PI small-claims rise: what is the impact?

George Osborne’s revelation that the government plans to scrap ‘minor’ damages for whiplash claims and raise the personal injury small-claims limit to £5,000 was a bolt out of the blue for the profession. But what will the true impact be?

It is worth looking at that question from a few different angles: for the public; for lawyers; for insurers; and for government.

So how will the proposal affect members of the public? Most obviously, if you have suffered a ’minor’ whiplash injury, you are no longer going to be compensated to the same extent. You will not be entitled to any general damages – but you can still be reimbursed for your medical appointments and loss of earnings.

If it is a non-whiplash injury, you will still be entitled to general damages – but if your claim is worth less than £5,000, it is going to be a lot harder to actually obtain those damages.

Under the £5k limit, if you use a lawyer to act for you, you will no longer be able to recoup those expenses from the defendant insurer. Will any lawyers still be able to represent you? Some solicitors tell me that they believe more straightforward cases could potentially still be viable for them – perhaps under a damages-based agreement, which of course is capped at 25% of general damages in PI. For this to be feasible, lawyers would need to be able to rely on the courts taking a robust approach in recognising where a cases’s complexity means it must be moved to the fast track; and a rigid enforcement of the costs rules in relation to unreasonable conduct by opponents. But those are some big ‘Ifs’.

So it is very likely that you will not, in fact, have the benefit of a lawyer – meaning that you’ll be up against the defendant insurer on your own, using the small-claims process.

As an individual with no previous experience of claiming for an injury, you are unlikely to have much idea what your claim is actually worth. So common sense would suggest that you are not going to get as much compensation out of the insurer as you would have done if you were represented.

This also raises an interesting question of how a member of the public on their own is actually supposed to value their claim in the first place. They may estimate its value at a level that leads the court to allocate it to the small-claims track, without realising that its true value is far higher – are we relying on the defendant insurer to tell them otherwise?

The small-claims track is, of course, specially designed to be used without a lawyer – but it will inevitably be a struggle for the least literate claimants, from the most disadvantaged backgrounds.

In many cases, the most likely outcome is for injured people to settle their claims directly with the insurer, without advice.

That is the impact on the public; but what about for lawyers? On the defendant side, panel lawyers can expect to find their numbers significantly reduced.

For the claimant sector, as mentioned above, some firms may succeed in continuing to service PI claims below the £5,000 threshold. But they will need to be ruthlessly lean, and will be dependent on various factors beyond their control – such as the courts’ approach on moving cases to the fast track where justified.

There’s no denying that this is a major blow to the claimant sector that will lead to many firms going bust. The threat of a small-claims limit rise has been dangled over the profession’s head like the Sword of Damocles so many times. But this time it is going to fall.

There will be a knock-on effect on the after-the-event insurance market, too, with some ATE insurers potentially leaving the market. That may limit the choice of provision for higher-value cases.

The rush into other claimant areas, such as noise-induced hearing loss or indeed clinical negligence, will be accelerated – but that too is in the government’s crosshairs, with fees about to drop off a cliff.

If claimant representatives are the losers, there are no prizes for guessing who the winners are. Not only will defendant insurers no longer have to pay out general damages for whiplash, but they are also likely to be paying less in damages for other claims, because the consumer will not have a pesky lawyer by their side to tell them what their claim is actually worth. Plus, they will no longer have to pay the costs of that lawyer. It’s a win, win, win.

The insurers have, I am duty bound to mention, crossed their hearts and promised to pass these savings on to the premium public. Just like they did with the Jackson reforms.

Lastly, what will be the impact on the government? There is no financial benefit to the public purse – but what we will see is a further strain on the already creaking court system. Claims will move from the portal, which is funded by insurers, to the small-claims track – and district judges will be bracing themselves for a most unwelcome new tide of litigants in person. Just what they need.

Rachel Rothwell is editor of Litigation Funding. Follow Rachel on Twitter: @Rachel_Rothwell