QBE European Operations. UK Casualty Claims. Policyholder guide March Jackson reforms and Ministry of Justice Claims Portal Extension

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1 QBE European Operations UK Casualty Claims Policyholder guide March Jackson reforms and Ministry of Justice Claims Extension

2 UK Casualty Claims Policyholder guide March Jackson reforms and Ministry of Justice Claims Extension Contents Introduction 1 Disproportionate costs why things had to change 2 Lord Justice Jackson reforms effective 1 April Ministry of Justice (MOJ) Claims Extension effective 1 August Impact on claims handling for policyholders 4 exclusions 5 process 5 Cost comparisons pre-litigation 6 Cost comparisons litigated 6 Disclaimer 10

3 2013 Jackson reforms and Ministry of Justice Claims Extension - March Lord Justice Jackson Reforms of civil litigation costs and the extension of the Ministry of Justice (MOJ) Claims are due to be implemented on 1 April 2013 and 1 August 2013 respectively and will result in very significant changes to the way Employers Liability (EL) and Public Liability (PL) claims in England and Wales are handled. Introduction This guide explains the background to these changes; the likely financial and operational impact and how we and our policyholders can best work together to gain maximum benefit. There will be opportunities to substantially reduce legal costs where liability is admitted, but compliance with very tight timescales will need to be balanced against putting safeguards in place to ensure that a robust defence, contributory negligence arguments or fraud allegations are made where appropriate. The prompt reporting of accidents likely to give rise to a claim and the early supply of all relevant accident documentation is essential to enable timely liability decisions to be made and for you to benefit from the significant costs savings available.

4 2013 Jackson reforms and Ministry of Justice Claims Extension - March Disproportionate costs why things had to change In 1999 the Association of British Insurers (ABI) estimated that 38 pence was paid in third party legal costs for every 1 in injury damages. By 2009 this had increased dramatically to 86 pence paid in third party legal costs for every 1 in injury damages. There have been numerous cases where third party legal costs have far exceeded the damages paid to a claimant. One of the most publicised cases was Simcoe v Jacuzzi Group (2012) where the claimant received 12,750 in damages for repetitive strain injury and costs of 75,000, even though the case was settled before trial.

5 2013 Jackson reforms and Ministry of Justice Claims Extension - March Lord Justice Jackson reforms effective 1 April 2013 Lord Justice Jackson was tasked with addressing the issue of disproportionate costs in civil litigation and with making the process more cost effective and efficient. His report was published in 2010 and the recommendations he made were taken forward in the Legal Aid, Sentencing & Punishment of Offenders Act (LASPO) Part 2 of this Act embodies a number of the Jackson recommendations including: After the Event (ATE) insurance premiums are no longer recoverable from defendants Success fees in conditional fee agreements (CFAs) are no longer recoverable from defendants 10% uplift on general (injury element) damages Qualified One Way Costs Shifting (QOCS) defendants will now pay most of their own costs even if a claim is successfully defended, although exceptions apply for fraud and where there is failure to beat a defendant s Part 36 offer (up to the value of damages awarded) 10% additional penalty on damages for awards up to 500,000, reducing to 5% (for awards between 500,000 and 1,000,000) where the defendant does not accept and fails to better a claimant s Part 36 offer A proportionality test when costs are assessed by the court Costs budgeting in multi-track cases whereby the court will seek to control legal costs at an early stage Case management by judges who will be stricter about delays and imposing court sanctions Banning of referral fees. The reforms aim to reduce the overall legal costs burden and to rebalance cost liabilities between claimants and defendants, but without reducing access to justice.

6 2013 Jackson reforms and Ministry of Justice Claims Extension - March Ministry of Justice (MOJ) Claims Extension effective 1 August 2013 As part of a package of interlocking measures designed to reduce legal costs and speed up settlement timescales, the Government is introducing additional reforms for EL and PL personal injury claims arising from accidents occurring on or after 1 August 2013 in England and Wales. These reforms will have significant financial and operational impacts including: EL and PL personal injury claims (except EL disease where there is more than one defendant, and all PL disease) valued from 1,000 up to 25,000 will be transacted via an online electronic portal and will be notified directly by the claimant s solicitor to the insurer where identity of the insurer can be established. Claimant solicitors must use the Employers Liability Tracing Office (ELTO) database to identify the relevant EL Insurer Low, fixed, recoverable costs for claims that remain in the portal A new predictive costs regime for EL and PL claims worth 1,000 to 25,000 that fall out of the portal (excludes single employer disease claims which will revert to an hourly rate basis) Predictive costs are cheaper than the current costs regime, but are up to six times more expensive than portal costs if the case proceeds to litigation. For example, the new base costs for an EL claim worth 25,000 would increase from a maximum of 2,100 to a maximum of 13,430 if settled at a hearing Insurers (or policyholders where they receive notification outside the portal) must acknowledge receipt of a new Claim Notification Form electronically within 24 hours (currently 21 days). The deemed service date of the claim is the next day if sent by 1 st class post For EL claims, the timescale to admit liability and communicate a decision from date of claim notification receipt, whether served on the insurer or policyholder, is 30 working days (currently 3 months) and for PL claims the timescale is 40 days otherwise the claim drops out of the portal with an increase in costs Admissions must be in full with no contributory negligence arguments or fraud allegations permissable otherwise the claim drops out of the portal with an increase in costs Admissions on EL claims must be followed up with disclosure of earnings details within 20 working days of the admission. Impact on claims handling for policyholders The prompt reporting of claims and the early supply of all relevant accident documentation is essential for liability decisions to be made promptly and to ensure compliance with the very tight portal timescales. If the portal timescales are not complied with, claims will not be kept within the portal and the opportunity for significant costs savings will be lost. Close co-operation between us and our policyholders is critical. Policyholders should: Ensure all accidents/incidents are recorded promptly; accident documentation is entirely factual without conjecture; all relevant documentation, including accident reports, locus photographs, witness statements, risk assessments, training records etc. are readily accessible; and a thorough investigation is undertaken Collate earnings details promptly following any accident that is likely to give rise to a claim Provide us with pre-claim accident notification if you believe a claim is likely to follow. This will allow us to complete enquiries about liability before any claim is received Prioritise compliance with the new rules over any contrary risk handling arrangements already in place. We will contact any policyholders who have such arrangements that may need to be revised Acknowledge new claim notifications within 24 hours if they are received direct and ensure we are notified immediately Provide points of contact and details for investigating purposes when notifying us of a claim Respond promptly and fully to any requests we make for information or site investigation Be prepared to amend any existing claims handling procedures to help us to deal with your claims in the most efficient and effective manner that will maximise the benefits available under the reforms Review any self-insured retention or aggregate policyholder own claims handling arrangements so as to best respond to the reforms, as recommended in this guide Trust us our claims adjusters, claims inspectors and service providers are expert claims handlers and decision makers. Claims will be dealt with professionally and expediently.

7 2013 Jackson reforms and Ministry of Justice Claims Extension - March exclusions The following are excluded from the portal: PL claims against an individual Claims under 1,000 or over 25,000 in value EL disease claims with more than one defendant All PL disease claims Where the defendant or claimant is deceased or a protected party An accident or breach of duty outside England and Wales Abuse claims, mesothelioma, clinical negligence Where the claimant is bankrupt Where the defendant is insolvent and uninsured. process The portal consists of a 3-stages process: Notification - Valuation - Hearing Stage 1: Notification EL Claims: 30 days to admit liability; Stage 1 costs of 300 PL Claims: 40 days to admit liability; Stage 1 costs of 300. Stage 2: Valuation If liability is accepted under Stage 1, the claimant s solicitor will obtain a medical report and should send it to the defendant together with special damages documents and a proposed settlement figure as part of a settlement pack The insurer will have 15 days to accept or reject the offer. If rejected, a counter offer must be made within a further 20 days. If these timescales are met, then Stage 2 costs will be 600 (for claims between 1,000 and 10,000), or 1,300 (for claims between 10,000 and 25,000) plus VAT and disbursements. Stage 3: Hearing If the quantum is not agreed, then either party may seek a hearing. The claimant s solicitor will file a claim form and medical report and both parties will submit their best offers on heads of claim in sealed envelopes. Stage 3 costs are 250 for a paper hearing or 500 for an oral hearing.

8 2013 Jackson reforms and Ministry of Justice Claims Extension - March Cost comparisons pre-litigation There are substantial savings on third party costs to be achieved if the decision made is right first time and comply with the new timescales. Cost comparisons litigated The table below illustrates the significantly increased cost of running a claim to trial where the claim is ultimately settled. Again the figures shown are base costs excluding VAT and disbursements. The following table sets out base costs excluding VAT and disbursements, such as the cost of medical reports. Claim Value EL inside EL outside Outside Differential 2, , % 7, , % 15,000 1,600 3, % 25,000 1,600 4, % Claim Value EL inside EL outside Outside Differential 2,000 1,150-1,400 5, % 7,500 1,150-1,400 7, % 15,000 1,850-2,100 9, % 25,000 1,850-2,100 13, % Claim Value PL inside PL outside Outside Differential 2, , % 7, , % 15,000 1,600 2, % 25,000 1,600 3, % Claim Value PL inside PL outside Outside Differential 2,000 1,150-1,400 4, % 7,500 1,150-1,400 6, % 15,000 1,850-2,100 8, % 25,000 1,850-2,100 12, %

9 2013 Jackson reforms and Ministry of Justice Claims Extension - March Contributory negligence A case study Employee Mr Hapless sticks his hand into an unguarded machine Primary liability is admitted The claim is realistically worth 15,000 to 20,000 (fingers damaged, but not lost) Mr Hapless is an experienced employee who admits he knew he should not have stuck his hand into the machinery Our solicitors advise that a judge would award around 10% contributory negligence Is it economically worthwhile arguing contributory negligence when this will mean the claim falls out of the portal and into the higher predictive costs regime? Economics of arguing contributory negligence: Damages saving 1,500-2,000 Litigation Stage Not issued Costs Inside Costs Outside Increase in Costs 1,600 3,000-3,500 1,400-1,900 1,500-2,000 Hearing 1,850-2,100 9,815-11,930 7,965-9,830 Cost of arguing Contributory Negligence Best Case 600 saving 5,965 cost Worst Case 400 cost 8,330 cost The savings achieved by successfully arguing a reduction in damages for 10% contributory negligence are likely to be more than offset by the increase in costs. Unless there are other considerations, such as discouraging other potential claimants, this would be a good case in which to concede liability in full. Fraud

10 2013 Jackson reforms and Ministry of Justice Claims Extension - March A Case Study Employee Mr Dodgy falls over some machine parts left in a walk way by his colleague Mr Pal Mr Dodgy s solicitor s say that he is not badly hurt and will settle quickly for 5,000 There are no witness to Mr Dodgy s fall He has a report from his GP saying that he suffered soft tissue injuries and Mr Pal confirms that he left an obstruction in the walk way A CUE PI check reveals that Mr Hapless has six previous claims with former employers over the last 10 years and that he and Mr Pal are known to be friends Should we make a protocol admission? Economics of alleging fraud: Settlement Damages Stage 2 Pre-issue - Cost Stage 3 Listed - Cost Stage 3 Hearing - Cost Inside 5, ,150-1,400 1,150-1,400 Outside 5,000 1,116 5,780 6,470 Differential Nil 226 4,630-4,380 5,070-5,320 If fraud is alleged, multi-track costs will apply which could be double or treble the portal costs figure. Fraud has always been expensive to fight and difficult to prove. Where fraud is proven a defendant is likely to get an order from the court that the claimant must pay their costs, although recovery will only be possible where the claimant has funds or assets to recover. To not fight fraudulent claims however, is to invite more fraud. Our specialist fraud teams are expert in identifying fraud, calculating the cost of fighting it and assessing the prospects of success. We rely on our policyholders to help us investigate suspicious claims and to alert us to their concerns over the authenticity of claims. Should we challenge the claimant to prove his allegations of how the accident happened and that he really was injured (pushing the claim out of the portal) or directly allege fraud (pushing the claim out of the predictive costs regime into the even more expensive multi-track regime?).

11 2013 Jackson reforms and Ministry of Justice Claims Extension - March How we have prepared In preparation for the reforms we have: Embedded the new timescales in our claims handling processes to maximise the opportunities presented by the reforms Made our claims processes more proactive and efficient Ensured panel loss adjusters are working to the new timescales Implemented more robust fraud identification procedures Ensured a disciplined approach to liability decision making and contributory negligence arguments in accordance with our philosophies Instigated more monitoring and performance review procedures to ensure high levels of customer service and quality standards are maintained Introduced new technology to enable even more efficient claims handling Initiated a review of all claims handling arrangements with policyholders to identify where these might be improved in order to best operate within the new claims regimes Kept policyholders updated on the reforms and committed to doing so in future. For further updates please visit: technicalclaims.asp The big picture The Jackson and MOJ reforms provide an opportunity to make some substantial costs saving, but are not wholly good news for insurers and their policyholders. In an effort not to penalise claimants or reduce access to justice, the Jackson reforms will bring in: A 10% increase on General Damages (in addition to the current underlying annual inflation in awards of 8% to 9%) Qualified One Way Costs Shifting (QOCS) that will greatly limit the amount of costs that winning defendants can recover from claimants and will prevent any recovery at all in many cases A penalty of 10% additional damages (up to 50,000 for the majority of cases) where a defendant declines a claimant s Part 36 settlement offer and the claimant is awarded as much or more by the court. The overall claims environment also remains difficult with high levels of fraud, courts that appear to be easily persuaded by claimants and the threat of a reduction in the discount rate, which could see a leap in the cost of lump sum settlements. Our claims experts are here to help policyholders make the most of the opportunities that the reforms offer and overcome the challenges that they also present.

12 2013 Jackson reforms and Ministry of Justice Claims Extension - March Disclaimer This publication has been produced by QBE Insurance (Europe) Ltd ( QIEL ). QIEL is a company member of the QBE Insurance Group. Readership of this publication does not create an insurer-client, or other business or legal relationship. This publication provides information about the law to help you to understand and manage risk within your organisation. Legal information is not the same as legal advice. This publication does not purport to provide a definitive statement of the law and is not intended to replace, nor may it be relied upon as a substitute for, specific legal or other professional advice. To the fullest extent permitted by law, QIEL and the QBE Group disclaim any responsibility or liability for any loss or damage suffered or cost incurred by you or by any other person arising out of or in connection with you or any other person s reliance on this publication or on the information contained within it and for any omissions or inaccuracies. QBE Insurance (Europe) Limited and QBE Underwriting Limited are authorised and regulated by the Financial Services Authority. QBE Management Services (UK) Limited and QBE Underwriting Services (UK) Limited are both Appointed Representatives of QBE Insurance (Europe) Limited and QBE Underwriting Limited. QIEL has acted in good faith to provide an accurate publication. However, QIEL and the QBE Group do not make any warranties or representations of any kind about the contents of this publication, the accuracy or timeliness of its contents, or the information or explanations given. QIEL and the QBE Group do not have any duty to you, whether in contract, tort, under statute or otherwise with respect to or in connection with this publication or the information contained within it. QIEL and the QBE Group have no obligation to update this report or any information contained within it. QBE European Operations Plantation Place 30 Fenchurch Street London EC3M 3BD tel +44 (0) /QBECasualtyClaims/JacksonReforms/March2013 QBE Insurance (Europe) Limited, QBE Re (Europe) Limited and QBE Underwriting Limited are part of QBE European Operations, a division of the QBE Insurance group. All three companies are authorised and regulated by the Financial Services Authority.