The Compensation Act has changed the way claimant lawyers and defendants approach personal injury claims. Chris Harragan explains the intricacies of the Act

The Compensation Act received Royal Assent on 25 July 2006 and is divided into three parts which consist of provisions relating to: the law of negligence, breach of statutory duty and damages for mesothelioma; the regulation of claims management services; and the technical provisions and commencement and extent of the Act.

The May 2004 report by the Better Regulation Task Force entitled Better Routes to Redress highlighted that there was a perceived "compensation culture" that could lead to unnecessary risk averse behaviour because of the threat of litigation.

Part 1 of the Compensation Act was developed with this in mind and contains three sections relating to: the law of negligence; breach of statutory duty; and damages for mesothelioma.

The law of negligence: Part 1 s1 states: "A court considering a claim in negligence or breach of statutory duty may, in determining whether the defendant should have taken particular steps to meet a standard of care (whether by taking precautions against a risk or otherwise), have regard to whether a requirement to take those steps might (a) prevent a desirable activity from being undertaken at all, to a particular extent or in a particular way, or (b) discourage persons from undertaking functions in connection with a desirable activity."

The impact of this section on the law of negligence is yet to be decided. There may be a need for case law to determine exactly how the statute should be applied.

In the short term there are likely to be some current cases being run which were started before the Act was in place which will be looked at differently in light of the new legislation.

Different decision
A good example of this might be a case involving an injury to a child while playing on a bouncy castle at an autumn fete. The decision in this case might be different now compared to one year ago depending on the understanding of the new Act.

Notwithstanding the fact that there might have been good prospects of success for the claimant last year, there will now be another consideration to take into account, and that will be how the judges might interpret this part of the new Act.

Legal expenses insurers may need to review on-going personal injury cases. If counsel suggest that prospects have changed only on the basis of not knowing how the Act might be interpreted this should not necessarily result in cover being withdrawn.

The overarching requirement of any insurer is to comply with the FSA principle of Treating Customers Fairly (TCF), and if this new issue is highlighted after the case has been running for some time any review of the case must make TCF the priority.

Breach of statutory duty: Part 1 s2 is intended to reflect existing law, and provides that an apology, an offer of treatment or other redress does not imply that there is necessarily an admission of negligence or breach of statutory duty.

No doubt this section is partly intended to assist with the increased interest in rehabilitation and trying to break down barriers preventing the injured party from being enabled to get back as near as possible to how they were before the accident happened.

Claims management regulation: Part 2 of the Act was created in response to the failure of the industry to self regulate itself in respect of claims management activities. The catalyst of which was the demise of Claims Direct and The Accident Group, and the 'compensation culture' headlines.

Under the Compensation Act (2006), people providing a regulated claims management service will need to be authorised to carry out these activities from 6 April 2007.

The Compensation (Claims Management Services) Regulations (2006) sets out much of the detail including the requirements that have to be met in order to obtain authorisation. There are other regulations which will prescribe the activities and sectors covered by the authorisation requirements, the exemptions from the need to be authorised and the appeals procedures.

The regulation applies to claims made for compensation in relation to personal injury, criminal injuries compensation, industrial injuries disablement benefit, employment matters, housing disrepair and financial products and services.

Examples of claims management activities covered by the Act are numerous – almost any activity in relation to claims is covered. In particular, the simple act of referring or introducing one person to another connected with a claim within the course of business requires authorisation by the regulator.

The Compensation (Exemptions) Order (2006), which is currently in draft, sets out the activities and organisations to be exempt from the requirement to seek authorisation.

Included in this group are insurers, brokers and IFAs in respect of business that is regulated under the Financial Services and Markets Act. The exemption covers the service given by brokers in respect of a policy they have arranged.

The proposed exemption does not cover a broker referring an uninsured personal injury loss to a solicitor or a claims management company, unless he is deemed to be a small scale introducer (referring no more than 25 cases in three months) where the activity is incidental to their main business, and the person to whom they introduce business takes responsibility for their activities.

Claims regulator
Mark Boleat, former director general of the ABI, is the head of claims management regulation and is working with Staffordshire County Council which is responsible for managing the authorisation process, together with monitoring and compliance.

It is anticipated that in due course the regulation will be integrated into the framework for legal services set out in the much larger Draft Legal Services Bill.

It will be interesting to hear from both Boleat's and the council's experiences of implementing this new regulation into an area business which in the main has not been regulated in the past.IT

Chris Harragan is development adviser for Allianz Cornhill Legal Protection

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