Compensation Culture - Lecture Notes PDF

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Compensation Culture Meaning of compensation culture  Range of meanings including o increased burden on society from the rising cost of personal injury litigation  Rising costs caused by increasing o 1. total number of claims (subject of this paper) o 2. individual cost of each claim Claims 2014-2015: Types of Injury

76% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Motor Employer

11%

11%

Public & Other

2% Medical

1st Qtr Trends in the Number of Claims 2000 – 2015 (biennial figures) 900,000 800,000 700,000 600,000

2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 2014-15

500,000 400,000 300,000 200,000 100,000 0

Motor

Employer

Public

Concern about compensation culture over many years  Very extensive press coverage o often exaggerated & misleading examples  Series of official reports o finding perception of the problem was greater than the actual problem in reality o but steep rise in motor claims & whiplash since 2006  Considerable lobbying o especially effective by insurers during the coalition Recent funding reforms – from April 2013  Continue funding claims by conditional fee agreements  But reduce costs :o (1) Stop claimant recovering for :–

 insurance premium for possible costs liability if claim fails  “success fee” charged by claimant’s own lawyer o (2) Ban law firms paying referral fees for claims passed on o (3) Extend fixed legal fees  eg electronic ‘portal’ claim for under £10,000 = fixed fee of £500 (A) Personal factors affecting the decision to claim  Recognising injury suffered & someone responsible – “name, blame & claim”  Assessing the utility of claiming o Seriousness of the injury o Financial cost o Time & trouble – routine paper based procedure? o Likelihood of succeeding – payment in >90% claims o Level of reward – increasing damages levels o Fear of criticism – loss of job (B) structural factors affecting the decision to claim  1. Trades Union legal assistance  2. Liability Insurance Industry  3.Claims Management Companies  4. Law Firms Structural factors encouraging claims  1. Trades Union Legal Assistance o still covers 7 million workers (= 26% of workforce) o traditional referrals enabling access to justice o enabled establishment of first specialised claimant firms o Steve Allen, Thompsons: A Personal History of the Firm (2012)  2. Liability Insurance Industry o Controlled by a few companies  4 motor insurers collect 50% of the premiums o Paymasters – of 94% of the damage  insurers pay both –  damages &  (2) administrative & legal costs o Providers of legal representation - for both sides  for claimants via before-the-event insurance  (covers 3 in 5 adults = 22 million people) Liability Insurance Industry  Limits on insurers acting as the system’s gatekeepers & policemen  Insurers great concern about costs o Costs usually exceed damages for cases settled up to £15,000  Results:o 1) Insurers dispute fault in only 20% of cases  avoid alleging contributory negligence because it takes the claim out of the ‘portal’ where costs are fixed o 2) Claimants succeed in more than 90% of cases - encouraging claims to be made?  Insurers’ legitimising & encouraging claims?  1. “capture” third parties o to avoid lawyers by making quick offers direct to claimants  2. make speedy low “pre-medical” offers with little investigation & no evidence

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o to avoid medical report costs (were up to £700) 3. Used to sell contact details of potential claimants o to get referral fees from solicitors firms (of £700 a case) for (i) its BTE insureds & (ii) other non-fault insureds o Admiral referrals earned £18m a year = 6% of profits (2013) Parliamentary committee conclusion: o “a highly dysfunctional market” has been created “in which the pursuit of profit … has led to higher prices for consumers and … business practices which are not in the consumer interest.”

Structural factors encouraging claims  3. Claims Management Companies o emerged 20 years ago when lawyers were more reluctant or unable to seek potential claimants o sell on claims to law firms or directly quickly settle them o blamed for many of excesses in the system:  taking a disproportionate share of damages award  aggressive marketing – TV, phone, texts, & street harassment  fraud & exaggeration –  whiplash + neck injury = 87% of motor claims  staging “crash for cash” scams  stealing details of accidents from police computer Claims management companies  increasingly regulated & referral fees banned from 2013  Result = decline of Claims Companies for personal injury o In 2 years (2012-14) –  numbers drop 56%  turnover drops 45%  But no similar decline in marketing & claims pursuit o 600,000 claims generated by “similar market practices” in 2013 o BUT only 70,000 came via CMCs  Who is now operating “similar market practices” to generate these other 530,000 claims? :Structural factors affecting claims  4. Law Firms o continue the aggressive search for potential clients only in 2015 were lawyers banned from offering inducements  (egs - iPads, shopping vouchers & £2,000 advance payments)  “In 2013, over 90 per cent of law firms now practice what they used to criticise.  They market & advertise very efficiently … double the spend of two years ago.  They have marginalised the traditional Claims Company….” (Director of Claims Standards Council) Law firms organisation  Need for efficient & large scale claims department o “Get big, get niche or get out  former APIL chief, David Marshall o “3 firms will hold up to 40% of the personal injury market in future”  head of Slater & Gordon o Series of mergers of personal injury firms  Mergers save costs -

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o office costs - administration, building, & personnel o advertising = easier to solicit volume claims o claims procedures - standardisation of process Result = mass processing of small claims by many non-lawyers These paralegals who work in “settlement mills” “represent quite a departure from the intimate, individualised, and fact-intensive process thought to underlie the traditional process of tort”

Law firms and alternative business structures  ABS allowed from 2011 = partnership of lawyers with non-lawyers  ABS firms can increase the cost savings:o ban on referral fees avoided if payment is made within firm o can develop new agencies within the firm  egs medical reporting + financial services  Cardiff examples of new ABS firms / mergers :o Admiral Insurance take over Lyons Davidson + Cordner Lewis o Ageas in partnership with New Law Solicitors o Thompsons refuse deal with GMB (result = dropped from TU panel) o Slater & Gordon take over Leo Abse & Cohen  Slater & Gordon o Founded & has shares listed in Australia o First UK acquisition in 2012 = Russell Jones Walker (Claims Direct) o 9 more major acquisitions by Feb 2015 o Now employs 2,000 people in UK at 23 locations o Turnover increased 119% to over £100m (2013-14) o Expected future profit from PI = 23% o But – 2016 financial problems Academics and their students  What discussions will academics have with their tutees about future work in the legal profession?  - when most students will be offered para-legal jobs in personal injury rather than traineeships? Two tier legal profession  SOLICITOR INTERVIEWS 2014 o “There’s a two tier legal profession:1) The volume stuff is not dealt with by lawyers at all - it’s accident management 2) And then you get what I regard as proper lawyers dealing with it from mid-range up.” o The non-lawyer paralegals  “They may do their university degree but they will not be able to get their training contract and they’ll end up being paralegals because they’re cheaper.” Paralegals experience restricted  Solicitor Interviews 2014 o “Paralegals don’t have the same level of experience and you get a turnover of them so they stay 18 months and go off to pastures greener and so there’s a danger they won’t build up the experience that you would have got through the usual route. o “I feel very sorry for people who are going in at a junior level because it can be very restrictive. They may not be able to investigate in the way that I had the opportunities when I started out in the career. .. o It is more call centre factory line because it has to be. It’s more ‘bang, bang, bang’ and I think then there is less scope for development.” Controlling the paralegals  SOLICITOR INTERVIEWS 2014

o “The processes need to be set up to be able to drive cases through with less experienced and less qualified staff doing the lower value work” o “The only way to supervise a huge number of individuals is in a mechanistic way because if they’re not sufficiently experienced or qualified to make good judgement calls of their own” o “The only way you’re going to get them to move on consistently is via a quite confined and narrow corridor of ‘this is what you do … if they do that, you do this’.“ Paralegal effect on negotiation  SOLICITOR INTERVIEWS 2014 o “ Sometimes you will get quite stupid responses which you think, ‘well, they clearly don’t understand what’s been going on here’ or they clearly don’t know the law frankly. And that’s because it’s being dealt with by someone incredibly junior who’s probably running a huge number of other cases and is doing it as a real sausage factory” o “So you may have to formally issue proceedings just to deal with somebody with more experience who isn’t regulated by the computer.” Pressures on paralegals affecting claimants  “I see a lot of paralegals being told to act in a particular way. They’re under pressure to settle cases, to get their billable hours up, to make sure that they can build claims and settle cases. And also do the work within a certain amount of time which inevitably will affect the level of service to the end user.”  “In these days of rank on rank of paralegals being employed, the defendants will take advantage....  There’s an element of panic - let’s get this settled and another one bites the dust. Well, with us old hacks, we know when we’re being spun a line and we’ll get more compensation.“ Conclusion: Tort in its economic, social and political contect  Changes in tort rules very limited o foundation still = full compensation if fault proven  Major reforms instead in o civil procedure + access to law o structure of legal + insurance practice  Effect of these reforms will determine o future of tort rules in practice o nature & extent of debate about compensation culture ...