Commons Library Analysis: Civil Liability Bill [HL]

This briefing paper deals with the position in England and Wales.

Civil Liability Bill [HL]

The Civil Liability Bill [HL] (the Bill) has three parts:

• Part 1 deals with whiplash;
• Part 2 deals with the personal injury discount rate;
• Part 3 sets out the final provisions and deals with regulations, extent, commencement and short title.

The Bill has completed its passage through the House of Lords and was introduced in the House of Commons on 28 June 2018. It is due to have its Second Reading in the House of Commons on 4 September 2018.

Whiplash claims Background

Against a background of rising motor insurance premiums and the perception (not universally accepted) of the existence of a “compensation culture”, there has been a focus on the incidence of personal injury claims for whiplash injuries (sometimes referred to as soft tissue injury claims), insurance fraud more generally, and the extent to which this has affected the cost of motor insurance.

Reforms to civil litigation procedure and funding were introduced by the Coalition Government, which also developed a whiplash reform programme.

The Government remains concerned about the number and cost of whiplash claims and has consulted on ways to address the issue. It now intends to proceed with a range of reforms aimed at capping whiplash compensation payments and banning settlement of claims without medical evidence.

The Government considers that the reforms would lead to savings of about £1.1bn and expects this to be passed on to motorists, resulting in an average saving per motor insurance premium of £35. Opponents of the Government’s proposals dispute the figures and consider it unfair that the reforms would reduce the compensation payable to genuine claimants, and leave victims to conduct claims without legal advice.

The Bill

The Bill contains part of a package of measures intended to introduce the Government’s proposed reforms. Part 1 of the Bill would:

• provide for a tariff of compensation for pain, suffering and loss of amenity for whiplash claims. The tariff figures would be set in supporting regulations; draft whiplash injury regulations have been published;
• introduce a regulatory ban on seeking or offering to settle whiplash claims without medical evidence;
• provide for the Judiciary, in exceptional circumstances, to apply an uplift, of a maximum specified percentage (20% under the published draft regulations), to the amount of damages payable under the tariff.

Small claims track limit for personal injury claims to be increased

As part of its package of reforms, the Government intends to raise the small claims track limit from £1,000 to £5,000 for road traffic accident-related personal injury claims, and to £2,000 for other personal injury claims. This would bring many more claims, including whiplash claims, within a regime where legal costs are not usually awarded to the successful party, meaning that many more claimants would probably conduct their claim without legal representation. This proposal does not form part of the Bill and would be achieved by secondary legislation (effecting a change to the Civil Procedure Rules). Further information is provided in another Library briefing paper: Small claims for personal injuries including whiplash.

Reaction to the Government’s proposed reforms

The reaction from interested parties has been mixed. In general, lawyers’ groups, including the Law Society and the Association of Personal Injury Lawyers, are among those who have raised concerns about the Government’s proposals, while the Association of British Insurers (ABI) has welcomed the proposed reforms.

Personal injury discount rate Background

The personal injury discount rate is one determinant of the amount of compensation to be paid to a victim by an insurance company.

Compensation for an accident is normally paid as a lump sum at the point at which the award is made. It is subject to an investment test which is particularly important in cases where compensation is for a long period of time such as to cover a lifetime disability condition. The agreed annual compensation, multiplied by the likely period it is needed for, produces a total compensation figure. However, a lump sum paid now, can be invested to produce a stream of income returns over that period, hence, the actual lump sum needed now is reduced by the likely investment returns over the period.

The higher is the discount rate, the lower is the initial lump sum awarded because the victim is assumed to be able to earn a lot by investing it (and vice versa). Even small changes to the rate can, over a long period, make substantial differences to the initial payment size.

In February 2016 the Justice Secretary announced a reduction in the discount rate from 2.5% to -0.7% to reflect more accurately market investment conditions and to reflect the observed investment behaviour of recipients. The rate is set currently on the basis that recipients have an almost zero tolerance for risk of their investment. In fact, recipients often invest in a range of securities which have some risk attached and which derive greater returns on the investment. Hence the zero-risk discount rate is non-aligned to the real discount rate that most recipients enjoy.

The Bill

Part 2 of the Bill includes the provision about the discount rate. The main change is that the determination of the rate must now be based upon a “rate of return that, in the opinion of the Lord Chancellor, a recipient of relevant damages could reasonably be expected to achieve”. Instead of the zero risk approach the rate will be based upon:

1. (i) more risk than a very low level of risk, but
2. (ii) less risk than would ordinarily be accepted by a prudent and properly advised individual investor who has different financial aims.
3. A fine distinction is being enshrined in the law, between a risk averse recipient (but one who accepts some risk) and a normally risk averse investor. The Bill enshrines a procedure for regular reviews of the discount rate and that there will be an ‘expert panel’ to assist the Lord Chancellor in determining the rate.

Reaction to the Government’s proposed reforms

Broadly, insurance companies are very pleased, but those involved in supporting those making claims, are against.