This week the Ministry of Justice (MoJ) has unveiled the Civil Liability Bill, which includes not only reforms to whiplash claims but also changes to the way the discount rate applied to personal injury settlements is calculated. During his announcement, Justice Secretary David Gauke said: “The number of whiplash claims has been too high for too long, and is symptomatic of a wider compensation culture. We are putting this right through this important legislation, ensuring whiplash claims are no longer an easy payday and that money can be put back in the pockets of millions of law-abiding motorists.”
The aim of the measures is to crack down on minor, exaggerated and fraudulent whiplash claims and set fixed amounts of compensation as well as banning the practice of seeking or offering to settle whiplash claims without medical evidence. An implementation date has not yet been confirmed, however given that the desire to drive down personal injury claims and insurance premiums has been mooted for a number of years, announced as a government intention through the Queen’s Speech in 2017 and now unveiled through proposed legislation, it is anticipated that the reforms will come into force sooner rather than later.
Charlene King, associate in the personal injury team at Penningtons Manches, comments: “It is absolutely right that fraud needs to be eliminated from the system. There can be no argument against that and there are already a number of features in place within the sector to deal with these concerns. Compensation is not a windfall and should not be described as such; it is about compensating those who have suffered pain and loss of amenity.
“However there is a danger that fairness and compassion to help those who are genuinely injured may be jeopardised as a result of these reforms. Personal injury lawyers have faced numerous challenges in recent years and the number of firms in a commercial position to take on serious injury claims is reducing considerably. I suspect this pattern will continue following the passing of the Bill. Our main concern is the potential for genuine claimants to be denied access to justice and specialist expert legal advice when injured through no fault of their own."
The secondary aim of the reforms will be to address the discount rate. In personal injury cases two types of damages can be sought: general damages to reflect injury itself, and special damages to reflect the losses and expenses a victim has incurred and will incur in the future as a result of the injury, for example to meet care needs and to reflect any anticipated loss of earnings. Special damages for future loss may be paid as a lump sum or as regular periodical payments. In the case of a lump sum, it is assumed that the money will be invested until it is needed and that a return will be achieved. A discount is therefore factored into the future claim to reflect the assumed rate of return to be achieved to ensure a claimant is not over-compensated. This assumed rate of return is known as the ‘discount rate’. From 2001 to 2017 the discount rate remained at 2.5% and was then reduced to -0.75% to reflect the fact that claimants were not receiving the returns expected and were at risk of a significant shortfall in financing their future losses.
Charlene continued: “It is disappointing to see that this legislation will change the discount rate after only one year of it being set at -0.75%, when it remained stagnant for 16 years previously. The rate must be set to meet the needs of seriously injured people, not to benefit the agenda of insurers. Unfortunately however, these further reforms are likely to excuse full compensation for individuals who have been injured but were not at fault.”