Law offices dealing with personal injury claims have been working more slowly than their reputed snails pace over the last six months. Settling claims has become a phenomenon rarer than Halley's comet. This is not due to a recovering millennium hangover, but because lawyers were waiting with bated breath the outcome of a number of test cases in the Court of Appeal.
The test cases concerned whether "pain and suffering" damages should be substantially increased across the board. The insurance industry had reputedly reserved an additional £700m against the possibility of an increase.
The debate started in April 1999 when the Law Commission (the body that consults on whether changes to English Law are necessary) published their report on "Damages for Personal Injury: Non-Pecuniary Loss (No 257)". The report looked at amounts awarded to Claimants for "pain, suffering and loss of amenity" ("pain and suffering") and whether the scale of damages being awarded ("the tariff") needed to be increased.
The Commission reported that pain and suffering awards needed to be increased across the board, with no change where the current award was less than £2,000; a tapered increased of up to 50% where the current award was between £2,000 and £3,000, and an increase of between 50% and 100% where the current award was more than £3,000.00
The repercussions were very serious for the insurance industry. Every personal injury award can be divided into two parts, the compensation for the pain and suffering that the injury causes, and compensation for the financial effects of the injury, such as loss of earnings and future care.
Depending on the seriousness of the injury, the proportion of money the Claimant receives varies. For example, a whiplash injury, which causes no permanent disability, may have pain and suffering valued at up to £3,500. In such a case, the Claimant may have had very little time off work and not needed much, if any physiotherapy, and so the pain and suffering award would constitute the majority of the money he/she receives.
By contrast, a Claimant being permanently and seriously disabled by injury such as tetraplegia may recover up to £200,000 for pain and suffering. However, their lifelong care requirements may run into millions and so, for the more severe injuries, the pain and suffering award is a much smaller proportion of the money the Claimant recovers.
The vast majority of claims made relate, thankfully, to minor injuries (those where the pain and suffering award given would be less than £10,000). Therefore, when the Law Commission recommended that, the pain and suffering awards for injuries over £3,000 should be increased by up to 100%, the effect on the insurance industry was that the value of small claims (where the biggest compensation item is the pain and suffering award) could double overnight. Given this, the additional reserving of £700m is understandable.
The Law Commission, however, does not make law. It makes recommendations, which Parliament or the Judiciary then act on.
In this case, this was a matter for review by the Court. A series of test cases were heard together by the Court of Appeal in February to provide guidance on the level of pain and suffering to be awarded in future.
Claimants took the opportunity to add in to the debate a further question, on what basis in future should increases in the tariff be made? Currently the tariff is broadly protected from inflation by Retail Price Index (RPI) increases. It was argued that this was not an appropriate measure and that the Gross Domestic Product index (GDP) was more appropriate. This would currently produce a higher annual increase. Judgement of the issues was handed down on 23rd March 2000.
On what basis, was it proposed that the "pain and suffering" should be increased other than in line with inflation? The arguments were threefold. Surveys carried out by the Law Commission indicated that the public generally thought that pain and suffering awards at the present level did not compensate Claimants for the loss of quality of life they suffered.
Claimants' life expectancies had increased from when the tariffs were first set. They had to suffer their "pain and suffering" for longer and so the tariff should be increased to reflect this.
Society's expectations of quality of life had increased and with increased standards of living, the value placed on good health would be increased.
In reaching its decision, the Court of Appeal took as its starting point that, rather than just looking at the effects on the Claimant, that the Court's duty was to look at the wider impact of its decision. They stated: "In setting the tariff the Court should not ignore the economic impact of the level of damages which it selects". Having received representations from insurance companies, the ABI and the NHS, the Court was aware of the financial costs that the proposed change would produce. The Court said: "this impact should not be ignored...it is a question of achieving the proper balance".
The Court decided that the Law Commission had placed too little weight on the effect of any increase on the insurance industry and the NHS. Therefore the surveys the Law Commission commissioned had this bias built in and had to be viewed cautiously.
Having given less weight to the surveys than the Law Commission in reaching its decision, the Court of Appeal was able to base its decision primarily on its own experience and thinking, and held that:
- Claims where pain and suffering damages are currently £10,000 or less do not need to be increased. The Court took into account that this was the vast majority of claims and that defendants' insurers would have been adversely effected by any increase which applied to cases below £10,000.
- Given the increased life expectancy of the catastrophically injured and increased expectations of society generally, adjustment of pain and suffering awards was needed at the higher end of the spectrum, tapering up to a maximum of a 33% uplift for the most seriously injured.
The case may be appealed and the matter referred to the House of Lords. However, the Court of Appeal gave strong guidance that it considered it was the appropriate final forum to decide the matter. "Levels of general damages for personal injury have traditionally been regarded as more appropriate for final consideration by the Court of Appeal," it said.
Those underwriting claims may well breathe a sigh of relief at this point. Not only did the Court of Appeal not significantly increase the pain and suffering awarded to Claimants in the majority of cases, it took due notice of the impact that a contrary decision would have had on the insurance industry. Insurers, for once, had their day in court.