The Civil Liability Act 2018 (“CLA 2018”) was enacted in December 2018 and will bring significant reforms to the personal injury market.
The CLA is split into two parts – one part deals with the much publicised whiplash reforms; the other deals with the Discount Rate, which is less controversial, but arguably more financially significant.
When victims of life-changing injuries accept lump sum compensation payments, the actual amount they receive is adjusted according to the interest they can expect to earn by investing a capital sum. In calculating what sum best represents capitalised future losses a formula is used to multiply the annual loss figure - the starting point is the Discount Rate – linked to what returns a saver should get on the lowest risk investments, typically Index Linked Gilts.
The CLA 2018 requires the first review of the Discount Rate to take place within 230 days, i.e. by 6 August 2019. The rate should be reviewed every five years thereafter.
After many years the Discount Rate moved in 2017 from 2.5 % to -0.75% - this had a significant impact on the potential size of large value injury claims, particularly for younger accident victims. Compensators and claimants are both waiting anxiously for the new rate to be announced and many settlement meetings are likely to be put on hold the closer we get to the deadline.
The CLA 2018 has received greater press coverage where it relates to the ever controversial issue of whiplash. The CLA proposed reforms are not expected to come into force until at least April 2020.
The CLA will be used to introduce a set tariff of damages for low-value whiplash injuries to the neck, back and shoulder of up to two years. The tariff amounts will be set by regulations, but are expected to be significantly lower than the current level of common law damages.
Pre-medical offers, which are common practice, will no longer be allowed. This ensures that an independent medical expert examines the injured person and is a requirement intended to reduce fraudulent claims.
The CLA sets out to change the small claims track limit for personal injury claims. The new limit will increase from £1,000 to £5,000 for road traffic accident claims and to £2,000 for all other injury claims.
Vulnerable road users such as pedestrians, cyclists and motorcyclists will be excluded from an increased limit.
The “whiplash” reforms are intended to bring the perceived ‘claims culture’ surrounding whiplash claims under control. The tariff is seen by some as a positive step - giving certainty and clarity for both claimants and defendants.
There will inevitably be disputes relating to whether other minor injuries will cause a case to fall outside the tariff or not. Satellite litigation on this point can be expected.
Due to more claims falling inside the small claims track, successful claimants will not be able to claim legal costs from the defendant. The expectation is that claimants will be encouraged to submit the claim themselves (without a solicitor) through an online portal, funded by the insurance market.
Motor insurers have lobbied hard for these reforms and have promised to pass on the savings to consumers.
However, one anticipated and unintended consequence is that insurers are likely to find themselves dealing with far more unrepresented claimants than before, which could take longer to deal with and could increase their internal claims costs.
There is also a fear that Claims Management Companies will move into the market place, now that the PPI bubble has burst. This could be an unwelcome development.
These reforms will have a significant financial impact on law firms who specialise in the lower value injury claims, many of whom have already gone into administration. These firms were much criticised by the insurers. It remains to be seen whether it is ‘better the devil you know’.