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Government new small claims track proposals could backfire, warn industry lawyers

11 December 2012

The Governments ambitions to reduce fraudulent and exaggerated claims by proposing to extend the small claims track limit for personal injury claims and tackle whiplash could backfire, according to insurance law firm Browne Jacobson.

The Government will publish today its proposals to extend the small claims track limit for personal injury claims and tackle whiplash. The consultation will be issued against a background of extensive reforms aimed at bringing the costs of claims under control.

The Government suggests that fraudulent or exaggerated claims will be reduced if more are handled through the small claims track, and so proposes that the small claims limit for either whiplash or all injury claims might be increased from £1,000 to £5,000.

Historically the small claims track has often been unattractive to insurers as the general rule is that costs are not recoverable, so that an insurer defeating a claim would still not recover their own legal costs. However, when the Government introduces Qualified One Way Costs shifting for injury claims on other tracks in April 2013, insurers will rarely recover costs in any event which will make the small claims track (in which claimants are also restricted in terms of their costs recovery) a much more attractive prospect.

However according to James Arrowsmith, a specialist in personal injury claims at insurance law firm Browne Jacobson, the move could raise a number of practical difficulties:

"The abridged small claims track procedure, which typically allows only a few weeks from exchange of evidence to a hearing, offers limited scope for interrogation of claimants evidence to establish its veracity, while short hearings will provide limited time for cross examination. It may become more difficult for defendants to prove fraud in that forum.

"The deterrent effect the Government seeks therefore seems more likely to arise through making claims less profitable and more of a challenge to run. The restrictive costs rule of the small claims track currently means that many litigants on it either have to fund the claim themselves or proceed without legal representation.

"Here too, reforms will substantially change the picture. With the availability of Damages Based Agreements where lawyers can take a percentage of their clients damages to fund a claim and with law firms and other businesses already aligning themselves to achieve profitability in a world of reduced costs, funding of small claims may become more viable after April 2013.

"A more promising proposal may be the introduction of medical panels of assessors to diagnose whiplash claims. An industry has grown up around the production of medical reports in relation to such claims, with claimants inevitably going back time and again to experts who are more likely to make a favourable diagnosis. At the same time, defendants and their insurers become distrustful of those experts and their reports.

"Costs of reports might be reduced via use of industry agreed panels of experts with fixed fees at a reasonable level. This would also reduce the ability of either party to cherry pick experts and encourage experts to share knowledge and experience, and ensure reports are balanced. It may also create greater trust on all sides, which should make it easier to settle claims based on the expert evidence received.

"The Governments ambition of reducing fraudulent and exaggerated claims should be applauded. However, changes introduced without adequate consideration of the wider impacts could have the opposite effect, while also harming the interests of legitimate claimants. The changes which are due to be introduced in April leave an uncertain background against which any reforms would be introduced, increasing the risk of unintended consequences."

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Lakhbir Rakar

Lakhbir Rakar

PR Manager