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does Lord Young's report introduce common sense to the compensation culture?

15 October 2010

Lord Youngs report to the Prime Minister on compensation culture last week promised to outline a common sense way forward for health and safety, and address problems within clinical negligence and personal injury litigation highlighted by Jackson. We take a look at Lord Youngs proposals and in particular as to how they may affect the insurance industry.

Watch this space?

Lord Youngs recommendations on changes to the handling of personal injury and clinical negligence claims are perhaps the most welcome part of his report for insurers.

Youngs recommendations:

  • examining the option of extending the RTA scheme upper limit to £25,000
  • introducing a simplified claims procedure for personal injury claims on a fixed cost basis
  • restrict the way in which referral agencies and personal injury lawyers operate with restrictions on advertising

The laudable aim of Lord Young is to simplify the claims process and reduce the time taken to agree damages and to reduce costs. There is no detail in his report as to how this would be achieved and one remembers the difficulties that Lord Justice Jackson encountered when trying to reach a consensus on the question of costs between claimant and defendant bodies. It is unfortunate that no framework has been set out in his report as to how he intends to implement his proposals. It seems to be a question of watch this space.

Squeeze on referral fees

Lord Young also shows his distaste for claims management companies (CMCs) and some claimant personal injury lawyers. He believes some of their advertising provides a "high pressure inducement" to bring a claim. He expresses concern that cases are auctioned off to the highest bidder and that, in effect, 15 of the total cost of a claim goes to pay for a referral fee. Lord Young has asked the chair of the Advertising Standards Authority to review the advertising of some CMCs and lawyers to ensure that the advertising code is being adhered to. However, the difficulty he faces is highlighted by the content of his letter which acknowledges that the advertisements may be within the law but that he feels that they are not socially responsible. If the advertisements do not break the code, we cannot see that anything can be done about the advertising.

So far as referral fees themselves are concerned, Young comments that he believes these have added to the perceived "compensation culture". No firm recommendations are made in relation to referral fees - perhaps he hopes that, by curbing the worst excesses of advertising and by extending fixed fees, these measures will put a sufficient squeeze on the market to depress referral fees. The recommendations of the Legal Services Board will be important to note and earlier this year they published their research to show that the public did not have great concerns about referral fees.

Lord Young does not believe that the current regulation of the industry goes far enough and has written to the Regulator to express his concern and to ask for a review to be undertaken. Again, there is no firm agenda for the review and it remains to be seen whether anything will change when the ambit of the proposed review is so woolly.

A waiting game

In short, Youngs report does not really take us any further on CFAs and DBAs than Lord Justice Jackson did but he does indicate that he is in favour of the conclusions reached in Lord Justice Jacksons report, namely that he sees this as preserving the no win, no fee agreement but that the costs for which the losing side would be liable, would be limited. Youngs rather empty conclusion is that he welcomes the Ministry of Justice consultation about Jacksons proposals on CFAs and DBAs in the autumn and so we await the detail of the consultation.

Add on policies on the way out?

Lord Young is of the opinion that "add on" policies are not the way forward and that instead the insurance industry should look at ways to make stand alone policies available. No evidence appears in his report as to why he believes "add on" policies should no longer be considered relevant and no reference is made to the fact that this issue was looked at in some detail by the Ministry of Justice in 2007. Further insurance experts are quoted in that report as suggesting that stand alone policies would cost upwards of £250. One wonders, in a climate of financial austerity, as to how popular these policies would be with the general public. If there is a genuine open-mindedness to looking at new and innovative ways to fund litigation, then we believe that this will create opportunities for insurance companies to come up with cost effective ways to fund litigation.

"Worthwhile activity" - a vague concept?

Youngs recommendations:

  • insurers refrain from requiring SMEs that operate in low risk environments to employ health and safety consultants
  • insurers require that health and safety consultants used by businesses are qualified
  • consultation with the insurance industry to make sure "worthwhile activities" are not unnecessarily curtailed on health and safety grounds
  • insurers offer consultancy advice on health and safety free of change

Young criticises rising insurance premiums, but fails to consider that self-assessed health and safety compliance by untrained in house staff could increase the risk for the insurers, and so the premium for the business. Equally, Young seems to suggest that insurers should favour "worthwhile activities" by "making sure" they are not unnecessarily curtailed. This is surely a matter for legislation, rather than expecting insurers to favour the vague concept of "worthwhile activities" when considering commercial risk.

Further, Young threatens that "if insurers fail to draw up a health and safety code of practice, legislation should ensure that non-compliance with and outside health stipulation cannot be used as an excuse to refuse to meet claims, so long as the company has met their obligations under health and safety legislation."

This argument is problematic: if a companys claims would be met by insurers, so long as the company has met their obligations under health and safety legislation, surely the company would want to employ health and safety consultants to ensure that they have complied with health and safety legislation. If so, under Youngs proposed legislation, small businesses could still be advised to use health and safety consultants to make sure their activities are covered by their insurance policies.

An empty conclusion

The obvious irony throughout Youngs report is that he criticises the media for creating a hysteria about compensation culture while fully endorsing this created hysteria as the reality of the situation in Britain.

While Youngs report could be characterised, by and large, as a collection of sound bites without many new concrete ideas, the proposals for the extension of RTA-type schemes could, if implemented, dramatically change the legal landscape for low value personal injury claims; both reducing costs and making them more predictable for the vast majority of personal injury claims. It is a shame that much of the report lacks punch or a suitable agenda going forward for the necessary impact surveys and consultations to take place. Like Lord Justice Jacksons report, we are left with a series of statements and suggestions without any indication of when or how the proposals might be implemented.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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