Legal reforms and their influence on major loss claims

Due to the political turmoil that the United Kingdom has been facing over the past few months, there are numerous potential changes that might impact the legal market. The focus of this thesis is on the upcoming legal reforms and their influence on major loss claims particularly. During the course of this chapter, we will be looking at the extension of the fixed fee regime, Part 2 of the Civil Liability Act 2018, the Disclosure pilot and, last but not least, the likely impact of a hard Brexit on the claims culture within the major loss team.

The extension of the fixed fee regime

The fixed cost regime[1], introduced following the publication of a report in 2010 by Sir Rupert Jackson, allows for the recovery of fixed costs in litigation as prescribed by Part 45 of the Civil Procedure Rules, offering certainty to the unsuccessful party as to the amounts to be paid to the winning party. This regime originally applied to low-value personal injury claims, enforcement proceedings and uncontested cases. In March 2019 a consultation[2] on extending the fixed costs regime was issued by the government until 6th June 2019, deciding at the end of this period to implement the recommendations given by Sir Rupert Jackson in his review published in July 2017. Although met with numerous criticisms from legal practitioners and The Law Society[3], the government decided to implement this change, therefore, planning on expanding the fixed costs regime to claims up to £100,000.

Outside this regime, the parties have to come to an agreement regarding the recoverable costs, judge intervention being necessary if this cannot be reached.

Although it ensures proportionality and certainty, extending the fixed costs regime raises the question as to whether solicitors are going to try to work their way around the FRC by inflating damages claimed to move the case to the multi-track. Even though judges have discretion in respect to which track the case should be allocated to[4], the claimant could exaggerate the seriousness of the claim in order to prove that the circumstances are so exceptional that the FRC should not apply. As case law[5] has proved, cases allocated to the multi-track are not currently subjected to the fixed costs regime.[6]

If it can be determined that the claimant has unreasonably exited the portal, the court can limit the costs recovered according to its wide discretionary powers granted by CPR 44 which allows for the conduct to be considered when assessing costs.[7] However, this method is less certain and, if attention is not paid, the fixed costs regime will not be applied on time. To avoid this, Allianz would have to ensure that it makes the argument that fixed costs apply at the earliest opportunity, ideally at the moment it acknowledges the receipt of the service.

Even though this extension will not directly impact major loss claims, this issue of exaggeration and inflation could lead to an increase in claims volume for MLT, meaning that handlers would deal with claims which do not belong to their workload.

Furthermore, the possibility of future expanding the FRC to claims up to £250,000 or even higher values is becoming more and more viable once this recommendation is implemented. Since Sir Rupert Jackson’s consultation refers to such an expansion, it is not unrealistic to make such an assumption. Nonetheless, there will be years from now until the government will consider making a further change to costs budgeting in civil litigation.

https://www.judiciary.uk/wp-content/uploads/2016/01/fixedcostslecture-1.pdf

Look into the Association of Costs Lawyers

Part 2 of the Civil Liability Act 2018

Following the abrupt change in the discount rate from 2.5% to -0.75% in 2017, it was clear that reform was needed for more certainty to exist for both insurers (in respect of their reversing strategies) and the claimants. As a result, the Civil Liability Act 2018 was implemented, with Part 1 focusing on whiplash reform and Part 2 on the discount rate in personal injury cases.  Since whiplash injuries do not fall within the remit of major loss claims, the focus of this chapter will be on the second part of the Act, which makes it clear that the rate of return is prescribed by the Lord Chancellor[8], who must consider certain assumptions laid down in Schedule A1 section 4(3) & (5). This Schedule also imposes a duty on the Lord Chancellor to periodically review the rate first within the 90 day period following commencement[9] and then within the 5 year period following the last review.[10]  Both allow for a period of 180 day review period. [11] In order to determine whether the rate should or should not be changed, the Lord Chancellor will need to have regard to the damages reasonably to be expected by the recipient if those amounts were to be invested.[12] The importance of this Act can be seen from the impact it has on every insurer’s claims strategy in respect of personal injury claims. The handlers within Allianz specifically need to be aware of the changes in the rate as this would be reflected in the reserves they set. A failure to reserve adequately can cause various problems, the most serious one being going into insolvency. This would also be a breach of the regulatory duty Allianz has (find which ones – capital adequacy?)

Insurers will now be subjected to a new requirement set out in Part 3 of the Civil Liability Act 2018, being required to keep a record of the claim settlements at the new and the old rate to show the savings the insurers have had as a result of the change. Information regarding premium prices and claims costs will also need to be provided to the FCA on a one-off basis by 1st November 2023.

The government’s impact assessment stated that insurers will gain up to £320 million each year after the change in the discount rate to -0.25%. To show the impact of this change we can take an example.

The claimant is female, aged 35 at the date of the trial. She has three A levels, but not a degree, and was in employment at the date of the accident at a salary of £25,000 a year net of tax. She was not disabled before the accident. As a result of her injuries, she is now disabled and has lost her job but has found part-time employment at a salary of £5,000 a year net of tax.[13] Her loss of earnings to retirement age 60 applying the old rate of -0, 75% and the specific multiplies would have been £517,500. In comparison, applying the new rate of -0.25% the loss would amount to £485,500. This difference of £32,000 on only one head of loss, adds up to the savings the government referred to in its impact statement.

To ensure that Allianz is not negatively affected by this change, the reserving strategies will need to be kept under review; data will need to be stored to comply with the new obligations set by the Act

The disclosure pilot

Financial Services Duty of Care Bill 2019-20

Financial Services Duty of Care Bill

Although it is in the distant future, the Financial Services (Duty of Care) Bill 2019-20 aims to implement rules for authorised persons to owe a duty of care to consumers in their regulated activities. Having had its first reading on 9th January 2020, it can be said that the Bill journey has officially started, with the second reading yet to be scheduled.

Since it is yet to pass through the House of Lords, not a lot of information is provided as of yet. What is certain is that it will give the FCA the power to make general rules in respect of such a duty of care. Attention will need to be paid as this Bill progresses through Parliament, although not much change is to be made to the case management processes as such a duty is implied and Allianz is already required to act with reasonable care and skill by the provisions laid down in ICOBS 8.

Bibliography

• https://www.lawgazette.co.uk/news/insurers-bemoan-new-discount-rate-but-stand-to-save-320m-a-year/5071004.article
• https://www.lexisnexis.com/uk/legal/results/enhdocview.do?docLinkInd=true&ersKey=23_T29132336633&format=GNBFULL&startDocNo=0&resultsUrlKey=0_T29132337133&backKey=20_T29132337134&csi=280335&docNo=3&scrollToPosition=0

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[1] https://uk.westlaw.com/Document/Ib5551e8fe83211e398db8b09b4f043e0/View/FullText.html

[2] https://consult.justice.gov.uk/digital-communications/fixed-recoverable-costs-consultation/supporting_documents/fixedrecoverablecostsconsultationpaper.pdf

[3] See https://www.lawsociety.org.uk/policy-campaigns/articles/fixed-recoverable-costs/

[4] CPR 45.1.

[5]  Qader v Esure and conjoined appeal [2016] EWCA Civ 1109; Ho v Adelekun [2019] EWCA Civ 1988.

[6] Also according to CPR 45.29D.

[7] Williams v The Secretary of State for Business, Energy & Industrial Strategy [2018] EWCA Civ 852.

[8] Section A1(1) Civil Liability Act 2018.

[9] Schedule A1(2) Civil Liability Act 2018.

[10] Schedule A1(3) Civil Liability Act 2018.

[11] Schedule A1(3)(3) Civil Liability Act 2018.

[12] Schedule A1(4)(2) Civil Liability Act 2018.

[13] Robin de Wilde QC, 2014/2015 Facts and Figures Tables for the Calculation of Damages, (Sweet and Maxwell 2014), 68.