Restoring the balance between individual rights, insurers and the community

Transcription

1 Restoring the balance between individual rights, insurers and the community Recommendations for Reform Submission to the Victorian Competition & Efficiency Commission Inquiry into aspects of the Wrongs Act September 2013

2 CONTENTS Introduction... 3 Executive Summary... 3 Who we are... 4 Our standing to comment... 5 Preliminary comments on the issues paper... 6 RECOMMENDATION That the significant injury test for the recovery of damages for non-economic loss be expanded... 6 a) The significant injury threshold be reduced from more than 5% physical impairment or more than 10% psychiatric impairment, to at least 5% physical impairment or at least 10% psychiatric impairment... 7 b) Further exceptions be added to Section 28LF to encompass:... 7 c) The introduction of an alternative narrative test as defined in Section 93 of the Transport Accident Act RECOMMENDATION That Sections 28F and Section 28F(1)(c) of the Act be amended to cap the claimant s residual net loss at three times average weekly earnings RECOMMENDATION That the discount rate be reset every five years with reference to the 5 year average return on 10 year Commonwealth bonds, rounded to the nearest whole number RECOMMENDATION That the maximum payable for both general damages and economic loss be increased to achieve consistency with the Accident Compensation Act RECOMMENDATION That the cap on recovery for gratuitous care (Griffiths v Kerkemeyer damages) where care provided for not less than 40 hours per week be removed RECOMMENDATION That provision be introduced to allow for the recovery of damages for loss of capacity to care for others (Sullivan v Gordon damages) Further consultation

3 INTRODUCTION The Australian Lawyers Alliance ( ALA ) welcomes the opportunity to provide a submission to the Victorian Competition & Efficiency Commission ( the Commission ) in its inquiry into the Wrongs Act 1958 ( the Act ). Ten years on from significant tort reforms, the ALA considers the inquiry to be timely and important. The ALA shares the view of many stakeholders that major amendments to the Wrongs Act in 2002 and 2003 have resulted in some claims being unreasonably denied or under-compensated. County Court data since that time shows a steep decline in the rate of claims, indicating that the reforms have had a greater impact than had been foreshadowed. The rights of those injured due to negligence have been unfairly removed or curtailed. The ALA believes that the legislature can redress these inequities without compromising the original objectives of tort reform, including ensuring the availability of professional and public liability insurance. EXECUTIVE SUMMARY The ALA makes the following key recommendations: 1. That in relation to the significant injury threshold for the recovery of damages for non-economic loss: a) The significant injury threshold be reduced from more than 5% physical impairment or more than 10% psychiatric impairment, to at least 5% physical impairment or at least 10% psychiatric impairment. b) Further exceptions be added to Section 28LF to encompass particular classes of claimants whom the community would consider are deserving of compensation for pain and suffering. c) The introduction of an alternative narrative test as defined in Section 93 of the Transport Accident Act

4 2. That Sections 28F and Section 28F(1)(c) of the Act be amended to cap the claimant s residual net loss at three times average weekly earnings. 3. That the discount rate be reset every five years with reference to the 5 year average return on 10 year Commonwealth bonds, rounded to the nearest whole number. 4. That the maximum payable for both general damages and economic loss should be increased to achieve consistency with the Accident Compensation Act That in circumstances where gratuitous care is provided for 40 hours or more per week, the cap on recovery of Griffith v Kerkemeyer damages be removed. 6. That provision be introduced to allow for the recovery of damages for loss of capacity to care for others (Sullivan v Gordon damages). WHO WE ARE The ALA is a national association of lawyers, academics and other professionals dedicated to protecting and promoting justice, freedom and the rights of the individual. We estimate that our 1,500 members represent up to 200,000 people each year in Australia. We promote access to justice and equality before the law for all individuals regardless of their wealth, position, gender, age, race or religious belief. The ALA started in 1994 as the Australian Plaintiff Lawyers Association, when a small group of personal injury lawyers decided to pool their knowledge and resources to secure better outcomes for their clients victims of negligence. The ALA is represented in every state and territory in Australia. We therefore have excellent knowledge regarding legislative change and what impact this will have upon our clients. More information about us is available on our website. 4

5 OUR STANDING TO COMMENT The ALA is well placed to provide commentary to the Commission. Members of the ALA regularly advise clients all over the country that have been caused injury or disability by the wrongdoing of another. Our members advise clients of their rights under current state based and federal schemes, including motor accident legislation, workers compensation schemes and Comcare. Our members also advise in cases of medical negligence, product liability and other areas of tort. We therefore have expert knowledge of compensation schemes across the country, and of the specific ways in which individuals rights are violated or supported by different Scheme models. We are well aware of existing methods of compensation reimbursement across the country, in order for individuals to gain access to care, as they deal with intersecting Schemes. Our members also often contribute to law reform in a range of host jurisdictions in relation to compensation, existing schemes and their practical impact on our clients. Many of our members are also legal specialists in their field. We are happy to provide further comment on a range of topics for the Commission. 5

6 PRELIMINARY COMMENTS ON THE ISSUES PAPER The ALA considers that the Commission s focus on the provisions listed in table 1.1 of the Issues Paper is appropriate in view of the terms of reference. Assessing options for reform against criteria of efficiency, equity and consistency is reasonable. The ALA submits that the following six recommendations address the current anomalies, inequities and inconsistencies in the Act in relation to personal injury damages. The proposals for reform are designed to rectify these problems, without compromising the underlying objectives of the tort law reforms. RECOMMENDATION 1 That the significant injury test for the recovery of damages for noneconomic loss be expanded so as to: a) lower the whole person impairment threshold; b) include further exceptions which are deemed to be significant injury; and c) include a narrative gateway. The significant injury threshold for recovery of non-economic loss damages was designed to eliminate minor, frivolous and unmeritorious claims. However, County Court of Victoria statistics indicate that the impact of the threshold has been far greater than had been anticipated, with a major decline in the rate of claims. The ALA is deeply concerned that amongst those missing out are claimants who have suffered severe detriment and loss due to the fault of another party. We submit that the extent to which such claimants have been excluded goes beyond what was intended by tort reform. People are missing out whom the general community would consider are entitled to redress, given the gravity of the consequences they have suffered due to negligence. The ALA recommends three modifications to the significant injury 6

7 threshold to ameliorate the harshness and injustice of the current test. Details of the suggested reforms are as follows: a) The significant injury threshold be reduced from more than 5% physical impairment or more than 10% psychiatric impairment, to at least 5% physical impairment or at least 10% psychiatric impairment This modification would provide greater fairness, particularly to claimants suffering from spinal injuries. Under the American Medical Association Fourth Edition Guides, spinal injuries are assessed in increments of 5%. Thus, a claimant can be assessed at 5% or 10%, but not at a figure in between. A claimant may have undergone spinal surgery to remove a disc or fuse vertebra, and after the condition has stabilised, still not be assessed at greater than 5%. Such claimants have no entitlement to pain and suffering damages, even though the injury is likely to significantly and permanently impact upon their quality of life. Lowering the psychiatric threshold to at least 10% would only have a minor effect on the rate of claims for psychiatric injury. A claimant would still need to show a diagnosable psychiatric condition and only primary (as opposed to secondary) impairment can be assessed. However lowering the psychiatric threshold to 10% would reinstate the rights of a small number of claimants who suffer severe, permanent, primary psychiatric injury but are currently excluded from obtaining any compensation for pain and suffering. b) Further exceptions be added to Section 28LF to encompass: people who suffer psychiatric injury due to the loss of a child, spouse or close relative; people who are infected with blood borne diseases (such as Hepatitis B or C or HIV) or life threatening cases of Legionnaire s disease; people who undergo unnecessary invasive treatment due to negligent misdiagnosis; and children who suffer severe traumatic injuries but eventually reach a substantial recovery. There are some specific classes of claimants who are unfairly treated by the significant injury impairment thresholds. This was recognised at the time of the reforms and resulted in the inclusion of Section 28LF(1), which lists a few exceptions to the general rule as to who is eligible to recover non-economic loss. 7

8 However the ALA submits that these exceptions are incomplete and that greater equity can be achieved by the inclusion of a limited number of further exceptions in this section. Under Section 28LF, psychiatric injury arising from the loss of a child during, immediately before or after, birth is deemed to be a significant injury. However, anomalously, a parent who suffers the loss of a child due to negligence outside the context of birth must still satisfy the over 10% psychiatric threshold in order to recover damages for pain and suffering. This results in a grieving claimant having to undergo assessment with an accredited psychiatrist in order to rate their level of injury. Thereafter, if dispute is raised by the Respondent, they must then be reexamined by the Medical Panel. The process is traumatic and inconsistent with the treatment of claimants who suffer the loss of a child in the context of birth; suggesting that the loss of an older child or a spouse is somehow less deserving of recognition. The ALA submits that this anomaly be rectified by expanding Section 28LF(1)(ca) to include all people who suffer diagnosable psychiatric injury due to the loss of a child, spouse or close relative. This amendment would only relate to a small class of deserving claimants, but would result in greater equity and consistency in the treatment of psychiatric injury under the Act. The other exceptions proposed by the ALA aim to encompass particular claimants who tend to be assessed unfairly with respect to impairment (either due to substantial recovery or simply because their injuries are not adequately recognised under the Guides) yet would be judged by the general community as being claimants deserving of compensation for pain and suffering. Being negligently infected with serious blood borne diseases or undergoing unnecessary invasive treatment (such as surgery or chemotherapy) due to negligent misdiagnosis, would clearly fall within this category. Regardless of whether permanent impairment ensues, such claims are not frivolous or unmeritorious and the awarding of reasonable compensation in such circumstances accords with community expectations. Similarly, severe traumatic injuries suffered by children should be recognised as an exception, regardless of whether a substantial recovery is made. The ALA submits that such an exception is warranted given the grave impact of trauma in early life, on both the child and their family. Barring such claimants from obtaining non-economic loss damages often effectively extinguishes any rights they have to legal redress, given that minors are less likely 8

9 to be able to claim for loss of earnings / loss of earning capacity. c) The introduction of an alternative narrative test as defined in Section 93 of the Transport Accident Act 1986 Although the ALA considers that a reduction in the whole person impairment threshold and the addition of the above exceptions to Section 28LF will substantially improve the just and equitable operation of the Act, there will still be claimants whom the community would consider deserving of general damages who will miss out. In order to catch these claimants and ensure that they are not disentitled from just compensation, the ALA recommends the introduction of an alternative narrative test for the recovery of non-economic loss. The ALA recommends adoption of the serious injury test which is outlined in Section 93 of the Transport Accident Act 1986 ( the TAA ). From the perspective of efficiency, the advantage of adopting this test, rather than creating a new narrative definition, is that there is already a vast body of case law to guide courts, practitioners and claimants as to how this test is to be interpreted. The ALA submits that the introduction of this narrative test into the Wrongs Act would not result in a significant increase in claimants who are eligible to recover damages for non-economic loss. Most claimants who could satisfy the serious injury definition in Section 93 of the TAA will have already met the whole person impairment threshold of more than 5% physical or more than 10% psychiatric (or, if our above proposal is accepted, at least 5% physical or 10% psychiatric). However, the introduction of a narrative test will catch some claimants whose injuries are not assessed highly under the AMA4 Guides, yet can prove that their injuries have resulted in very significant, long-term consequences. The ALA submits that the current process for lodgement of a claim for noneconomic loss under Section 28LT of the Act be retained, with an amendment to require the claimant to provide an affidavit in support of the application if reliance is placed upon the narrative test. If the claimant does not satisfy the Medical Panel that the significant injury impairment threshold is satisfied, and the Respondent disputes the narrative application, a County Court judge already conversant with the Section 93 TAA serious injury definition could determine the narrative application. The ALA emphasises that the introduction of a narrative test would serve an important fall back position to catch the few deserving claimants who fall outside the significant injury provisions of the Act, yet can show very significant 9

10 consequences flowing from the compensable injury. RECOMMENDATION 2 That Sections 28F and Section 28F(1)(c) of the Act be amended to cap the claimant s residual net loss at three times average weekly earnings The cap on economic loss stipulated in Section 28F is a departure from the full compensation principle at common law, which has traditionally sought to place a claimant back in the position they would have been in but for the injury or death. The purpose of this cap was to contain damages awards to a manageable level and to encourage high income earners to invest in private insurance. However, the ALA submits that the practical effect of this provision has proven unduly harsh and inequitable for claimants. Pursuant to Section 28F(2) the court is to disregard the amount by which the claimant s gross weekly earnings would (but for the death or injury) have exceeded an amount that is 3 times the amount of average weekly earnings at the date of the award. In Tuohey v Freemasons Hospital, the Supreme Court set out how this provision operates in practice. The Plaintiff was an engineer and high income earner. Prior to sustaining injury (loss of sight in one eye) due to medical mismanagement, he earned $10,548 per week. Post-injury, his earning capacity was restricted to $6,442 per week. Thus, he suffered an actual loss of $4,106 per week. The Plaintiff contended that on the proper construction of Section 28F, he could claim the sum of $2,836 per week, being three times the average weekly earnings of all Victorian employees at that time. If this contention had been accepted, the Plaintiff would still have been left with an unrecoverable loss of $1,270 per week. However, the Plaintiff was unsuccessful in arguing that the cap imposed by the legislation has the effect of limiting the loss claimed to three times average weekly earnings. The Supreme Court held that, on a literal interpretation of the provision, the Plaintiff was excluded from recovering any of his loss because post-injury, he continued to earn in excess of three times average weekly earnings. The effect of this decision was that, even though the Plaintiff suffered an actual 10

11 economic loss of more than $4,000 per week due to the negligence of another party, he was not entitled to recover any of his loss. The ALA submits that the inequity of Section 28F is illustrated by this case, in which the cap did not serve to limit the amount of economic loss which was recoverable from the party at fault; it effectively extinguished the Plaintiff s entire claim for economic loss arising from loss of earnings / loss of earning capacity. High income earners often have high expenses and liabilities. Preventing claimants within this socio-economic demographic from recovering any economic loss damages where they have suffered a diminution of earning capacity due to the fault of another is unjust. It also results in a lack of accountability on the part of the tortfeasor and does not encourage taking reasonable care for the safety of others. The ALA submits that the harshness and inequity of this provision could be remedied by adopting the wording of the Queensland provision which was enacted following the Ipp review. Section 54 of the Civil Liability Act 2003 (Qld) includes the following: (1) In making an award for damages for loss of earnings, including in a dependency claim, the maximum award a court may make is for an amount equal to the limit fixed by subsection (2). (2) The limit is an amount equal to the present value of 3 times average weekly earnings per week for each week of the period of loss of earnings. Pursuant to the above provision, a claimant s residual net loss is capped at three times average weekly earnings. In the case of Tuohey, the effect of this provision would have been that the Plaintiff recovered a portion of his loss ($2,836 per week), although not his full weekly actual loss of $4,106. The ALA submits that this result would have been far more fair and equitable. It would have made the tortfeasor accountable for a portion of the Plaintiff s economic loss, whilst still keeping a cap on the quantum on the award. Such an amendment to the Wrongs Act would remain consistent with the underlying objectives of tort reform in that a cap on economic loss damages for high income earners would be preserved. Any amendment to this effect would only impact upon a small portion of overall claims, and so is unlikely to negatively affect the price and availability of insurance. It also would not result in an increase in claims; rather, it would simply provide more equitable (although not full) compensation to those who 11

12 can already prove an entitlement to damages due to the negligence of another. RECOMMENDATION 3 That the discount rate be reset every five years with reference to the 5 year average return on 10 year Commonwealth bonds, rounded to the nearest whole number The discount rate applies not only to the calculation of damages for loss of earning capacity, but also to items of special damage to be incurred into the future (such as medical and like expenses). The Commission correctly notes in its Issues Paper that the higher the discount rate, the smaller the lump sum awarded for each of these heads of damages. If the discount rate is set at an artificially low level, this can particularly negatively impact damages payouts to younger claimants, especially those who have lifetime medical and care requirements. As damages are awarded on a once and for all basis, younger claimants can be left in a dire position in later life, having insufficient funds for their future needs. Taking into account the current interest rate and other investment returns, the ALA submits that the present rate of 5% is unfairly high and does not reflect a realistic rate of return. Although the Transport Accident Act and Accident Compensation Act set the discount rate at 6%, damages under these schemes do not include future medical and care expenses (which continue to be paid as no-fault statutory benefits for life). It would therefore not be equitable to adopt the same rate under the Wrongs Act. The ALA recommends that the Act be amended to reset the applicable present value discount rate every five years with reference to the 5 year average return on 10 year Commonwealth bonds, rounded to the nearest whole number. This is likely to result in a more realistic discount rate and a fairer assessment of damages at the time of judgment or settlement. 12

13 RECOMMENDATION 4 That the maximum payable for both general damages and economic loss be increased to achieve consistency with the Accident Compensation Act 1985 Presently under the Wrongs Act, the maximum payable for general damages is $497,340 and the maximum payable for economic loss is $1,119,060. This differs from the Accident Compensation Act, which sets the maximum for general damages at $555,350 and the maximum for economic loss at $1,343,540. There is no reason in principle or policy why the maximum damages payable for injuries suffered due to negligence in a workplace setting should be higher than those payable for injuries suffered in public places or as a result of medical mismanagement. There does not appear to be any logical explanation for these differences. The ALA submits that in the interests of consistency and equity, the maximum payable for both general damages and economic loss under the Wrongs Act should be increased to achieve consistency with the Accident Compensation Act. It is submitted that such an amendment would have nil effect on the rate of claims. It would simply result in a small number of the most severely injured claimants being able to recover marginally higher awards, consistent with those who suffer injury in the course of employment. RECOMMENDATION 5 That the cap on recovery for gratuitous care (Griffiths v Kerkemeyer damages) where care provided for not less than 40 hours per week be removed Section 28IB provides that where gratuitous attendant care services are to be provided for not less than 40 hours per week, the amount which can be recovered for gratuitous care must not exceed the average weekly earnings of all Victorian workers. This cap unfairly disadvantages the families of catastrophically injured claimants, 13

14 many of whom require 24 hour care, 7 days per week. It should be noted that many family members of catastrophically injured claimants already suffer a considerable financial loss by taking time off work, or leaving the paid workforce entirely, to care for the injured. These family members are unable to make their own claims against the party at fault for the injury. Their loss is compounded by the low cap on recovery for Griffiths v Kerkemeyer damages. The ALA submits that the cap on recovery for gratuitous care should be removed for claimants who require care for not less than 40 hours per week. Such an amendment would only affect a small class of the most severely injured claimants: those most in need of care and support. As well as being just and equitable for the injured claimant and their family, such an amendment would be welcomed from the perspective of effective loss distribution. Currently, catastrophically injured claimants must rely heavy on public funding, such as Medicare and/or the National Disability Insurance Scheme. If the cap on gratuitous care recovery were to be removed, the claimants reliance on such schemes would be lessened, as a greater proportion of their care would be funded by the tortfeasor. RECOMMENDATION 6 That provision be introduced to allow for the recovery of damages for loss of capacity to care for others (Sullivan v Gordon damages) In CSR Limited v Eddy [2005] HCA 64, the High Court overruled Sullivan v Gordon to find that damages for loss of capacity to care for others cannot be recovered at common law. Section 28ID currently assumes the existence of this head of damages. The policy grounds for this provision were sound. The legislature sought to confirm the existence of this head of damages, as it would be unjust for recovery to be forbidden in appropriate cases. However, a balance was struck by creating a threshold requirement for recovery. The subsequent High Court decision was unforeseen and as such, legislative amendment is now required to specifically retain this head of damages in appropriate cases. The ALA submits that this could be achieved simply by the insertion at the beginning of Section 28ID of the following: 14

15 This Section enables a Court to award damages of the kind recognised in Sullivan v Gordon for loss of capacity to provide gratuitous domestic services to the claimant s dependents. Retention of the remainder of Section 28ID would preserve the threshold requirement for recovery, which was introduced by tort reform. FURTHER CONSULTATION The Australian Lawyers Alliance would welcome the opportunity to comment on the Victorian Competition and Efficiency Commission s draft report in due course. 15