The small claims limit for personal injury (PI) should rise by inflation to £1,500, rather than the higher levels proposed by the government, MPs on the justice select committee have recommended.
In a major boost to claimant lawyers, the committee found little credibility in much of the government’s case for raising the limit to £5,000 for road traffic accident accident (RTA) claims and £2,000 for other PI claims, given the risk to access to justice.
But even if the government pressed ahead regardless, it should delay implementation by a year to April 2020 to get the technology right.
Issuing its eagerly anticipated report, the committee said: “We received compelling evidence of the obstacles that would be faced by self-represented claimants navigating the current PI claims process in the small claims track, regardless of the value of their claim, and we conclude that this would represent an unacceptable barrier to access to justice.
“While fraudulent and exaggerated claims must be prevented, given that the common law right to compensation for negligence applies regardless of the value of the claim, we conclude that more convincing justification is needed for the government’s policy of reducing a large proportion of claims, including for non-whiplash RTA injuries, by means of raising the small claims limit, simply because the claims are minor.
“We recommend that the government does not proceed with plans to increase the limit for all RTA PI claims to £5,000.”
Instead, it said the limit should be uprated according to the consumer prices index from £1,000 in 1999, when it was last touched, to £1,500 from April 2019.
The 57-page report said it was in any case “illogical” for the government to propose further reforms to the PI claims process before its review of part 2 of LASPO has considered the effectiveness of the earlier reforms.
It also highlighted a series of other concerns, including the absence of reliable data on insurance fraud.
“We find surprising the wide definition of suspected fraud that is used to collate the ABI’s [Association of British Insurers] statistics,” it said.
“In particular, the failure by the ABI to break down their figures by the nature and type of claim, and to isolate RTA PI claims broken down by type of road user, is a significant and regrettable omission that weakens their evidence base.”
The committee recommend that the government work with the ABI to develop “a more nuanced approach that avoids conflating unexpected consumer behaviour with fraudulent activity”.
The MPs were also sceptical about the savings to motor insurance customers, concluding that the government’s estimate of the pass-through rate “may be over-optimistic, given the lack of robust evidence and the unenforceable nature of insurers’ promises to reduce premiums”.
They continued: “We recommend that, if the reforms are implemented, the government work with the ABI and either the Prudential Regulation Authority or the Financial Conduct Authority to monitor the extent to which any premium reductions can be attributed to these measures and report back to us after 12 months.”
The report also found “no policy justification” for including vulnerable road users within the reforms and “we recommend that they be excluded from any higher small claims limit that is imposed on other RTA PI claims”.
The government faced further criticism for its approach to non-RTA claims. “The committee is deeply unimpressed by the inability of the Ministry of Justice to quantify the impact of raising to £2,000 the small claims limit for employer liability and public liability claims.
“Given the potential complexity of these claims and the role of litigation in maintaining safe and healthy workplaces, MPs recommend that they be subject to a small claims threshold of £1,500.”
The government is working with stakeholders to develop an electronic platform to handle the pre-action stages of lower-value PI claims. While the committee commended this, it said that “in the light of the evidence we received, we consider that the ministry should take a more realistic approach to the technical challenges that may be faced in developing a fully functional electronic platform that has been properly tested with a wide range of users”.
Thus the national roll-out of the new platform – “and hence any changes to the small claims limit for PI claims” – should be delayed at least a further year until April 2020.
The report said that the complexity of EL and PL claims meant it was “not appropriate” to bring them within the scope of the new online platform.
It added: “We remain to be convinced that the electronic platform will be capable of overcoming the underlying inequality of arms between professionally represented insurers and self-represented claimants, particularly with regard to disputes on liability and quantum (the amount of compensation).
“Similarly, we conclude that the government has not done enough to explain how claimants of limited means with legitimate claims are expected to finance court fees and expert reports.”
The MPs added, that, notwithstanding the Ministry of Justice’s “welcome commitment” to overcoming digital exclusion, they remained concerned about the potential deterrent effect on particular population groups of introducing online-only applications, and said they should be closely monitored during the pilot.
The committee considered the impact of the reforms on organisations supporting claimants, and again found the government lacking.
It was “regrettable that, at the consultation stage of these proposals, the Ministry of Justice concluded that it was not relevant to estimate the potentially substantial impact on the PI legal sector, particularly in the North West.
“It is also unclear to us why the ministry’s final stage impact assessment has assumed that the sector will be able to replace PI legal work with work of equivalent value.”
Further, there was a “real risk” of paid McKenzie Friends being used by claims management companies (CMCs) to “sidestep the regulatory requirements that apply to advocacy provided by members of the legal professions.
On this occasion, the committee called on the senior judiciary seek to conclude its examination of this issue “as soon as possible”.
It said the government has under-estimated both the role of before-the-event insurance in securing legal representation for PI claimants, and the impact of raising the small claims limit on providers’ current business model, “with potentially adverse consequences for access to justice”.
While the shift in regulation of CMCs to the Financial Conduct Authority “will mitigate the risk of any unscrupulous activity on the part of CMCs if the small claims limit is changed, the report called for a cap of “no less than 20%” – which perhaps should have read ‘no more than’ – on the proportion of compensation that CMCs could levy from a claimant in a PI claims.
The MPs also argued that the restrictions on cold-calling in the recently passed Financial Guidance and Claims Act did not go far enough “and that an outright ban should be introduced”.
“In the meantime, we recommend that the government monitor the effectiveness of the proposed restrictions, particularly on calls from overseas, and that technical remedies are urgently explored to tackle any loopholes that might be exploited by overseas operators to circumvent the restrictions.”
The report found that the senior judiciary has “reasonable concerns” about the consequences for judges, and for the courts system, of increasing the small claims limit, and the government’s “wait and see” response was not adequate.
“If the small claims limit is to be increased by more than the rate of inflation, we recommend that the Ministry of Justice and HM Courts and Tribunal Service work with the senior judiciary to agree in advance a framework for monitoring the impact on the judiciary and the courts, so that monitoring can commence immediately after introduction of the new limit[s] and urgent steps taken to address any adverse impact identified.
“We further recommend that the Ministry of Justice ask the Civil Procedure Rule Committee to consider whether the Civil Procedure Rules need to be changed to facilitate applications by self-represented claimants on the small claims track to have their case transferred to the fast-track.”
Justice committee chair Bob Neill MP said: “Access to justice, including the right of access to the courts, is a cornerstone of the rule of law but these reforms risk putting that right in doubt.
“We share strong concerns that were raised during our inquiry on this issue, including concerns about the financial and procedural barriers that claimants might face.
“The Ministry of Justice has made some welcome moves to develop the electronic platform to compensate for claimants’ anticipated lack of legal representation. However, we remain to be convinced that this will be effective or sufficient.
“This is a vitally important point of principle on which the government should reflect. The small claims limit for personal injury should not be increased unless ministers can explain how it will make sure that access to justice is not affected.”