Insurance update. July New developments. Jet2.com Limited v Ronald Huzar [2014] EWCA Civ 791

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1 1 New developments 1.1 Millions can claim after two Court of Appeal flight compensation rulings Jet2.com Limited v Ronald Huzar [2014] EWCA Civ 791 The Court of Appeal has held that a technical fault that is not detected by a system of maintenance or inspection cannot be classified as an extraordinary circumstance so that compensation for a delayed flight is not payable. The case concerned Mr Huzar s flight from Malaga to Manchester, which was 27 hours late landing due to a wiring defect in the fuel valve circuit which required a spare wire to be flown from Jet2.com s hanger in Leeds and the wire being replaced. Mr Huzar brought a claim pursuant to EU Regulation No. 261/2004 for compensation for the delay he experienced. His claim was disputed by Jet2.com who argued that they could use an exception in Regulation 261/2004 so that they did not have to pay compensation. Jet2.com sought to argue that the delay was caused by extraordinary circumstances which could not have been avoided by prior maintenance or visual inspection. However, the Court of Appeal rejected the airline s arguments and dismissed the appeal, taking the view that technical problems on planes arise as a matter of course in the ordinary operation of the airline s activity; to that extent they are inherent in the normal operation of the carrier. James Dawson v Thompson Airways Limited [2014] EWCA Civ 845 is another case set to have huge ramifications for the airline industry. In Dawson, the legal issue concerned whether the limitation period for bringing a flight delay claim is 2 years under the Montreal Convention or 6 years under the Limitation Act. Mr Dawson s flight from Gatwick to the Dominican Republic was delayed and arrived at its destination over 6 hours late as a result of staff shortages. Mr Dawson brought a claim pursuant to EU Regulation No. 261/2004 for compensation for the delay he experienced. Thomson Airways accepted they would have to compensate Mr Dawson had he brought his claim in time, but argued that the limitation period was 2 years as it was governed by the Montreal Convention. Mr Dawson contended that limitation should be considered in accordance with section 9 of the Limitation Act 1980 which provided for 6 years. The Court of Appeal held the limitation period was 6 years. 1.2 CMA sets out changes for private motor insurance Following its investigation into the private motor insurance market, the Competition and Markets Authority (CMA) has released the proposals it intends to make in order to increase competition and reduce the cost of premiums for motorists. The measures include:

2 Capping the charges passed to the insurer of an at-fault driver in an accident for the cost of providing a replacement vehicle to the non-fault driver, to more closely reflect the costs incurred and remove significant inefficiencies. Better information for consumers about their rights following an accident. A ban on price parity agreements between price comparison websites and insurers which stop insurers from making their products available to consumers elsewhere more cheaply. Better information for consumers on the costs and benefits of no-claim bonus protection. A recommendation that the Financial Conduct Authority looks at how insurers inform consumers about other private motor insurance-related add-on products. The CMA will now consult on these measures before publishing the final decision in September. 1.3 Queen s speech 2014: key issues for insurers On 4 June, the Queen s Speech was made to both Houses of Parliament, setting out the government s legislative agenda for the parliamentary session. It is the coalition s final legislative programme before the May 2015 general election and has been heralded by David Cameron as unashamedly pro-work and pro-business. The bills and policy areas that are likely to be of interest to those in the insurance sector include: Social Action, Responsibility and Heroism Bill A move designed to bring back common sense to Britain s health and safety culture has been announced by Justice Secretary, Chris Grayling this month. The government will take action to ensure that good Samaritans and community heroes are not put off from participating in charitable events due to worries regarding risk and liability where something goes wrong. Measures will also be brought forward to put the law more clearly on the side of employers who do the right thing to protect employees if something does go wrong through no fault of their own. Greater protection will additionally be provided to small business owners who face challenges from irresponsible employees, even if they have taken a responsible approach to safety training and procedures. The impetus behind the reforms is a growing perception that people risk being successfully sued for doing something for the common good; such as clearing snow from a path in front of their home or helping in an emergency situation. In order to facilitate the reforms, the law will be changed so that judges will have to give weight to three additional factors when decided negligence cases; whether the person was doing something for the benefit of society ; if they had been acting in a generally responsible way ; or, if they were acting in emergency. The changes will be made in new legislation expected to come into effect next year. Riot (Damages) Act The government has signalled its intention to limit the compensation insurers can receive following riots. The wide scale reforms to the Riot (Damages) Act would cap the amount large business and insurers can recover under the act following rioting. It will also establish a Riot Claims Bureau to handle claims in a more unified manner. Other changes proposed in the Bill are to switch the compensation method from an indemnity basis to a replacement value basis and to provide limited coverage for vehicles, where the owner only has third party insurance. An extension to the application period to give claimants the time needed to gather evidence of damage and rioting has also been proposed. All elements are subject to consultation. Pensions Tax Bill & Private Pensions Bill The government has promised two key changes to pension law in the coming year. The first is a proposal to allow employees to pay into collective funds shared with other workers. The second will allow savers more discretion regarding how they use their pension funds. These legislative proposals represent radical reform of pension saving and the retirement process. There is an interesting link between the two items. At an earlier stage in the development of collective defined contribution pensions, Pensions Minister, Steve Webb, identified one of their 2

3 advantages as the ability to deliver a pension income from within the scheme more cost effectively than by individuals making their own arrangements. That point has been largely overtaken by the subsequent surprise announcement in this year s budget allowing many individuals to take their retirement savings in lump sum form. It seems that the government remains convinced that Collective Defined Contribution can deliver better pension outcomes for other reasons. The government should be right. By achieving scale and the pooling of risk, these schemes can achieve greater stability for members without some of the employer risks associated with other models. A key challenge will be to contain the potential complexity and to get the regulation right. 2 Emerging behaviours 2.1 Guideline hourly rates: the wait goes on The Costs Committee has completed producing recommendations for new Guideline Hourly Rates. However the report will not be published until the Master of the Rolls, Lord Dyson, has had an opportunity to consider the report fully and to decide whether or not to accept the Committee s recommendations. The Committee advised that the report will likely be published in due course, along with the Lord Dyson s final decisions on what the rates should be, and the date from which they will take effect. 2.2 CPRC to launch investigation into recovering success fees in cases involving children The Civil Procedure Rule Committee has announced that it is to investigate claims that the Jackson reforms have made it "virtually impossible" for solicitors to claim success fees in cases involving children. Committee member HHJ Halbert has called for a rule change so that lawyers acting for children are able to claim success fees from damages, now that they can no longer be claimed from defendants. A paper on the issue by District Judge Hovington reveals that a number of his colleagues had highlighted the problem of child victims and success fees. The rule committee has therefore decided that a review of the rules was necessary and that a sub-committee should be set up to identify the issues and how the could be addressed in the rules. 2.3 Periodic payment claims: research into new categorisation The Institute and Faculty of Actuaries (IFoA) have developed a new categorisation for serious spinal and brain injuries aimed at helping insurers better estimate future liabilities. Following analysis of motor insurance data for periodic payment claims, it was revealed that claims of 1milion or more were likely to be paid as periodic payment orders and that medical progress meant these claims could remain on balance sheets for decades. Actuary, Sarah MacDonnell said that by categorising the severity of injuries, we will capture data that can help to provide more accurate mortality estimates and, in so doing, help insurers to better estimate their future liabilities and the reserves required to meet them. 2.4 Latest claims Portal figures This month s figures represent the first set of data for the financial year: RTA Portal 66,856 new RTA claims entered the Portal in May, representing an increase of 2400 new claims from the previous month. Of the total number of RTA CNFs entering the Portal in May, only 20% (13,884) remain in the system this represents a 2% increase from April s figures. The average figure for damages stands still at Last month we predicted May s results to follow a similar trend to April s figures, taking account of the reduction of working days due to bank holidays. We therefore expect figures for June to be on the up, reflecting pre-april levels. EL Accident and PL The figures for new EL Accident (3,722) and PL claims (5,930) represent a slight increase on the previous month, in addition to being the highest number of new CNFs to enter the Portal on a monthly basis. Just under 30% (previously 33%) of new EL Accident CNFs for the month of May remain in the Portal. Just under 20% (previously 3

4 45%) of new PL CNFs for the month of May remain in the Portal. General damages for both EL Accident ( 2,969) and PL ( 2,941) represent a slight increase of 10%. These figures for general damages also represent the highest figure for general damages since the Portal began in August EL Disease 1,377 new EL Disease CNFs entered the Portal in May, representing a slight decrease on last month s figure of 1,396. However only 13% (186) of new CNFs remain in the Portal for May, this reflects a significant departure from April whereby 30% of new claims remained in the Portal. The number of settled disease claims has increased to 43, representing the highest figure so far since August Motor claims 3.1 RTA Portal to charge claimant representatives per CNF From the end of 2015, claimant representatives will be expected to pay a fee to use the RTA Claims Portal. The new fee will be 2.00 per claims notification form (CNF) and will be recalculated annually. It will not be recoverable by claimants. This follows the latest management information released by the Claims Portal, showing that almost 70,000 claims notifications were lodged in the month of February alone. However, a large number of these have been withdrawn or duplicated. An issue fee may perhaps encourage claimant solicitors to ensure information is correct first time. The charge will be built into the portal, alongside other developments, following a tender process for the portal s hard and software supplier. 3.2 Motor insurers record first profit in 20 years The motor insurance market has recorded its first underwriting profit since 1994, according to figures released by Ernst & Young (EY) this month. The accountancy firm has stated that UK motor insurers recorded a net combined ratio of 98.5% in 2013, a 3.9% improvement on However, in spite of the positivity, EY said that reserve releases had driven the UK motor sector in profit. The UK COR excluding such releases for 2013 would have been 105.7%, with reserve releases up by 7.2 percentage points since 2010 alone. 3.3 Are we on the right track? Akhtar v Boland [2014] EWCA Civ 872 In this Court of Appeal case, the appellant, Mr Akhtar, had been involved in an RTA with Mr Boland, claiming damages totalling The defence, admitted damages amounting to The claim was allocated to the small claims track, however Mr Akhtar applied for the allocation of the claim to be changed to the fast track; that application was refused on the basis that the admissions in the defence constituted a reduction in the amount of the dispute, with the consequence that the appropriate track was the small claims track. Following judgment made in his favour, Mr Akhtar unsuccessfully appealed against the allocation decision. A district judge rejected his argument that the defence was no more than offer to pay 2496 and was not an admission that Mr Akhtar was entitled to that sum. The Court of Appeal held that it was clear that the district judge had interpreted the defence as including an unqualified admission that Mr Akhtar was entitled to 2496 and entered judgment for that sum. In the circumstances in which Mr Akhtar had retained judgment for 2496 and the sum remaining in dispute was under 5000, the district judge had been entitled to allocate the claim to the small claims track. 4 Disease 4.4 Recommendations of the Industrial Injuries Advisory Council published The Industrial Injuries Advisory Council (IIAC), which comprises 15 esteemed medical professionals, has responsibility for determining whether an illness or disease/condition is attributable to employment and the circumstances in which Industrial Injury Disablement Benefit (IIDB) is payable. The recently published report recommends that the government implements a number of changes to the present system. The key 4

5 recommendations include: That Carpel Tunnel Syndrome becomes a prescribed disease where it followed repeated flexion and dorsiflexion of the wrist ; Prescription of primary cancers of the nose or paranasal sinuses with an appropriate work history ; Prescription of tuberculosis outside a hospital setting is withdrawn; That current time limits which require presentation of symptoms within a certain period following cessation of occupational exposure are extended. This latter change is justified on the basis that a long latency between exposure and manifestation of symptoms strengthens, not weakens, the link with occupation. Given that the majority of claims are for disease/conditions not touched by these recommendations, then the financial impact on Government funds is likely to be limited. 4.3 Recovery of Medical Costs for Asbestos Diseases (Wales) Bill: Latest It has been confirmed this month that the case regarding whether the National Assembly for Wales has the power to enact the Recovery of Medical Costs Asbestos Diseases (Wales) Bill, was heard by the Supreme Court on May Judgment is now awaited. 4.2 Occupational disease: Diesel Engine Exhaust Emissions Research from the Health and Safety Executive (HSE) has revealed that a major source of workplace exposure to Diesel Engine Exhaust Emissions (DEEEs) is from emission from heavy vehicles that use diesel fuel. Emissions are also generated from stationary power sources, which may be used regularly in tunnelling, mining or on construction sites. 5 EL/PL 5.1 Scottish golf ball spotter fails in damages claim David McMahon, a ball spotter at a golf tournament who was blinded after he was struck in the eye by a wayward shot has failed in his action for damages. The Court of Session ruled that a golfer was not negligent for Mr McMahon s traumatic rupture of the right eye given that the danger of being struck by a ball was a risk incidental to the competition which was accepted by the pursuer when undertaking the task of officiating. Mr McMahon s most compelling allegation of negligence against the defendant was that he did not wait for him or the spectators to move out of the line of his second shot and that he negligently failed to shout fore when the ball began to veer left towards them. However the court held that the injury sustained by Mr McMahon was not caused by an error of judgment on the part of the defendant that a reasonable competitor being a reasonable man of the sporting world would not have made. 6 Fraud 6.1 Inducements to be banned in latest fraud crackdown The Ministry of Justice (MoJ) has confirmed that lawyers will be banned from encouraging people to make claims by offering upfront incentives such as welcome payments, free gifts, cash advances and discounted services. The move forms part of the latest wave of reform targeted at the insurance sector, and includes the requirement for courts to throw out compensation applications in full where a claimant has been fundamentally dishonest. The reforms will be legislated before the end of the current Parliament. The MoJ have advised that the changes are expected to convert into lower premiums for motorists. Commenting on the measures, Otto Thoresen, Director General or the Association of British Insurers, said: "These changes are a very positive development for the vast majority of honest insurance customers who end up paying for the fraud of the minority. However the Law Society chief executive, Des Hudson has since defended claims inducements, stating: there is no evidence to support 5

6 suggestions that anyone would launch a spurious legal claim or embark on litigation just because they were being offered a free ipad. 6.2 Value of fraudulent claims at record high, says ABI Latest figures from the Association of British Insurers (ABI) reveal that the value of fraudulent insurance claims in 2013 had risen to a record 1.3 billion, up 18% on the previous year. Insurers have uncovered a total of 118,500 dishonest or exaggerated claims equivalent to 2279 fraudulent claims a week. Fraudulent motor insurance claims were the most expensive and common, with the number of dishonest claims at 59,900 - up 34% on and their value at 811 million. Since 2007 the value of dishonest general insurance claims detected has more than doubled. The ABI has attributed the rise in detection to industry initiatives aimed at tackling insurance fraud that continue to yield results. Indeed, it has been reported that investigations by the Insurance Fraud Enforcement Department have so far led to 470 arrests and 85 prosecutions of insurance fraudsters since it was established in IFED investigation leads to four arrests Four people have been arrested in dawn raids following months of investigation by the Insurance Fraud Enforcement Department (IFED) into a suspected crash for cash gang. Nine warrants were executed at residential addresses and a business premises in London, Middlesex, Buckinghamshire and Surrey this month. The operation followed an investigation by IFED into what are believed to be eight contrived smashes on motorways and dual carriageways in and around east and west London. In each instance it was reported to police that a driver slammed on their brakes without warning, causing the car behind to go into the back of them. This was followed by the driver making a number of third party insurance claims including personal injury, vehicle recovery and storage and courtesy cars use. The operation comes amid suggestions IFED should look to expand its presence outside of London by establishing regional offices across the country. 6.4 Law Commission: lack of government support led us to drop injury fraud project The Law Commission has indicated that lack of support from the Ministry of Justice (MoJ) has informed the Commission's decision not to include the law on fraud by personal injury victims in its latest reform programme. According to Law Commissioner, David Hertzell, this would be a controversial project; it elicited strong views even at the early stages of the selection process. 7 Market 7.1 Top personal injury consortium paying Google 8m a year It has been revealed this month that InjuryLawyers4u, the leading law firm marketing consortium, is paying Google a staggering 8m a year. Andrew Twambley, director of InjuryLawyers4u, said Google was the biggest player in digital marketing, in a monopoly position. Mr Twambley said the cost of a click from a personal injury phrase on Google such as no win, no fee was currently 28, far higher than for domestic consumer goods or PPI claims. 7.2 Banned advertisement of the month: NHSLaw.co.uk This month, the Advertising Standards Authority (ASA) has ordered a well-known personal injury firm to stop running a TV advert which directed clients to its NHSLaw.co.uk website. The ASA made the order on the grounds that the public may confuse the website with National Health Service. Complaints made to the ASA indicated that the advert, by Neil Hudgell Solicitors, was misleading, given that it implied a link with the NHS which was likely to add legitimacy to, and increase trust in the firm. The ASA has upheld the ten complaints received and ruled that the advert should not be broadcast again in its current form. 7.3 Slater & Gordon chooses 1.3m-a-year Manchester hub Listed Australian firm Slater & Gordon has announced it will open its new flagship Manchester office in early

7 The premises in Mosley Street is set to be the firm s largest office anywhere in the world, as well as the largest office of any legal firm in Manchester. More than 700 staff will be moving into the new location, which take up around 105,000 square feet. 7.4 ABSs capture one third of personal injury market Alternative business structures (ABSs) account for a third of all turnover in the personal injury market, according to an overview of the progress of ABSs by the Solicitors Regulation Authority. The research also found 85 per cent of ABSs had between one and nine partners, just marginally higher than traditional law firms. However, ABSs employ far more fee-earners than traditional practices, with 48 per cent employing 10 or more, compared to just 22 per cent of law firms. 7.5 Two million legal searches made on Google each day Two million online searches on legal subjects are made every day in the UK, according to a senior Google executive, who has advised lawyers that their future clients would increasingly be reached through video and mobile technology. Meanwhile, it was revealed that 35% of all legal-related searches were being made from a mobile phone or a tablet device reminding firms of the need to ensure their websites were responsive to mobile devices. 7.6 Fairpoint Group plc enters legal market Fairpoint has entered the legal market this month after the Solicitors Regulation Authority (SRA) approved its 15m acquisition of national law firm and alternative business structure Simpson Millar. The AIM-listed financial services business has also secured a new 20m funding facility, in order to fund the acquisition but also to enable further consolidation in debt solutions and legal services markets. 7.7 Quindell targets huge staff growth and higher-value cases Quindell plc is reportedly on track to nearly double the number of staff working in its legal division to 1,500 this year making it one of the largest practices in the country. The move is part of a plan that is seeing the alternative business structure target noise-induced deafness claims as a major growth area. Of the 6,600 EL/PL cases a month Quindell wants to run, 6,000 will be hearing loss claims, which each generate just over 9,000 in base costs, success fee, costs drafting fee and ancillary income nearly 75% of Quindell s income from PI. 7.8 Another Jackson casualty to exit the market Manchester-based personal injury firm Delta Legal has become the latest to exit the market in the wake of the Jackson reforms, it has emerged that it is heading into a process of managed wind-down. Daren Ismay, managing partner at Delta Legal cited a draconian reduction in revenues resulting from the reforms that had caused the firm to become financially unviable. PI-Solutions has been appointed to oversee a managed and compliant runoff of 800 personal injury files. 7.9 Connect2Law lives on as Slater & Gordon launches Linked to Law It has been confirmed this month that law firm network Connect2Law will live on separately from Slater & Gordonowned Pannone after a deal struck with its former head, David Jabbari with S&G launching its own referral network at the same time. S&G s referral network is called Linked to Law, which will enable member firms to refer cases to S&G in return for a fee made up of an upfront payment and percentage of costs generated. 8 In Europe 8.1 Uninsured drivers: UK guilty of serious breach of EU law Delaney v Secretary of State for Transport [2014] EWHC 1785 (QB) The High Court has this month ruled that the secretary of state for transport is guilty of a serious breach of EU 7

8 law on uninsured drivers. The case leading to the comments, concerned a drug dealer who was seriously injured after a friend crashed their Mercedes on a B road in the Midlands. The driver of the car, Sean Delaney, was convicted for dangerous driving and possession of cannabis. Mr Delaney was insured with Tradewise Insurance Services, but Tradewise was entitled to avoid the policy because the driver had failed to disclose that he suffered from diabetes, depression and was a habitual cannabis user. This meant that the Motor Insurers Bureau (MIB) was potentially the insurer of last resort under the Uninsured Drivers Agreement However, under clause 6(1)(e)(iii) of the Uninsured Drivers Agreement, the MIB is not liable for personal injuries suffered by passengers where the vehicle was being used in the course or furtherance of a crime. Mr Justice Jay ruled that in the current case, this clause is incompatible with EU law (article 1(4) of Directive 84/5) and that the breach was so serious that the transport secretary must pay compensation to Mr Delaney. This update does not attempt to provide a full analysis of those matters with which it deals and is provided for general information purposes only and is not intended to constitute legal advice and should not be treated as a substitute for legal advice. Weightmans accepts no responsibility for any loss that may arise from reliance on the information in this update. The copyright in this update is owned by Weightmans LLP. Pursuant to the Data Protection Act 1998, your name may be retained on our marketing database. The database enables us to select contacts to receive a variety of marketing materials including our legal update service, newsletters and invites to seminars and events. It details your name, address, telephone, fax, , website, mailing requirements and other comments if any. Please ensure you update our marketing team with any changes. You have the right to correct any data that relates to you. You should contact James Holman, our Data Protection Officer in writing, at 100 Old Hall Street Liverpool L3 9QJ. 8