Our industry witnessed significant legal and regulatory change in 2017. Tim Hayward and Gary Keast have analysed some of these changes in detail and abridged them for your consideration. If you feel you would benefit from a more detailed discussion in relation to any of these topics, please do not hesitate to contact us.
Discount rate change
Last year will be remembered for significant uncertainty in the personal injury market. In February, Liz Truss (ex-Lord Chancellor) announced the Discount Rate was being adjusted from 2.5% to -0.75%. The impact of, and repercussions from this change continue to be felt by the market and it will be some time before the ‘dust settles’ and the industry adjusts accordingly. We have taken the opportunity to review the timeline, considering the challenges that may lie ahead.
Civil Liability Bill introduction
The government has clearly stated its intention to proceed with personal injury reform with the introduction of the Civil Liability Bill. The bill heralds a crack-down on fraudulent whiplash claims, introducing a new fixed tariff of compensation for whiplash injuries. Reform to the small claims track financial limit is also likely.
Enterprise Act and Third Parties (Rights Against Insurers) Act
2017 welcomed legislation in the form of the Enterprise Act and Third Parties (Rights Against Insurers) Act. We have taken a look at both Acts and provide analysis of the Courts tackling the latter.
We also saw significant case law developments across property, casualty & motor insurance, along with a number of procedural judgments from the Courts.
All of the above contributed to a busy year for our claims team, bringing challenges, opportunities and a degree of disruption. 2018 will continue this trend with the introduction of the General Data Protection Regulations (GDPR).
We acknowledge the contributions from our legal and loss adjusting panel: Crawford & Co, Cunningham Lindsey, DWF & Plexus Law.
Discount rate change
The discount rate had been set at 2.5% in 2001. In February 2017, Liz Truss announced a reduction to -0.75%, which instantly led to significant reserve recalculations for casualty and motor insurers. The value of future loss claims multiplied overnight - under the current rate, the most serious injury claims may now be valued in the region of £30m (previously the top end was approximately £12m).
The magnitude of the change to the rate surprised the market and led to the government moving quickly to launch a consultation on the process for calculating the rate, with the intention of providing greater certainty and fairness for all concerned.
The government concluded that claimants tend to invest in low risk, diversified portfolios and not ‘very low risk’ ones, such as Index Linked Government Stocks (ILGS), and as a result, the discount rate of -0.75% is likely to result in over-compensation for claimants. The Lord Chancellor suggested the rate should be “in the region of 0%-1%.”
In September, the government invited the House of Commons Justice Select Committee to review its proposals. The Committee told the government that the evidence on claimant investment behaviour was “inadequate” and that it must obtain “clear and unambiguous evidence”. The Committee also recommended that a mechanism should be established, to keep those responsible for setting the rate, informed about investment behaviour. Further, instead of targeting 100% compensation the government should consider adopting as a target the median level of compensation to tend towards over-compensation.
It was hoped that reform might come as early as 2018, but that now seems unlikely and the required legislation will probably delay any change until the autumn of 2018 and would not apply retrospectively. It is understood that the pending legislation will provide for a single discount rate to reflect how claimants invest in the real world and the rate will be reviewed every three years, after consulting with an expert panel and HM Treasury. The legislation would allow for a dual-rate to be introduced in the future without further legislation.
Civil Liability Bill & Small Claims Track Reform
It has been long reported that the Ministry of Justice (MoJ) plans to increase the small claims track limit to £5,000 for whiplash claims and £2,000 for all other personal injury claims. Primary legislation is not a requirement for introducing small claims limit changes, but a desire to introduce all personal injury reform together means whiplash reforms will be passed through the Civil Liability Bill.
The Justice Select Committee (JSC) announced a short inquiry into the rise in small claims limit and during an oral hearing on 16 January 2018, MoJ spokesperson Lord Keen presented evidence to the Committee, reiterating the government’s commitment to personal injury reform ‘in due course’. In doing so, he showcased the extensive work of 5 MoJ working groups.
The five working groups were tasked with taking forward the design of new processes, which would support the handling of claims, including by claimants acting for themselves, under an increased limit. Their work continues while the Civil Liability Bill needed to introduce the proposed whiplash tariff is awaited. A ban on cold calling will be pushed through and the Before-the-event insurance market would cope with the change and "good CMCs" could also be part of the solution.
To allay judicial concerns about large numbers of unrepresented claimants, the proposals include a simplified user access “gateway” that will interact with existing IT systems such as the Claims Portal, MedCo and AskCUE , alongside the new Online Court as an alternative solution. The JSC is expected to issue a report on all evidence adduced.
Judicial College Guidelines, 14th Edition
Published on 14 September 2017, the 14th edition takes into account both inflation and decisions of the higher Courts on quantum. As with the previous edition it includes a bracket where a pre 31 March 2013 funding arrangement has been entered into and a bracket for cases where the 10% uplift applies following the decision in Simmons v Castle.
The table below sets out some examples of brackets in the 13th and 14th editions. It is noteworthy that some of the lower-end bracket figures have been reduced whereas the new edition sees an increase to the upper end of the bracket. An inflationary increase of 4.8% has been applied across other brackets.
|Injury||Chapter||13th Edition (not including 10% uplift)||14th Edition (not including 10% uplift)|
|Injuries resulting in death and full awareness||1(A)||£15,950 - £18,100||£10,000 - £18,950|
|Injuries involving paralysis: tetraplegia||2(a)||£246,750 - £307,000||£258,740 - £322,060|
|Post-traumatic stress disorder: severe||4(B)(a)||£45,500 - £76,500||£43,710 - £92,240|
|Injuries affecting the senses: partial noise induced hearing loss without tinnitus or slight tinnitus without NIHL||5(B)(d)||Up to £5,325||Up to £5,590|
|Injury to internal organs: Asbestos-related disease - mesothelioma||6(C)(a||£53,200 - £95,700||£55,830 - £100,350|
|Orthopedic injuries: neck injury, minor, where a full recovery takes place within 1-2 years||7(A)(c)(i)||£3,300 - £6,000||£3,470 - £6,290|
The brackets for minor whiplash injuries indicate that a number of factors may justify awards in excess of, or lower than the brackets including the intensity of the pain, impact on work and the need for medication. The Judicial College Guidelines Committee has decided to move away from differentiating awards based on gender for scarring injuries. However the subjective views of the injured individual about the scarring effects on them psychologically will still remain a key factor when determining quantum.
Mr Justice Langstaff who chairs the JC Guidelines Committee makes reference to the weight that will be given to the duration of any symptoms in minor injuries. This could be good news for insurers in lower value claims, when the claimant largely recovers in the initial prognosis period. It should be noted the Guidelines are just that, and flexibility should be allowed from both sides.
Enterprise Act 2016
Prior to the Enterprise Act 2016 (the Act) coming into effect on 4 May 2017, an insured would be unable to pursue a claim for damages suffered as a result of late or non-payment of the substantive insurance claim. The provisions of the Act apply to policies written or renewed on or after 4 May and will make (re)insurers liable for damages caused by late payment of a valid claim (sums due under the policy), by introducing into every contract of insurance an implied term that the insurer must pay valid claims within a ‘reasonable time’ of when a claim is made. At the time of writing, we are unaware of any reported cases arising from the duties of the Act.
The key aspects are:
Reasonable time: What is meant by ‘reasonable time’ has not been defined within the Act, but will depend on the specific circumstances. An insurer will have a reasonable time to investigate and assess a claim, but the Act places the onus on an insurer to communicate clearly, and regularly, throughout the period of investigation and assessment, particularly where there is some delay.
When a claim is made: The Act does not define when a claim is actually made. Simple notification of a loss or incident may not be sufficient to satisfy the Act for the purposes of making a claim, it is perhaps more likely that the insurer will have to be provided with enough detail to consider and affirm policy liability, thus moving forwards to investigate causation and quantum. It is anticipated that the question of when a claim is made will be the subject of satellite litigation and judicial comment at some point.
Claims conduct: The conduct of the insured (or broker) and the insurer will be relevant considerations, should there be an allegation of delay and late payment. An insurer will have a defence to a claim under the Act, if it can show that genuine grounds existed to dispute a claim or its quantum, during the period of investigation or analysis.
Damages for late payment: An insured will have to prove, on the balance of probability, that any loss has a causative link to the insurer's breach of the implied term. Where the delay is relatively short, or the sums due are relatively small, it seems unlikely that an insured will suffer a loss purely as a result of late payment. It will be for an insured claimant to prove their loss/claim.
Limitation: An insured's claim against an insurer for failing to pay a claim within a reasonable time-frame will be a separate cause of action from the substantive insurance claim against their insurer. A new provision will be inserted into the Limitation Act 1980, providing that a late payment action will be barred one year after payment of all sums that are due in respect of the insurance claim.
Third Parties (Rights Against Insurers) Act 2010
BAE PENSION FUNDS TRUSTEES LTD v BOWERS & KIRKLAND LTD & ORS (2017)
The Court decided that a claimant was entitled to join an insurer into proceedings against an insured, (as a co-defendant) before the insured’s liability to the claimant had been established or covered under the policy was established. Section 2 of the Act provides claimants with a right of action against an insurer when the insured is insolvent or in administration.
Section 2 of the Act was triggered where there was a potential dispute as to whether there was appropriate cover to the insured under the policy and where the claimant had a potential right under the policy which had been transferred by virtue of Section 1 of the Act. If an insured is in administration and a policy of insurance exists in respect of the insured’s alleged liability, then the Act is triggered to bring insurers into the proceedings to determine that liability and policy coverage.
REDMAN v (1) ZURICH INSURANCE PLC (2) ESJS1 LTD [2017}
The claimant brought a claim directly against Zurich under the Third Parties (Rights against Insurers) Act 2010. Zurich applied for summary judgment/strike-out, arguing that the 2010 Act was not applicable on the basis that, if the relevant insolvency event and the incurring of liability occurred prior to 1 August 2016 (the commencement date of the Act) the claim should have been brought under the Third Parties (Rights against Insurers) Act 1930, meaning it was necessary to restore and sue the insured employer to judgment.
Under the 2010 Act, Section 1, anyone who had become insolvent for the purposes of the 2010 Act incurred a liability when damage was caused, not when a claimant had established a right to compensation. Further, the transitional provisions did not provide for the 2010 regime to be applied retrospectively, so as to run in parallel with the regime under the 1930 Act.
For asbestos-related cancers, where the injury occurred a number of years prior to diagnosis, the claim will continue under the 1930 Act, with the need to sue the insured before seeking payment from insurers. The decision also confirms that when an insurer is liable under the 2010 Act, it is entitled to seek contribution from potential tortfeasors who were not sued or from other insurers of the same insured and is able to recover from its reinsurers.
Inducement and Breach of Fair Presentation of Risk, AXA v ARIG 
On 28 February last year, the Court of Appeal handed down judgment and confirmed that Axa was not entitled to avoid a first loss reinsurance of ARIG, covering energy construction losses. Whilst ARIG had failed to disclose certain statistics pertaining to the reinsurance, and thereby breaching its duty to make a fair presentation of the risk, the Axa underwriter was not induced by that breach of duty to write the risk on the terms which. As a result, the test for avoidance under the Marine Insurance Act 1906 – which was applicable to this risk - was not met.
Under the terms of the Insurance Act 2015, an underwriter will not only have to demonstrate that he or she would not have written the risk on the terms which they did, had a fair presentation been made, they will also have to prove whether they would have declined the risk altogether or whether they would have accepted it on different terms either as to premium or otherwise.
If the (re)insurer would have accepted the risk on different terms, they will have to prove what those terms would have been. This is likely to require a closer scrutiny of how the risk should properly have been presented, what comments and explanations would have been offered by broker during the placing process and what the response of the underwriter would have been than has been required under the Marine Insurance Act regime.
Accidental or Inevitable Damage, Leeds Beckett University v Travelers Insurance 
Travelers declined indemnity, relying on the following exclusion clause:
"The insurance provided under this Section does not cover
- Damage caused by or consisting of
a. Inherent vice latent defect gradual deterioration wear and tear frost change in water table level its own faulty or defective design or materials….
But this shall not exclude subsequent Damage which itself results from a cause not otherwise excluded.”
In dismissing the claim, Coulson J summarised some key principles in the decision.
‘Accidental Damage’ simply means an event that occurs by chance, which is non-deliberate. Damage can occur due to an inherent vice, or by ordinary wear and tear, and still be accidental. However, to be accidental the event must be non-inevitable.
‘Gradual Deterioration’ meant something which develops over time. Here the damage happened over a period of at least 10 years and so this exclusion would have applied even if the damage had been accidental.
‘Faulty/Defective Design’ meant the insurer need only show that the design was not fit for its purpose: no negligence need be demonstrated. On the facts, the judge accepted that the design of the groundwater drainage had been defective.
Vicarious liability for self-employed contractors, Various Claimants v Barclays Bank plc 
The case affirms the recent trend of the Courts being prepared to extend the principle of vicarious liability to situations outside the traditional employer/employee relationship. Barclays was vicariously liable for the intentional sexual assaults of a doctor retained to conduct pre-employment medical examinations of prospective employees.
- Dr Banks was engaged by Barclays between 1968 and 1984. There was a policy that anyone to be offered a job had to undergo a medical examination prior to a formal offer of employment. After the examination Dr Bates completed a medical examination pro- forma for each claimant which was headed with the Bank’s logo and entitled ‘Barclays Confidential Medical Report’. The doctor was paid a set fee for each examination.
- A group of 126 claimants are pursuing claims, after allegations emerged in 2013 and were investigated by the police. Barclays argued that Dr Bates was an independent contractor.
- The judge rejected the defendant’s argument that Dr Banks was solely liable for any assaults he perpetrated, finding that the relationship between the bank and the doctor, and the circumstances of the alleged assaults, were sufficient to establish vicarious liability.
The decision represents a further extension to the doctrine of vicarious liability and an incursion into the defence of the independent contractor. It may well have ramifications in areas beyond historic abuse claims and could well be revisited in the event of large numbers of claims against sports organisations.
Vicarious liability and foster care, Armes -v- Nottinghamshire County Council 
Whilst the Supreme Court rejected an argument that the local authority had a non-delegable duty of care to the claimant, they agreed that they were vicariously liable for physical and sexual abuse suffered by her whilst in foster care and perpetrated by foster carers.
The Court made the analogy of a child being in a children’s home where the local authority would be liable for any wrongful or harmful acts by a direct employee. In finding for the claimant, the Court has decided that a child in foster care should not be disadvantaged. No distinction is made between ‘professional foster carers’ and ‘friends and family carers’. The Court found no evidence to suggest that imposing vicarious liability would discourage local authorities from placing children in foster care, rather than increasing numbers in residential homes.
The case provides clarity to the relationship between a local authority and its foster carers but will have significant implications for the future management and supervision of such relationships and insurance arrangements for local authorities and foster carers providing a valuable service to society.
HSE Prosecution & Fine, HSE v Whirlpool
Whirlpool were fined £700,000 following the fatality of a sub contractor working on their site in Yate. Whirlpool pleaded guilty to breaching s3 H&SWA. Following submissions in Bristol Crown Court on 21 March 2017, HH Judge Patrick accepted low culpability; level A seriousness and low likelihood of harm. This led to harm category 3. On the basis of the large company matrix this would mean a starting point of £35,000 with a range of £10,000 - £140,000. However, on the basis that Whirlpool was a very large company the judge’s starting point was £1.2m. He made reductions for good character and then a 1/3 off for the early guilty plea.
The fine was appealed on the basis the sentence was manifestly excessive. The hearing was before the Lord Chief Justice. The Appeal was successful and the fine reduced by more than 50% to £300k.
Important points can be highlighted:
- The Court considered that ‘death would justify not only a move into the next category but to the top of the next category range’. This would have a very significant financial implication.
- The Court didn’t want to create an artificial boundary as the what constitutes a very large Company. Whirlpool was at £700m turnover. Thus the Judge can move out of the appropriate range to achieve a proportionate sentence.
- An organisation with consistent profitability is likely to be treated differently than one with consistent losses.
- An organisation with senior management being very well paid will attract a higher award than one where the converse is the case.
- The judgment will not alter the policy to ensure that organisations pay fines that are properly proportionate to their means. However, unusual circumstances such as low culpability and low harm should be properly reflected in the fine. The same degree of actual harm can deliver very different fines depending on the circumstances.
Cameron v Hussain
In May, the Court of Appeal held that, where an accident is caused by an identified vehicle, but where the driver cannot be identified but is described, as long as the claimant can identify the vehicle’s insurer, proceedings can be brought against an unnamed driver and the insurer would be obliged to satisfy any judgment under s.151 of the Road Traffic Act.
It should be highlighted that in this case the owner of the offending vehicle Mr Hussain failed to cooperate with police and was convicted as such. It also transpired the policy of insurance on the vehicle was obtained fraudulently.
The Supreme Court has granted leave to appeal the decision with no date as yet set for the hearing.
Any cases on this point should be stayed pending details of the outcome. It is a reminder however that insurers need to have systems in place to detect inception fraud and to act quickly.
McBride v UK Insurance Ltd
In March, Accident Exchange unsuccessfully challenged the way in which the Court of Appeal in Stevens v Equity (2015) had said that the basic hire rate (BHR) should be calculated, when the Court held that it was correct to take the lowest reasonable rate of a mainstream supplier.
In an attempt to reverse the decision in Stevens, Accident Exchange appealed to the Court of Appeal submitting that ‘the long term viability of the credit hire industry was at stake’ and sought to argue that Stevens was wrongly decided. In particular that the judge had erred in his assessment of the BHR because having said that the defendant’s BHR evidence was to be disregarded because it did not demonstrate the cost of hiring at a nil excess, it was irrational to then rely on the claimant’s BHR evidence which also failed to demonstrate the cost of hiring at a nil excess.
The Court of Appeal dismissed the appeal and decided that the decision in Stevens was binding. The inability to obtain a rate with a nil excess from a mainstream supplier should not as a matter of principle lead to the credit hire company recovering the credit hire rate in full.
Consequently Stevens v Equity remains good law – the lowest BHR is recoverable where the claimant is pecunious.
Hire and CDW are, in effect now to be treated as two heads of claim – the defendant may prove the lowest BHR for the provision of the car, but in the absence of a nil excess from the BHR provider, the Court will allow either the costs of a standalone excess reimbursement product or the CHO’s cost of excess reduction.
Phoenix v UK Insurance
In April, the Court of Appeal provided helpful guidance on what constitutes “use” of a vehicle and went some way to clarifying the extent of cover actually provided to policyholders in motor insurance.
Mr Holden an employee of Phoenix Engineering was undertaking welding to his own car in order for it to pass its MOT test. The work was undertaken in the Phoenix workshop. During the work sparks ignited flammable material inside the car which spread from the workshop into adjoining premises causing substantial damage. As a result Phoenix’s Property and Public Liability insurers, Axa paid out sums in excess of £2m.
UK Insurance insured Holden’s vehicle. Axa approached UKI on the basis that the motor policy covered the losses and sought recovery of all payments made. UKI disagreed and commenced proceedings against Holden seeking a declaration from the Court that the policy did not cover the losses. Phoenix were joined as a 2nd defendant and in turn they brought a claim against Holden for an indemnity in respect of Axa’s outlays. Phoenix agreed with Holden that he would not be personally at risk so as such this was a dispute between insurers.
In the first instance the Court found that the fire had not been caused by or arisen out of the “use” of Holden’s car as it was not being operated in any way. As such the motor policy did not cover any liability Mr Holden might have in respect of Phoenix’s losses.
Phoenix appealed the decision and the Court of Appeal overturned the original ruling. The Road Traffic Act must include any use of the vehicle consistent with its normal function. The repair of the car by Mr Holden in these circumstances was “use” of a vehicle so the policy should respond.
Insurers now need to be aware that “use” is not confined to the actual operation of the car in the sense of being driven and includes anything which is consistent with the normal function of the vehicle.
Lyle v Allianz Insurance
This case proceeded in the MOJ portal and the claimant commenced proceedings under Part 8 and obtained a Stay in July 2014. Almost three years later the Claimant applied to lift the Stay and sought to proceed under Part 7 on the basis that he now believed that the claim had a value in excess of £200,000.
At first instance the Court refused to lift the Stay and struck out the claim on the basis that the application to lift the Stay should have been made as soon as it became apparent that the claim was worth more than £10,000 which was the portal limit which applied at the time. The claimant appealed the decision.
The appeal was dismissed. HHJ Pearce advised that “the claimant’s significant and persistent failures and the consequent delays, increased expense and prejudice to the defendant, amply justified the refusal to lift the stay and to strike out the claim”.
This is a significant case for insurers and compensators. This scenario is frequently encountered on portal cases where proceedings are issued and an immediate Stay imposed by the Court due to medical evidence being incomplete. If subsequently the value of the claim escalates and the defendant alleges prejudice then this case should be cited.
Howlett v Davies & Ageas
Mr and Mrs Howlett were alleged passengers who said they were injured in a car accident. The insurer did not accept that the accident happened (or if it did, not in the manner that was being alleged).
Proceedings were issued however the defence filed did not expressly plead that this was a fraudulent claim or that the claims were “fundamentally dishonest”. The defence did however plead numerous issues disputing the veracity of the claims.
In the first instance the DDJ dismissed the claims and found them to be ‘fundamentally dishonest’. One of the claimants then appealed to the Court of Appeal on the basis that a finding of fundamental dishonesty was wrong as it had not been raised in the defence or adequately dealt with in cross examination.
The Court of Appeal unanimously held that Trial judges can make findings of fundamental dishonesty even though that expression had not been specifically pleaded. Nor did it matter that the claimants had not been cross examined at Trial on the basis that their claims were dishonest. The insurer had alerted the claimants that their credibility was an issue in the case and consequently they had been given adequate warning.
Gladwin v Bogescu
The claimant was involved in a road traffic accident in November 2014. Liability was admitted by the defendant but quantum was very much in dispute particularly as it appeared that the claimant had exaggerated his alleged injuries. In addition he had claimed £17,000 in respect of hire charges in replacement of a motorcycle costing under £1,000 to repair.
Proceedings were issued but as a result of solicitor error the claimant served his witness statement seven weeks late and was therefore debarred from giving oral evidence at trial. The claimant solicitors applied for relief from these sanctions. The judge found the claimants breach was significant and there was no good reason for it. That said, the judge did agree that notwithstanding the claimant was debarred from giving oral evidence he could rely on the witness statement.
The defendant appealed to the High Court and argued that the judge had erred in advising that the claimant could automatically rely upon his witness statement. In the alternative, the defendant argued that the weight attached to the statement was negligible in the absence of cross examination and that the claim was effectively at an end and it should be struck out.
Mr Justice Turner rejected the argument raised by the defendant that if a claimant cannot give oral evidence that would effectively end his claim. However he did find that the original trial judge erred in concluding that the claimant breaches did not have the automatic effect of extinguishing his witness evidence and that it was an appropriate exercise of the Court’s case management powers under CPR 3.4(2) for him to strike out the claim in its entirety.
Defendants should be alive to the sanctions available to them in the post-Jackson era in the event that a claimant is in breach of Court directions. Also if a claimant is debarred from giving oral evidence then leave should be sought to preclude that claimant from presenting evidence to the Court in an alternative way.
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