Civil Liability Bill one step closer despite significant criticism

The Civil Liability Bill was the subject of heated debate this week as it went through a second reading in the House of Lords.

The Bill was announced by Justice Secretary David Gauke on 20 March 2018 with the promise that it would bring a ‘clampdown’ on whiplash injury claims as well as enable a saving on insurance premiums of around £35 per policy to be passed on to policyholders, Click here to read more.

In respect of whiplash injury claims, the Bill introduces a tariff style system for compensation for road traffic accident victims and also bans pre-medical evidence settlement offers.

In addition, the Bill also aims to make changes to the way in which the discount rate in personal injury claims is calculated. Many will recall that the discount rate was lowered to -0.75% on 27 February 2017 when the Lord Chancellor Elizabeth Truss finally announced the result of the discount rate review. Ms Truss’ decision to cut the rate from 2.5% to – 0.75% (in force from 20 March 2017) was met with horror and criticism by the insurance industry and NHS representatives alike. The Lord Chancellor said at the time:

‘The law is absolutely clear – as Lord Chancellor, I must make sure the right rate is set to compensate claimants. I am clear that this is the only legally acceptable rate I can set.’

The discount rate refers to the percentage by which lump sum compensation is adjusted to take account of the real net rate of return a claimant can expect to earn by investing it. Claimants are supposed to be treated as risk-averse investors and therefore the discount rate should reflect that. However, with the discount rate unchanged at 2.5% since 2001, and interest rates at an all-time low, this was inherently unfair.

Despite the fact that claimants had gone undercompensated for many years, the insurance industry was up in arms and the Government was disappointingly quick to say that it would make changes to the methodology for calculating the discount rate. Hence, the Civil Liability Bill was drafted.

At its reading in the House of Lords this week, there was criticism of the fact that the bill targets one particular type of claimant – road traffic accident victims – and also concern that genuine claimants who had suffered more minor injuries would not be able to access legal advice.

Indeed, Lord Beecham said, ‘…why should comparable injuries not attract comparable awards, and comparable recovery of the cost of a claim, whether they are incurred in a road traffic accident or any other accident for which a defendant is deemed liable?’

There was also concern that there was little provision to ensure that savings made by insurers would actually be passed on to their customers.

The Government promises that the changes to the calculation of the discount rate ‘will create a fairer and better system of setting the discount rate, which will still provide full compensation’ but it is surely inevitable that the result will be that the discount rate is raised again and claimants will go undercompensated again.

Unless the Civil Liability Bill is substantially reworked in the forthcoming stages, claimants will suffer and insurance industry profits will continue to rise.

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