Comment - MOJ Loopholes: An accident waiting to happen

All ready for the new road traffic accident claims process? With the launch tomorrow, your claims handling staff should now be fully trained in the new rules. Right?

Just to check they really are, ask them a simple question. The claimant is a child, damages are not agreed, the matter proceeds to a stage three hearing and the claimant obtains judgment for an amount equal to or less than the defendant's offer. What costs is the claimant entitled to?

The correct answer to this would be impressive. Why? Because those preparing the rules appear to have forgotten to include a rule to cover this situation.

There are numerous other problem areas. Once claimant lawyers start to look for areas to exploit, there is no way of knowing what other weak spots will be identified.

One of the problem areas is the stage one fixed fee of £400. Under the current predictable costs regime, the level of costs recoverable is governed by the damages agreed. If the damages agreed fall within the small claim track, predictable costs are not payable. The new RTA claims process operates in a totally different way.

It is hard to imagine a rule better designed to spark a flood of satellite litigation

When submitting the claim notification form, the claimant includes a statement that it is believed the personal injury element of the claim is worth more than £1000. If the defendant admits liability, the £400 fee becomes payable at that point. The first problem is that there will normally be no medical evidence available when the CNF is completed. If it is completed within a few days of the accident, there is usually no way of knowing whether the injury will resolve itself very quickly. Will claimant lawyers wait for the medical position to become clear first or, instead, submit the CNF immediately and claim that there was a genuine belief that the injury was worth more than £1000 in order to secure the stage one payment?

Medical timescales
Secondly, there is no fixed timescale for medical evidence to be produced. How many claims will there be where insurers find themselves paying out the initial stage one fixed fee, only for medical evidence never to be produced and for the claim to be quietly dropped? Insurers may not discover they even have a problem until a year or two down the line, when it begins to become apparent that they have been paying out on a large number of claims that settled for less than £1000 or which did not proceed at all.

Will there be a sudden rise in new claims for psychological injuries for otherwise uninjured passengers? An extra £400 payable for each, regardless of whether any of the claims actually proceed past stage one.

The only way for insurers to combat this problem is to claim during stage one that the value of the claim is within the small claims track and for the claim to exit the process. However, without any medical evidence how is an insurer to do this? Once the stage one fee is paid there is no way to get this back.

The £400 fee may not seem a large amount. However, how many claims currently settle within the small claims track limit where insurers will soon find themselves paying these fees? Currently there is no market for very low-value claims because solicitors know they will normally not be able to recover any costs. This new RTA claims process creates a market. There will be a positive incentive to generate such claims.

A related problem with the rules is that the claimant is also "entitled" to the stage two fee of £800 where the "claimant reasonably believes that the claim is valued at between £1000 and £10 000" even where it subsequently becomes apparent that the value of the claim is less than £1000. The rules are unclear as to how far the claim needs to proceed before the stage two fixed costs are also potentially payable. It is certainly arguable that the claim only needs to proceed into stage two for the stage two costs to be payable, subject to the "reasonable" belief condition being satisfied. It is hard to imagine a rule better designed to spark a flood of satellite litigation than one where the level of costs a claimant lawyer can recover is based on the "reasonable" belief of that same lawyer.

A claimant is potentially entitled to the stage one and stage two fixed costs simply on the basis of a view taken as to the value of the claim at a stage where there was no medical evidence available. Even if the insurer disputes the value of the claim as soon as medical evidence becomes available, the claimant can apparently still seek the full stage one and two fixed costs.

Costs savings
Given there are no costs savings to insurers between the costs recoverable under the new claims process and the current predictable costs regime for claims that settle for £2000 or less, insurers may consider they are better off kicking obviously low value claims straight out of the system during stage one. There is no costs benefit to be obtained from keeping the claim in the process but the very real danger of having to pay costs in claims where previously no costs would be payable.

It is incredibly easy for claims to exit the process. This may be entirely the fault of the claimant. What sanction do the rules provide for where a claim leaves the scheme due to a fault by the claimant? The punishment is that the claimant's costs may be limited to the same costs as would have been payable if the claim had stayed in the scheme. Is that a sufficient sanction to discourage claimant lawyers from trying to exit the process? The test is whether the claimant has acted "unreasonably". More satellite litigation.

Although this is a scheme that insurers want to make work, the rules are a recipe for disaster. Insurers face higher claims handling costs trying to keep to the very tight deadlines, increased third-party costs for the reasons identified above and a wave of expensive satellite litigation. Has any of this sunk in yet?

Simon Gibbs is a partner with defendant costs specialists Gibbs Wyatt Stone

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