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government supports increase to small claims limit, but not yet

23 October 2013

Responding to the consultation Reducing the number and cost of whiplash claims and the Transport Select Committee report on the cost of motor insurance, the Government has expressed the view that in relation to personal injury claims "extending the small claims track would be beneficial [but] it would not be appropriate …at this stage".

The small claims track limit for PI claims (again)In legal circles the question of the personal injury small claims limit has been a point of contention for many years. The small claims process provides a cost effective means of resolving disputes, in which the successful party can recover only very limited costs.

Due to increasing damages awards, the £1,000 limit now captures very few minor injury claims, meaning that until recently they would proceed under the fast track, where costs are more generous. The argument goes that this encourages more low value claims, and forces insurers to settle rather than fight claims, due to their costs risk of proceeding to trial.

Since 2010, low value motor injury claims have been subject to a prescriptive pre action process, with fixed costs. However, until recently those exiting the process because liability is denied or causation is raised (including any fraudulent or exaggerated claims) would proceed as a fast track case in any event.

Civil litigation reforms in April 2013 and the introduction of a scheme of fixed costs covering the whole of the fast track from July 2013 will serve to reduce the costs risk to insurer, though the small claims track is still more favourable in this respect.

Problems associated with an increase in the small claims track include issues over access to justice and the impact on genuine claimants. However, in terms of the Governments objective of reducing whiplash claims, and in particular to tackle fraud, there are other considerations in play.

With no costs recovery, small claims are often pursued by litigants on a self represented basis. In the absence of professional advice as to pre action settlement, more claims may proceed to court, increasing insurers defence costs and the burden on the court service. In a regime where costs are not generally recovered, there is limited scope for costs sanctions to be applied in respect of such behaviour.

The high speed with which a small claim proceeds (evidence is typically exchanged 14 days prior to the hearing) limits the opportunity for fraud or exaggeration to be detected and investigated. While a small claims hearing provides a cost effective way of challenging a claimants claim, in the absence of positive evidence it will rarely be possible to prove fraud.

The Government has concluded that an increase to the personal injury small claims limit is likely to be desirable, but accepted the view of many stakeholders that work is needed to ensure access to justice, control the way claims are generated (for example by claims management companies) under a revised regime, and examine the outcomes of the new fixed fee regime before steps are taken.

Better medical evidenceA majority of stakeholders favoured work to improve the quality of expert evidence in whiplash claims, and the Government proposes to proceed to put a system in place in the near future. Details have yet to be agreed, but key components are likely to be:

  • an accreditation scheme for experts
  • a requirement that experts in whiplash claims should be accredited in order for evidence to be accepted
  • some form of auditing or spot checks to ensure quality of reports
  • set up and running of the scheme to be funded by the claims and/or expert witness industry.

Collecting and sharing dataThe Government has expressed an intention to monitor trends in whiplash claims with a view to establishing the extent to which fraud and exaggeration may be a problem. Reforms introduced in April may impact on claims numbers, and it is sensible for this to be tracked, however the number of claims presented says nothing about their validity.

Perhaps more importantly, the Government has picked up on the benefits of data sharing in order to improve safety and tackle fraud.

By providing highways agencies with more data on unreported accidents, road safety measures might be better targeted to particular hotspots. The same kind of information sharing with police and crime prevention agencies might flag fraud hotspots, assisting in the detection of fraud rings.

Sharing of data on the insurers Fraud Register is proposed as a means of allowing claimant representatives to screen their clients more effectively, as part of their initial client checks. No firm proposals are set out to take this forward. This kind of information sharing could certainly help prevent some fraudulent claims being presented; however it raises potential data protection issues as well as the practical question of who should pay and whether claimant representatives should contribute information to the database. Many claimant representatives will oppose any costs burden and will be uncomfortable about seeking and sharing incriminating information about their clients or potential clients.

Tacking undesirable behavioursThe Government considers that offers made by insurers without a medical report encourages spurious claims and suggests a rule may be introduced which will require medical reports to be prepared before claims can proceed. In fact, most insurers are likely to only make such offers where fault and injury is clearly established, and fraud can reasonably be excluded, but there is merit in making it clear that defendants will not pay up without some form of evidence.

In practice the revised process for low value injury claims will ensure medical evidence in most cases, as stage 2 commences with a settlement pack, which must include a medical report and the need for further rules is therefore questionable.

Finally, having followed up the ban on referral fees with a ban on inducements paid to clients by claims management companies, the Government has indicated its intention to work with the SRA to consider a ban on inducements by solicitors firms. There is no doubt that inducements may encourage claimants to sign up with a particular representative, it is less clear whether this leads to claims which would not otherwise be presented, as most representatives will screen a claim to ensure it has some merit before the inducement is made available to the client.

What next?The Government has made a clear decision to leave the small claims question open to further review, but has given no indication as to timings. It is likely that lobbying on both sides will continue for the foreseeable future.

It is likely that the reforms to funding and costs rules introduced earlier in the year will have a greater impact on whiplash and other injury claims numbers than the relatively limited changes proposed in the governments paper. However, improved medical evidence and information sharing are measures to be welcomed and improve the odds of meritorious claims being settled quickly, while weak or fraudulent claims are rejected.

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