T&Lbulletin CONSTRUCTION TECHNICAL & LEGAL BULLETIN FEBRUARY 2013

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1 T&Lbulletin CONSTRUCTION TECHNICAL & LEGAL BULLETIN FEBRUARY JACKSON REFORM UPDATE From the beginning of April this year, Employers Liability (EL), Public Liability (PL) and Motor Injury Claims are going to be handled in a different way. Businesses could benefit from reduced costs and potentially reduced insurance premiums, but they must be ready to respond. In December 2009, Lord Justice Jackson published his widely anticipated report into his review of the costs of civil litigation in England and Wales. Shortly after this, in April 2010, major changes took place in the way that motor injury claims up to 10,000 in value were handled with the introduction of a fixed legal costs regime for motor personal injury claims and an electronic portal, through which insurers and other compensators would settle cases on a rules basis. Since then, we have seen the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) pass through due process when it reached Royal Assent in May Part 2 of this act embodies a number of Jackson s key recommendations, to remove referral fees and the requirement for defendants to pay recoverable ATE premiums and success fees. Qualified One Way Costs Shifting (QOCS) will mean that defendants will now pay their own legal costs on most cases even if they win. LASPO, together with associated orders and regulations and changes to the Civil Procedure Rules will enact major changes to the civil justice system with wide-ranging effects. The government have pressed hard to push through the full raft of reforms. However, whilst LASPO will see some of the key changes implemented from the beginning of April, claimant lobby groups MASS and APIL have commenced judicial review proceedings, challenging the lower fixed costs regime that has been proposed. The Civil Justice Council has also questioned whether the banning of referral fees will push up marketing costs and that the proposed fixed fees may be too low. If and when the additional reforms are implemented, EL, PL and Motor Injury cases up to 25,000 will be handled in a different way. The time to acknowledge claims and decide liability is reducing. Lower fixed legal costs will apply to claims handled under new Protocols. These claims will also be transacted via an electronic portal, as is currently the case with motor injury cases up to 10,000. All of these factors will mean that claims behaviours for both claimant and defendant will change and that there will be financial rewards for those who have their house in order and penalties for those that do not.

2 2 What are the new changes? n The RTA Portal will be extended to increase the current limit of 10,000 to 25,000 for motor injury claims. n EL and PL injury claims up to 25,000 in value will be dealt with under new Protocols in a similar way to low value RTA claims, and ultimately transacted through an electronic portal. The key exceptions will include all PL disease claims and EL disease claims where there is more than one employer. n Businesses will be required to acknowledge new claims electronically by next day and notify insurers at the same time. Insurers have a further day to acknowledge the claimant. n Timescales to decide and communicate liability on EL cases will be 30 working days and PL 40 working days. n Lower fixed costs will apply to EL/PL and RTA cases up to 25,000 handled within the Protocols. Higher fixed costs will apply if cases fall out of the Protocols. n No win, no fee claims will be reformed so that defendants and their insurers will no longer pay claimants success fees or ATE insurance premiums other than for expert disbursements on medical negligence cases to decide liability/causation. n The payment and receipt of referral fees in personal injury cases will be banned and any breaches will be subject to enforcement action by the regulators. n There will be a new regime of Qualified One-Way Costs Shifting in personal injury cases. Defendants won t get their costs if they win cases unless there is fraud, a failure by a claimant to beat a part 36 offer or if there is no reasonable cause of action. n Contingency fees will be introduced (also known as Damages Based Agreements or DBA s ) subject to a 25% cap on damages (excluding future losses). n Reforms to the claimant s Part 36 offer which will result in an increase of 10% in total damages for a failure by a Defendant to beat a claimant s part 36 offer. n There will be a 10% increase in general damages for non-pecuniary loss to compensate for the contingency fees the claimant may pay to his solicitors if successful. n There will be a new rule on proportionality; the test is intended to control the costs of activity that is clearly disproportionate to the value, complexity and importance of the claim.

3 3 New Process for EL/PL Claims Claim Notification 1 day to acknowledge EL 30 working days to communicate liability PL 40 working days to communicate liability Missed deadlines Liability conceded in full Contributory negligence/ causation raised Lower Fixed Fees Higher Costs Proposed fixed costs within the RTA and EL/PL Protocols RTA 1K 10K RTA 10K 25K EL/PL 1k 10k EL/PL 10k 25k Stage Stage ,300 Stage 3 Paper Hearing Stage 3 Oral Hearing

4 4 How will this affect my claims and how they will be handled? Proposed changes to the notification and acknowledgement of claims It is currently proposed under the new regime that the letter of claim on EL/PL injury claims up to 25k in value is replaced with a claim notification form (CNF). The claimant must send a CNF to the defendant s insurer and Defendant Only CNF to the defendant. If the insurer is not known or there is no insurance, the CNF must be sent to the defendant. However, the claimant must make a reasonable attempt to identify the insurer. In an EL claim, the claimant must carry out a search through the Employers Liability Tracing Office. In a disease claim, the CNF should be sent to the last insurer on risk for the material period of employment. If the CNF or Defendant Only CNF cannot be sent to the defendant via the portal, it must be sent via first class post. Previously the defendant/insurer had 21 days to acknowledge new claims. Under the new regime the defendant must send an electronic acknowledgment the day after receipt of the CNF. If the claimant has sent the CNF to the defendant direct, the defendant must send an electronic acknowledgment to the claimant the day after its receipt and send the CNF to the insurer at the same time. The insurer must then send an electronic acknowledgment to the claimant the day after its receipt from the defendant. Under the proposed regime, with a significantly reduced timescale to acknowledge new claims defendants /insurers and brokers will need to review and adapt their processes, to ensure cases do not fall out of the lower costs regime. Anticipated Behavioural and Tactical Changes There may be an influx of cases prior to the April implementation date, where higher costs are payable. There may be a subsequent influx of spurious claims as there is no costs disincentive for a claimant to intimate and progress a claim. Weaker defendants and their claims handlers may be more widely targeted with spurious claims. The shorter timescales to decide liability will mean that where there are no documents or there are delays in compiling evidence, there may be economic pressure to make early admissions of liability which may not be subsequently retractable even if the value of the claim increases. Quicker investigation processes will be required and less detailed desktop enquiries may be instigated if on-site investigation and reporting timescales cannot match the new timescales. More time will be available to investigate as under the old regime if an early decision is made to allow the case to drop out of the Protocol but this will lead to an exposure to increased legal costs if the case ultimately succeeds. Claimant behaviours will re-adapt to the new framework any lapses by Defendants/claim handlers that could lead to higher costs rewards outside the Protocols will be aggressively exploited. Fraud processes will need to be implemented or enhanced to discourage opportunistic fraudsters. Defendants/their claims handlers/insurers will need to employ greater and earlier use of part 36 offers to gain costs protection. Proposed changes to the timesca les to decide and communicate liability At six and eight weeks respectively for EL and PL, the new timescales represent roughly half of the three month (90 day) period presently available. This is a key period in which to decide whether there is a defence on primary liability, worthwhile allegations of contributory negligence, or potential fraud. Arguments of contributory negligence and reservations on causation will lead to higher costs as cases will fall out of the lower fixed costs regime. Where liability is admitted on EL cases, earnings information must be disclosed within 20 days from the admission. Again, defendants/insurers and brokers will need to review and adapt their processes, to ensure cases do not fall out of the lower costs regime.

5 5 What do I need to do to prepare? YOUR INSURER/CLAIMS HANDLER/ BROKER are already preparing for the changes and you should liaise with them to agree the way forward. Given the much shorter timescales to acknowledge, investigate and decide liability on new claims, Defendants will need to be familiar with these new requirements and agree updated communication processes with the claims supply chain/insurers. This should include creating new processes where needed to acknowledge new claims as well as examining the timescales for the investigation of claims and the provision of information to claims handlers. Claims processes will need to build in any requirements to agree liability decisions and settlement authorities within the new reduced timescales. Make sure your claims handling and defensibility processes are updated to greatest effect. Key areas to consider: 1 Ensure documentation issue, storage and retrieval processes are robust and fully operational. Consider setting up a shared access portal with your claims handlers. This is particularly important in the areas of risk assessment and training which are often key to determining legal liability. 2 Re-evaluate internal accident investigation procedures. For example is best use being made of CCTV and photographic evidence? Is resource available to properly document and where possible investigate incidents that may lead to claims? 3 Correlate insurer histories and claims handling arrangements so that disease claims can be promptly routed to the correct party

6 6 Key timescales to implementation The Government have shown determination in sticking to a demanding timetable to deliver these reforms from the beginning of April A commencement order has been signed confirming that the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) will indeed be in force from 1 April 2013 with Statutory Instruments coming into force then on CFA's and DBA's as well as changes to the Part 36 offer, where defendants who fail to beat Part 36 offers must pay claimants an additional payment of up to 10 per cent of the damages awarded. However implementation of the protocols and associated lower fixed costs regime has suffered a setback with claimant lobby groups APIL and MASS issuing judicial review proceedings which challenge the proposed fixed costs. Furthermore, the Civil Justice Council has advised that more time is needed to consider costs and wider implications. Accordingly, there is much speculation that the increase to the portal limit on RTA cases to 25,000, and inclusion of EL and PL cases up to 25,000 will not now go ahead until possibly later in 2013, or beyond. However no formal announcements have been made, but given that changes on LASPO and costs will be effective on 1/4/13, we recommend that where possible businesses prepare for full implementation from the earliest possible date. Key changes summary 1 Injury claims are being handled differently from 1 April 2013 even though there may not be full implementation of the reforms until later this year. 2 Ensure you are familiar with the changes and watch closely for further details as they are announced by the Government your JLT contact will also keep you advised. 3 Ensure systems, processes and communication channels with insurers/claims handlers/brokers are adapted to reflect the changes, to ensure your business takes full advantage of the lower costs regime and does not suffer higher costs for cases falling out of the Protocols.

7 7 Other areas to watch out for in 2013 There are a number of other areas to watch closely in 2013 that will widely impact on health and safety and claims: Whiplash Consultation The MOJ opened a consultation on 11th December and which closes on 8th March The first key area includes creating new independent medical panels to improve diagnosis of whiplash injuries. This will ensure that genuine claims can still go ahead, but exaggerated, misrepresented or fraudulent claims are robustly challenged. Options are also being considered to allow more whiplash cases to be challenged in the small claims court to change the current position where it can be cheaper for insurance companies to accept questionable claims than to contest them. There has also been a recent suggestion that the government may consider increasing the small claims limit for all injury claims to 15,000. Strict liability In his report published in November 2011, Professor Lofstedt considered opportunities for reducing the burden of health and safety legislation on UK businesses while maintaining the progress made in improving health and safety outcomes. In a radical development, the recent Enterprise and Regulatory Reform Bill is considering whether strict liability for breach of statutory regulations should be abolished. The changes are controversial and the claimant lobby will inevitably put up significant resistance to the proposals. Discount rate and calculation of future losses The MoJ consultation seeking views on how to set the rate of return to be prescribed under section 1 of the Damages Act 1996 closed on 23 October The Government response is awaited. In the meantime, the MoJ was due to issue a further consultation paper in autumn 2012 to review the present legal basis for the setting of the rate in England and Wales. The consultation will seek views on whether the restrictions on the factors that can be taken into account in prescribing a rate under section 1 of the Damages Act 1996 are still appropriate. This consultation is still awaited. HSE Fees for Intervention The scheme, effective from 1 October 2012 is triggered when a HSE inspector considers a business to be in "material breach" of health and safety law and allows the HSE to charge for the work on an hourly rate basis (currently 124) as is required to investigate and advise the business until they become compliant. Furthermore, as a general rule such costs are not recoverable under a company s insurance policies. The HSE guidance defines a material breach as when, in the opinion of the HSE inspector, there is or has been a contravention of health and safety law that requires them to issue notice in writing of that opinion to the duty holder. Written notification could be by letter or and could be a notification of a contravention, as well as an issue of improvement, prohibition notice or notice of a prosecution. For further details please contact your Account Manager T&Lbulletin JLT Specialty Limited 6 Crutched Friars London EC3N 2PH Tel +44 (0) Fax +44 (0) This newsletter is published for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to the subject matter which may be of interest and does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. If you intend to take any action or make any decision on the basis of the content of this newsletter, you should first seek specific professional advice. Lloyd's Broker. Authorised and Regulated by the Financial Services Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: 6 Crutched Friars, London EC3N 2PH. Registered in England No VAT No February