent, he stresses: "This process is all about reversing that trend - giving the defendant a chance to hold up their hands and say 'it's us' before investigation gets underway. In the vast majority of cases, defendants know it's them without being given vast amounts of proof."

So where are the loudest noises of support for reform being heard and, equally, the voices of dissent?

Bearing in mind the proposals suggest the time in which a defendant or insurer will admit or deny liability should be slashed from months to weeks, insurers are being surprisingly bullish in their declarations that they will embrace these challenging deadlines. On the other hand, responses from the claimant solicitor fraternity have largely been ones of strong criticism or outright rejection. For example, the Association of Personal Injury Lawyers has rejected the proposals to raise the fast track limit to £25,000 and declared the new, streamlined process is inappropriate save for straightforward road traffic accident claims with a value of less than £2500 (see box, p24).

Similarly, the Accident Management Association has been forthright in its criticisms, declaring the proposals "defective in key areas". This is hardly surprising given the explicit intention to eradicate referral fees on fast-track PI claims. The AMA's contention, however, is that every business has a cost in acquiring customers. Meanwhile, union lawyer Thompsons conducted a survey of claimants that revealed "overwhelming opposition" to the proposals.

Arguably, some of these views could be fuelled by vested interests. But what are the underlying reasons for opposition to the proposed streamlined scheme? Martin Bare, Apil president, says its rejection to raising the fast track limit stems from fears this will exacerbate current problems where complex claims are put through a process that severely restricts the amount of evidence that can be admitted and hearings only last for a single day. "The problem members have expressed to us is the inconsistency across the country in terms of what judges are willing to take out of the fast track," he says. "For example, in some parts of the country, industrial disease cases are removed because they call for medical evidence on both sides. And yet other district judges allow the financial value to dominate their thoughts and would not remove such cases. The only test should be one of complexity - not value."

However, others are unconvinced by Apil's arguments, suggesting a different motive: "The sub-text to all this opposition is the fact that the government is proposing fixed costs throughout the fast track," says Steve Thomas, UK technical claims manager at Zurich. "Apil will try and keep this limit as low as possible to keep as many claims as possible out of the fixed cost regime."

When Mr Bare's concerns regarding inadequate hearing time for more complex cases are put to him, Mr Thomas does not hold back in his rejection of this as a valid reason: "Let's put things in context - how many fast track cases litigate or come anywhere near a judge? Roughly 3% to 4%. That means 96% of fast track cases never go anywhere near legal proceedings so we are talking about a tiny minority of cases and, of those, a tiny minority may be placed in the wrong track."

The ABI is equally unimpressed by Apil's arguments - particularly as its representatives were present during the extensive discussions that took place to shape the current recommendations. "The point of the proposed regime is that, if the case can settle, it will do," emphasises Mr Jacobs. "And if it can't, you can take it out of the process. At the moment we have a system designed to deal with the complex cases, which is inefficient and slow for claimants. What we want is a system that is designed to deal with the vast majority of claims."

To substantiate his claims that the claimant fraternity is being driven by vested interest, Mr Thomas argues its response to this consultation should not be read in isolation. "Here they argue to limit the new system to motor claims under £2500. But when you take a look at their response to the consultation on damages, they argue that damages in this country aren't high enough. Therefore, when you read the two side by side, the reality is that - if they got their way - virtually nothing would fall into this fixed cost system."

Others too, however, have concerns over adopting aspects of the streamlined process for all PI claims under £25,000. Andrew Caplan, partner at Kennedys, who sat on the Law Society's working party, says: "It is a good idea in claims of limited quantum to say the court, without hearing oral evidence, can decide damages based on written submissions. But I believe £5000 is a sensible limit for this streamlined process. A better system would be not to look at the value overall but the value in dispute. For example, if an insurer believes the value is £10,000, and the claimant solicitor says £12 500, there is £2500 in dispute. And we could have written submissions without compromising justice."

The proposed timescales for the defendant fraternity to respond on liability are undoubtedly challenging (see box, p23). But insurers are adamant they are intent on complying. "Whether the timescales are workable or not we have got to find a way to meet them," asserts Roy Hebburn, divisional claims manager at Allianz Insurance. "Change is inevitable and this is a golden opportunity to get proportionality back into what are essentially straightforward, low value claims."

David Williams, claims director at Axa, is equally bullish: "One of the big debates is whether the industry will be able to meet the timeframes. But then I think of all the whinging we have done about the existing process and how it is lining lawyers' pockets. So, although the timescales will be difficult to achieve, that's not a good enough reason not to implement them."

Mr Thomas, however, would prefer to see the timescales introduced by way of step change. "As an interim, we have proposed to move to 25 working days in motor claims; 45 days in employer's liability; and 60 days in public and product liability and disease. Get that embedded first, start to change the culture and behaviour - which might realistically take 18 to 24 months - then drop down."

Other commentators are keen for the new process to be used at every possible opportunity. Andrew Underwood, partner at Keoghs, says: "On paper, it appears that if time limits are breached, all bets are off and claims will drop out. But that would be a major own goal and undermine any reforms, designed as they are to introduce radical change. We need to have a way of bringing claims back into the process if the timescales are breached, subject to some penalty or sanction."

Insurer bravado is all well and good but are the proposed timescales feasible? After all, more than one person suggests insurers frequently fail to meet the existing deadlines, which are much longer. The MoJ is clear that these time periods are tight because consideration must be given to how long it is reasonable to expect claimant solicitors to down tools and suspend investigation. But others who work with insurers are concerned that the MoJ has failed to understand the process that liability claims can undergo.

Suzanne Kearney, head of liability - technical, at Crawford and Company, explains: "To be fair to the government, it is trying to create access to justice but seems to be suffering from a misconception about how insurance-backed claims work in reality. Notification of new claims is not as straightforward as sending it straight to the insurer. For example, a claim may go first to the risk manager, then to the claims broker, who will send it to the producer, who passes it to the underwriter, and then to a loss adjuster. The MoJ has not grasped that there could be at least five different people that the notification has to go to."

Ms Kearney has additional concerns linked to the timescales proposed. "When does the clock start ticking?" she queries. "Time limits need to be clearly defined and scoped - day one should mean the same for both parties to avoid satellite litigation issues, which arose following the implementation of the Civil Procedure Rules."

But it would seem that insurers are already gearing up to meet the challenge. "We are moving to slicker process, including imaging to enable us to move paperwork around more quickly and to the location where the claim is being handled," says Mr Hebburn. "We are also looking to bring on board more front line investigators and have greater expertise in terms of desk-top assessment by liability specialists. We need experienced eyes to make decisions quickly."

He adds "We also need to embark on an educational campaign for our customers and there may be a need to change policy wordings to strengthen the process - especially in PL - to ensure insureds notify us immediately and give us the opportunity to take a view."

Mr Williams reports Axa's plans are also on paper at the present time: "We are not recruiting but have worked out how much the extra resources would cost and referred to this in our response to show we are behind the reforms. That's to say, there are cost implications but we are still supporting change."

Disease claims are one area where many stakeholders are expressing reservations regarding the proposals. The ABI is calling for a separate claims form for disease - something many others support. "In principle we want this new process to apply to all claims but for diseases a separate claim form is needed," says Mr Jacobs, "and the timescales for both claimants and defendants, for different issues, also need to be addressed. For example, would you introduce different timescales based on disease types, the number of defendants involved, the length of exposure - all the things that complicate disease claims. We are not saying 'don't include disease claims', just that there needs to be a parallel system tailored to the nature of these claims."

The standardised claim form has also raised queries. Mr Bare explains that when the current PAP for EL was first agreed, defendants were very keen to know what it was they were investigating. "Therefore a claimant solicitor would have to specify whether it was an allegation of negligence, or breach of duty and so on in the letter of claim. Under the new process, we would send a factual form with no allegations, the defendant would not know the nature of the claimant's case and their time to investigate and respond would be limited."

Ms Kearney picks up on this point too: "Where the claimant is represented, it just states the fact a claim is being made and asks for a brief description of the accident. It does not suggest there should be a clear indicator of why the claimant believes the defendant is to blame. In short, you do not have to allege fault. This stands in contrast to the litigant in person's form, which requires you to state why you believe the defendant to be responsible."

However, Mr Jacobs responds: "We did mention this to the MoJ and it was likely a drafting error, based on the idea that claimant solicitors would know to do this. So we have made the point that, the more precise and closed the questions are, the better it will be."

Provided these problems are addressed and ironed out, other commentators express a keeness to extend the use of claim forms. Mr Underwood has long been involved on industry initiatives on the multi-track side, aimed at encouraging early and effective notification of higher value claims. And, in his view: "A universal claims from in this arena could be a real step forward, imparting meaningful information. This is something I would like to see introduced for all claims, whatever their value."

If there is a common theme among stakeholders' views on the proposed regime, it is disappointment at the lack of detail on the fixed costs - which, after all, are designed to underpin the system. "The government has completely fudged the issue and the new proposals once again fail to grasp the nettle," declares Mr Dicken. "Lack of detail on fixed fees is ominous as we have been here before with the previous raft of reforms."

Whereas Mr Jacobs says: "I'd like to take a positive view and say that fees need to be set on a proper bottom-up assessment on the work done by solicitors and what the sustainable rates are. For that you need the detailed proposals to be agreed and given the fact that these are still being debated, this cannot be achieved. That is, of course, assuming that this is the process that will take place.

Ian Martyn, partner at Bond Pearce, a law firm that undertakes both claimant and defendant work, raises a separate issue regarding costs: "There is no provision to review the long term sufficiency of the amounts prescribed under the fixed fee regime. Past experience indicates that where solicitors' costs are prescribed, they are updated only infrequently if at all." He contrasts this to court fees, where the government preserves the purchasing value of its revenue by regular annual adjustments, often set above inflation. "Whereas the fixed trial costs have not been increased since their inception in 1999 and the fixed fees set for RTA claims have not increased since their inception. Has there really been no inflation since October 2003? It will assist all parties to know from the start what mechanisms are proposed for review."

So what is the best way to move forward, bearing in mind the host of issues raised? "Phased implementation is my preferred phrase," says Mr Bare. For example, he says, the first phase should be RTA under £2500. Analysis should then be done on how much work the solicitor ends up doing and whether the fixed fee is sustainable. The number and percentage of insurers that responded in the specified time should also be looked at closely, he says, as should the effect on the ATE market - how many policies have been written and what premium levels were providers seeking.

Yet Andrew Parker, head of the strategic litigation unit at Beachcroft, believes the bullet needs to be bitten: "These reforms seem to be prompting some to return to their corners of the ring. But these proposals are about balance and compromise. It's about giving insurers the opportunity to get things right. And if the timelines are viewed as tight that is probably deliberate. It will not be easy for anyone - this reform is about hard choices."

Radical reform: the Ministry of Justice's key proposals

Small claims track limit: Will stay at £1000 for personal injury claims.

Fast track limit: recommended to be raised from £15,000 to £25,000, except clinical negligence cases.

Standard claim forms: These will detail all the relevant information for insurers to make a quick but informed decision on liability.

Fixed recoverable costs - three stages: The first will apply until there is an admission or denial of liability; the second will run until the end of the period for accepting or rejecting offer to settle; and the third will cover the costs associated with paper hearing with district judge if quantum dispute.

These will be calculated to reflect the work needed to comply with the process and not include the cost of referral fees.

Fixed timescales: There will be five working days to send the claim form from the first meeting/instructions between claimant and solicitor.

- Decisions on liability: 15 working days for RTA claims; 30 working days for employers' and public liability claims. These are to be binding admissions.

- Offers to settle - insurers should have 10 working days to consider or make a counter offer. If a counter offer is made, there will be a further 20 working days for consideration and negotiation.

Medical reports: Only obtained after an admission of liability and suggested the claimant solicitor obtain them.

Settlement packs: Once a medical report has been agreed by the claimant, this should be sent to the defendant/insurer as part of a settlement pack within 15 working days.

District judges: Where liability is admitted but the parties cannot agree on quantum, it is proposed that a simple procedure be followed whereby a district judge decides on appropriate damages.

General damages: Views were sought on an appropriate assessment tool.

After-the-event insurance: It is suggested that ATE is inappropriate on day one of a case as there is no risk as to costs, so premiums will not be recoverable. If a claim fails at admission/denial of liability stage, there is no liability for costs. If a claim is over £2500 and the parties cannot agree over quantum, it may be appropriate to take out then.

Association of personal injury lawyers - wish list

Rejects proposal to increase the fast-track limit to £25 000 as believes this would result in many unsuitable cases being caught.

If limit increased to £25 000, calls for practice direction stating a presumption that cases of a complex nature should be allocated to the multi-track.

Believes that the proposed system is only suitable for road traffi c accident cases under £2500 where liability is patent, and only one medical report is needed.

Calls for a statutory requirement to offer rehabilitation to injured people on admission of liability.

Says binding admissions are critical to the new system working, as this means they can be relied upon and no need to investigate claims.

If a full admission of liability has not been made by the defendant on expiry of the relevant timescale, the claimant must be allowed to investigate because the burden to prove their case rests with the claimant.

Supports the proposal for claimant solicitors to continue to obtain medical report but concerned at them becoming too standardized, and believes that placing a cap on the maximum recoverable fee would reduce the quality.

Strongly against a computerised tool for general damages, due to inflexibility.

Support fixed fees only where amount of work is also fixed – calls for thorough research and regular review.

Fixed fees: the real-life, example of where they are already working for claimant firms

Currently there are around 70 claimant law firms comprising network Law Alliance who are working under the Inter Resolve fixed fee scheme for bodily injury claims, with a couple of larger law firms now reportedly looking to join. Peter Ashdown-Barr, chief executive of Inter Resolve, adds that there are ongoing discussions with a large number of insurers and the signs are that the scheme, which uses independent claims administration to remove process for both sides, will broaden significantly in the near future.

"Virtually all of the MoJ's proposals are in line with what we are doing already, so it was quite uncanny to read the consultation," says Mr Ashdown-Barr. "Obviously the element that is causing a lot of concern is the time limits imposed on insurers to investigate and admit or deny liability. Under our scheme we have always had time limits but, because these are based on collaboration, there is also collaboration over extensions. So no matter what the government decides and the rules laid down, our scheme members can collaborate on a voluntary contractual basis over timeframes, regardless of the default position set down. The important thing is to ensure that the claimant's rights are properly protected."

He continues: "The whole point of these reforms is to minimize the legal games played. If we end up in a situation where new ones emerge the entire reform process will be pretty pointless. So we need some provision outside the rules - allowing give and take for both sides.

"We have also devised a post-MoJ scheme - that I can't go into details about at the moment - which will bring additional benefits to the solicitors and their clients in agreeing to collaborate."

So will Inter Resolve use higher fees as an incentive therefore for people to join the scheme?

"No - there are other financial incentives for law firms to join as it is not the top level of fees that firms are looking at but the bottom line. That's where they derive real value, in the greater margins attainable under our scheme, because they can make bigger profit from being part of the scheme whatever the fee scales are," continues Mr Ashdown-Barr.

"Our message to law firms and insurers is to press ahead - while we may be hearing a lot of wailing and gnashing of teeth from claimant lawyers, there are methods available for these firms to do well out of the proposed regime."

Chris Lodge, partner at ASB Aspire, a member firm of Law Alliance, comments: "The reason we work on fixed fees is that both parties work together for the benefit of the claimant and there is not too much to argue about except negotiation of the claim's value."

So how will these reform proposals fit with the scheme you are part of? "Both lawyers and insurers can effectively get to grips with the system set to be imposed but a year early and in a far more relaxed manner. The world of PI claims will change enormously if the proposals go through as well as the traditional way of lawyers getting work. If the fee level on cases worth less than £2500 is substantially reduced, the ability to pay referral fees will also be dramatically reduced, if not extinguished."

Why is there a continued reluctance on the part of most PI lawyers to work under fixed fees?

"One worry is that insurers will find all sorts of reasons why they can't do things in the time limits imposed. The fear of solicitors is that the three month case backlog insurers currently have will continue and there will not be enough penalties to deter this, which is something the MoJ needs to address," responds Mr Lodge.

So is it profitable to work on fixed fees? "We all believe we make a reasonable profit or we wouldn't be in the scheme," says Mr Lodge. "So although we do not know exactly what the new rules will be, or where they will be pitched, firms will have to re-engineer their systems to ensure they remain profitable on cases that will fall into the new system where liability has been conceded.

"Personally I feel that if insurers work with us, looking at the volume side of claims, we can all do the job very well for claimants. We've been doing this for two and a half years, so now is the time for insurers and lawyers to try it out."

Association of personal injury lawyers - wish list

Rejects proposal to increase the fast-track limit to £25,000 as believes this would result in many unsuitable cases being caught.

If limit increased to £25,000, calls for practice direction stating a presumption that cases of a complex nature should be allocated to the multi-track.

Believes that the proposed system is only suitable for road traffic accident cases under £2500 where liability is patent, and only one medical report is needed.

Calls for a statutory requirement to offer rehabilitation to injured people on admission of liability.

Says binding admissions are critical to the new system working, as this means they can be relied upon and no need to investigate claims.

If a full admission of liability has not been made by the defendant on expiry of the relevant timescale, the claimant must be allowed to investigate because the burden to prove their case rests with the claimant.

Supports the proposal for claimant solicitors to continue to obtain medical report but concerned at them becoming too standardized, and believes that placing a cap on the maximum recoverable fee would reduce the quality.

Strongly against a computerised tool for general damages, due to inflexibility.

Support fixed fees only where amount of work is also fixed - calls for thorough research and regular review.

Association of British Insurers - main arguments

Fixed recoverable costs should provide no more than sustainable remuneration for the legal input required at each stage.

Claimant solicitors should have to record that they have checked if claimant has BTE cover.

In line with the Rehabilitation Code, propose that the cost of rehab undertaken without insurer's agreement should not be recoverable.

To prevent unnecessary delay and provide certainty, claimant solicitors should be required to email the claim form directly to the relevant insurer for all motor and employers' liability claims, copying to defendant where appropriate. If not emailed, insurers should have additional five days. If proposal accepted, ABI happy to maintain up-to-date contact email addresses for all member companies on its website.

Agrees insurers should have 15 working days to communicate liability and rehab decision for bulk of motor claims.

Similarly, agrees on 30 working days for bulk of EL accident claims.

For public liability claims - proposes longer timescale of 45 working days.

Defendants should have additional 15 working days to investigate claims relating to incidents that occurred more than six months previously.

Government should draw up examples of legitimate and illegitimate reasons for defendants to seek extensions.

Proposes that insurer - not claimant solicitor - should commission medical report, from a jointly-agreed standing list of medical agencies/experts using a jointly-agreed instruction letter.

Agrees after-the-event insurance cannot be justified if there is no risk to insure. Should only be taken out and become a recoverable cost if claims are taken out of system because liability denied/defendant does not respond within timescales.

Specific claim form and timescales need to be agreed for disease claims, as these require different information and take longer for both claimant solicitors and defendants to investigate.

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