Download Liability Brief - Kennedys

13 January 2012
Liability Brief
Welcome to the January edition of Liability Brief.
With further investment in our transport and logistics practice, I am pleased to
welcome Christine Branton as a new partner in our Manchester office. Christine
specialises in claims handling and defending employers’ liability and motor
personal injury claims on behalf of self-insured transport operators. Her arrival will
further enhance Kennedys’ existing relationships in the transport sector.
In this month’s issue, Martin Stockdale, another new partner in our Manchester
office, asks the question: what will become of the lying claimant? Martin, who is
developing Kennedys’ counter-fraud capability, is well known for his work in
respect of a number of cross-insurer organised fraud investigations. In our other
feature article, Rachel Moore focuses on Kennedys’ very positive relationship with
the Forum of Insurance Lawyers (FOIL).
Yesterday, the Transport Select Committee published its follow up report on the
costs of motor insurance and the MoJ released court statistics which, it argues,
support the case for a comprehensive reform programme across the justice system.
At the same time, the House of Lords continues its consideration of the LASPO Bill.
Given the number of amendments that are currently being tabled, it is clear that
the Bill is not going to have an easy ride. Kennedys’ Civil Justice Group continues
to provide our clients with the opportunity to have a voice on these issues and has
recently met with Lords Thomas and Gold. View our latest update. (links to
http://www.kennedys-law.com/news/cjgweeklyupdate221211/).
I hope you find this edition of interest and welcome any feedback.
Richard West, Partner
Head of Liability Division
Case reviews
Costs in RTA claims: Part 36 v Part 45
Court of Appeal holds that acceptance of a Part 36 offer does not entitle a
claimant to standard basis costs in a case where predictive costs would
otherwise apply - Solomon v Cromwell Group Plc; Oliver v Doughty 19.12.11
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In both cases, the Claimants were involved in road traffic accidents. Quantum was
agreed, with the Claimants accepting Part 36 offers made by the Defendants, prior
to proceedings being issued, of less than £10,000. Costs could not be agreed and
both Claimants issued Part 8 proceedings for costs under the procedure set out in
CPR 44.12A.
Although generally costs would be assessed in this type of case on the predictive
basis, there is a conflict in the CPR between CPR 36.10 and CPR 45 Section II.
In both cases, the Claimants sought to argue that the Part 36 provisions meant that
they had an automatic entitlement to standard basis costs which superseded the
provisions of Part 45. They argued that Part 36 was essentially a deemed order for
costs in its own right and that an alternative order should not, therefore, be made.
In Solomon, His Honour Judge Platts overturned the initial decision of District
Judge Wheeler that standard basis costs should apply. He decided that the
provisions of Part 36 only applied where proceedings had been issued. Since they
had not been issued, there was no deemed order for costs and the Court was bound
by the provisions of 44.12A(4A).
In Oliver, District Judge Smith also found that predictive costs should apply. He
reached his conclusion on the basis that the effect of Part 45 is to establish the
reasonable and proportionate costs of the items to which it relates for the purpose
of the assessment of recoverable costs in cases of the kind to which it refers.
Held: The Court of Appeal dismissed the Claimants’ appeals, holding that
predictive costs should apply in both cases. Lord Justice Moore-Bick referred to the
established principle that, when an instrument contains both specific and general
provisions and some of those are in conflict, the general are intended to give way
to the specific. He considered that, as the provisions in Part 36.10 are general and
the provisions of Section II of Part 45 are specific, the provisions in Part 45 should
govern the cases to which it applies.
Comment: Since the introduction of predictive costs, claimants have sought ways
of escaping their restrictions and limitations, for example by prematurely issuing
claims or instructing counsel to attend infant approval hearings, or by any number
of other increasingly inventive means.
It is therefore both refreshing and reassuring to see the Court of Appeal reigning in
such attempts and maintaining the spirit of the scheme as it was intended.
Both these cases dealt only with proceedings issued under CPR 44.12A. However, it
is always open to a claimant to issue proceedings for outstanding costs under CPR
Part 7 or Part 8 instead. Lord Justice Moore-Bick, whilst accepting he was not
considering this issue, did however consider that it was “very doubtful” such an
attempt to avoid predictive costs would be successful.
For further information please contact Elizabeth Love on +44 114 253 2048 or email
e.love@kennedys-law.com.
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Credit hire: mitigation of loss
Credit hire issues return to the Court of Appeal; appeal succeeds where Judge
failed to follow previous Court of Appeal decision in Copley v Lawn - Sayce v
TNT (UK) Ltd 19.12.11.
Following a road traffic accident, Miss Sayce brought a claim, all elements of which
were settled apart from a credit hire claim for £3,446.28. At the time of the
accident the driver of the other vehicle, an employee of TNT, gave her a card
asking her to contact TNT as soon as possible. She phoned TNT that day and her
attention was drawn to a paragraph on the back of the card headed “Mitigation of
losses”, which included an offer to provide a hire vehicle free of charge. Miss Sayce
did not accept TNT’s offer but obtained a replacement vehicle under a credit hire
arrangement.
At first instance, District Judge Flood found that Miss Sayce had failed to mitigate
her loss and so could not recover from TNT. Prior to the hearing of the appeal, the
Court of Appeal gave judgment in Copley v Lawn [2009] (link to
http://www.kennedys-law.com/casereview/credithirecostrecovery/) However, His
Honour Judge Charles Harris QC dismissed Miss Sayce’s appeal. He declined to
follow the decision in Copley because he considered it was inconsistent with
several previous decisions of the House of Lords and Court of Appeal.
On appeal to the Court of Appeal, the parties agreed that the appeal should be
allowed. TNT made it clear however that it intended to seek permission to appeal
to the Supreme Court, on the grounds that the decision in Copley was inconsistent
with established authority and wrong as a matter of principle.
Held: The appeal was allowed. The Judge was not entitled to decide the case on a
basis fundamentally different from that on which it had been argued. In addition,
he ought to have applied the principles set out in Copley.
Giving the leading judgment, Lord Justice Moore-Bick indicated that he has
difficulty with the conclusion that a claimant who has unreasonably refused an
offer from the defendant of a free car can recover “at least the cost which the
defendant can show he would reasonably have incurred.” In his view the appeal in
this case had brought to the surface some important questions about the current
state of the law on mitigation, which have implications beyond the confines of road
traffic accident cases. However, given that (1) TNT accepted that the appeal must
in the circumstances succeed, and (2) in Copley permission to appeal was sought
from the Supreme Court but refused, it would not be right to give permission to
appeal in this case.
Comment: The Court of Appeal’s judgment is an unfortunate setback for defendant
insurers, effectively closing the door on arguments that a defendant should not be
liable to compensate a claimant who has failed to mitigate loss by unreasonably
rejecting an offer of intervention hire. The Court of Appeal made it plain that the
decision in Copley v Lawn should be considered binding on lower courts, regardless
of any criticisms.
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Despite that, Moore-Bick LJ did accept that there were “important questions about
the current state of the law on mitigation which have implications beyond the
confines of road traffic accident cases”. He felt that it would be beneficial for
these questions to be considered at the highest level as soon as a suitable
opportunity arises.
Read our reports on the recent Court of Appeal credit hire decisions in Bent v
Highways and Utilities Construction Ltd and Allianz Insurance and Pattni v First
Leicester Buses Ltd. (link to http://www.kennedyslaw.com/casereview/basichirerate/
and http://www.kennedyslaw.com/casereview/pecuniousclaimant/)
For further information please contact Graham Thompson on +44 114 253 2073 or
email graham.thompson@kennedys-law.com or contact Oliver Tucker on +44 114
253 2074 or email o.tucker@kennedys-law.com.
Feature articles
Focus on FOIL
With an Executive Committee made up of representatives from member firms,
including Rachel Moore of Kennedys, the Forum of Insurance Lawyers (FOIL) is a
powerful force in the industry. Originally formed to sit alongside the Association of
Personal Injury Lawyers to ensure that the full range of views was heard, FOIL has
developed and widened its focus into defence insurance generally.
For anyone involved in the liability world, the current changes under consideration
are variously seen as presenting opportunities and threats to the way of life as we
know it. Whilst many firms will be keeping themselves and their clients ahead of
the game (for example you will see regular updates from Kennedys’ Civil Justice
Group within Liability Brief) many defence insurance practitioners will also be
members of FOIL. As the voice of the defendant insurance lawyer community, FOIL
is pushing for a more transparent and proportionate claims environment.
What does FOIL do?
A few statistics from the last year might help:
16 Sector Focus Teams (SFTs) - the SFTs are made up of experts in their field.
They are responsible for feeding back detailed comment and review on the live
issues in that area, whilst also being a positive driver for FOIL policy, through
input into the consultation responses and articles. Kennedys supports many of
the SFTs. Tim Wilson is involved in the catastrophic injury SFT and hosted its
workshop on periodical payments in October 2011, at which a number of
insurers were represented. Tom Armstrong and Kathy Dwyer are involved in the
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clinical negligence and credit hire SFTs respectively. Michael Howard is in the
professional indemnity SFT. Robert Welfare has hosted a FOIL fraud event at
our Birmingham office as part of his role in the policyholder fraud SFT.
6 Regional Representatives - this is how FOIL ensures that its lobbying strength
reaches all parts of the UK. Amanda Wylie, Partner in Kennedys’ Belfast office,
is the Northern Ireland Regional Representative. With her FOIL hat on, Amanda
has responded to a Northern Ireland consultation on access to justice and the
Assembly’s consultation on pleural plaques legislation, including appearing
before the Committee at Stormont.
15 formal lobbying meetings – FOIL hold regular meetings with the MoJ, ABI,
APIL, MASS and Law Society. They are invited as of right to put forward
submissions on all consultations on insurance and legal issues on behalf of
defendant insurance lawyers.
16 consultation responses – FOIL has responded on issues ranging from the
Löfstedt report on health and safety to the consultation on a charter for the
current coroner service. FOIL’s members’ interests are often closely aligned
with those of insurers and therefore the ABI and insurers welcome the detailed
input that FOIL can add to the debates.
24 newsletters– the VOICE is published twice a month by Shirley Denyer, FOIL’s
knowledge management consultant, who keeps readers up to date with the
issues currently under debate within the industry.
Hot topics
Every reader will have their own personal interests, but the following is a snapshot
of the current hot topics where FOIL is heavily involved:
Discount rate consultation – expected to cover the methodology to be used in
setting the discount rate when calculating personal injury damages (currently
2.5%). This consultation has been awaited for some months and is now expected
in early 2012.
Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO) – currently
at committee stage in the House of Lords. The Bill covers legal aid provision,
banning of referral fees, recoverability of conditional fee arrangement success
fees and after the event insurance premiums, amongst other issues.
“Solving disputes in the county courts” consultation – which sought views on
reforming the civil justice system, based on Lord Justice Jackson’s review and
Lord Young’s report “Common Sense, Common Safety”. The Government’s
response is now expected in early 2012 – expect proposals for an extension of
the RTA portal scheme to RTA claims up to £25,000 and to other types of claims
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(including EL/PL claims), together with a greater emphasis on alternative
dispute resolution.
Credit hire judgments – including the ongoing saga relating to the
reasonableness or otherwise of “basic hire rates” in motor cases (Bent v
Highways and Utilities Construction Ltd and Allianz Insurance [2011]) and
restrictions on recoverability of interest on credit hire charges (Pattni v First
Leicester Buses Ltd [2011]). (links to http://www.kennedyslaw.com/casereview/basichirerate/
and http://www.kennedyslaw.com/casereview/pecuniousclaimant/)
Law Commission consultation on insurance law – a consultation has just been
launched, covering issues such as whether an insured should receive damages
for late payment of a valid claim, insurers’ remedies for fraudulent claims,
clarification of the principle of insurable interest and policies and premiums in
marine insurance. Responses are due by 20 March 2012.
Taylor Review: expenses and funding in civil litigation in Scotland – this is
Scotland’s equivalent of the consultation on the Jackson reforms. Responses are
due by 16 March 2012.
MoJ consultation on court fees in the High Court and Court of Appeal – with
responses due by 7 February 2012, this consultation looks at reforming the fee
structure in expectation of a situation where the High Court and Court of
Appeal focus on the highest value and most complex disputes, as a result of the
ongoing reform of the civil justice system.
In short, expect to hear a lot more from FOIL (and Kennedys) in the coming
months!
For further information please contact Rachel Moore on +44 20 7667 9221 or email
r.moore@kennedys-law.com.
Lies, lies and damn lies
With Summers v Fairclough Homes Ltd being heard by the Supreme Court in April
2012, we consider whether the nature of the fraud game is changing and ask the
question: what will become of the lying claimant?
Insurers are lied to. Whether in first party claims on a policy or by a third party
claimant, it is a sad reality they face everyday. As insurers fight fraudulent claims
and exaggeration, the message from the courts remains mixed. The duty of good
faith has allowed insurers to repudiate first party claims in full, but the courts have
not so far been willing to apply the same principle to a dishonest third party
claimant.
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Courts’ powers
A court has the power to penalise a dishonest claimant in two ways; either in costs
or by striking out the claim under CPR 3.4(2).
An insurer may also ask the court to apply sanctions for contempt of court. CPR
32.14 provides that proceedings for contempt of court may be brought against a
person if he makes, or causes to be made, a false statement in a document verified
by a statement of truth without an honest belief in its truth. The penalty for
contempt is either a custodial sentence or a fine.
Early judicial response
The courts originally considered fabricated claims to be more serious a deception
than exaggerated claims and were minded to impose more severe sanctions on
claimants who supported entirely fabricated claims:
Ghalib and Ghaffar v Hadfield [2004] – this case featured a phantom
passenger claim. Although the claim by the passenger, Mr Sadik was
discontinued before trial, the remaining Claimants maintained throughout
that Mr Sadik was in the vehicle at the time of the collision. The following
guidelines were given by Preston County Court for consideration of
whether a claim should be struck out: (1) to what extent had the claimants
failed to help further the overriding objective; and (2) whether, in light of
the conclusions on (1), the court should exercise its discretion and strike
out the statements of case under CPR 3.4(2). Although the claims were not
struck out in this instance, no damages were awarded, as the Claimants’
credibility had been tarnished by supporting the phantom claim.
Caerphilly County Borough Council v Hughes and others [2005] - the
Council brought contempt proceedings after Mr Hughes claimed to have
been injured following a trip on a broken flagstone. His friends supported
his account. However, during the course of the original claim it transpired
that he had in fact been injured playing football. Mr Hughes received a
custodial sentence of 14 days and his witnesses were fined £1,500 each.
Patel and others v Ali [2006] – the County Court struck out the claims of
all four Claimants after considering the guidelines laid down in Ghalib and
finding that there had only been two occupants in the Claimants’ vehicle.
Khan and others v Hussain and others [2007] - Huddersfield County Court
used its case management powers to strike out the claims of genuine
Claimants who supported the fraudulent claim of a phantom passenger.
Ul-Haq and others v Shah [2009] - the Court of Appeal declined to strike
out the claims of the genuine Claimants and questioned whether they had
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the power to impose such a sanction. Instead of striking out the claims,
the Court penalised the Claimants in costs, which negated the
compensation awarded.
Kirk v Walton [2009] - the Claimant claimed damages in excess of
£770,000 but later accepted £25,000, following disclosure of surveillance
evidence. The Claimant was fined £2,500 following contempt proceedings
and was ordered to pay a significant part of the insurer’s costs. Such a
sanction can only be an effective deterrent where the costs order and fine
outweigh the compensation.
Contempt of court
The latest decisions on contempt of court suggest that the courts’ stance has
changed and that exaggerated claims are now considered just as serious as
fabricated claims. The decisions do, however, raise the question of whether the
courts consider exaggerated claims brought against the Motor Insurers’ Bureau, a
non-profit organisation and a last resort, as more serious than exaggerated claims
brought against insurers:
Motor Insurers’ Bureau v Richards and others [2011] - Mr Richards
sought to recover damages in excess of £2m following a road traffic
accident. His claim was supported by witness evidence from his sister and
foster father. The MIB obtained surveillance footage which showed that Mr
Richards was severely exaggerating the extent of his injuries. He
subsequently withdrew his claim and the MIB pursued contempt
proceedings against all three. Mr Richards received a four month custodial
sentence, his sister 14 days and his foster father 14 days, suspended for six
months.
Motor Insurers’ Bureau v Shikell and others [2011] - Mr Shikell claimed
damages in excess of £1.2 million against the MIB following a road traffic
accident in which he suffered a head injury. The MIB pursued contempt of
court proceedings against Mr Shikell, his father and a witness after they
obtained surveillance evidence which showed Mr Shikell had exaggerated
his claim. Mr Shikell and his father received custodial sentences of 12
months and the witness was fined £750.
esure Services Ltd v Shah [2011] - esure brought contempt proceedings
against Mr Shah arising from what was believed to form part of a wider
fraudulent conspiracy. He was sentenced to six months imprisonment
following the proceedings.
Brighton & Hove Bus & Coach Company Ltd v Brooks and others [2011] -
contempt proceedings were brought against three family members for
supporting the exaggerated personal injury claim brought by the mother of
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the family. The exaggeration was exposed after surveillance evidence was
obtained by the insurer. Two of the Defendants were found to be in
contempt. The Judges considered the false statements made by the
Defendants over a period of two and a half years to be “serious
contempt”, but declined to impose immediate imprisonment sentences,
instead suspending the sentences for 12 months. When considering the
judgment, it is apparent that the Court did not consider exaggerating a
claim to be as severe a contempt as bringing an entirely fictitious claim:
“this is not a case where the entire claim put forward … was a false one.”
Lane v Shah [2011] - contempt proceedings were brought against the
Claimant and her family after they signed false statements of truth
supporting an exaggerated injury claim. The Claimant had originally
claimed special damages totalling almost £637,000 in addition to general
damages. Ultimately, the Claimant accepted an offer of £10,000. This was
offset against the insurer’s costs of investigating the fraud. The Court
described the statements as “calculated, deliberate lies” and imposed
immediate sentences on the Claimant and her family of six and three
months.
Alternative approaches
Are contempt proceedings the only and the best means by which insurers can get
across the message that fraudulent claims will not be tolerated? Custodial
sentences will clearly send the right message to those bringing fraudulent claims,
but is the costly and lengthy process worth it?
Following Ali v esure Services Ltd [2011], orders for committal for contempt of
court can be heard before one judge sitting in the High Court, where the
proceedings are already proceeding in the High Court, thus saving the time and
expense of transferring the claim to the Divisional Court. Where proceedings
remain in the county court, the application for committal must still be made to the
Divisional Court.
Are costs sanctions considered a serious consequence to claimants committing
fraud? In many cases, claimants faced with adverse costs orders do not have the
means to satisfy the orders. Unless a claimant owns a property, or has other
identifiable assets, it is uneconomical for insurers to throw good money after bad
in an attempt to recover what is owed.
Should the insurer’s appeal in Summers v Fairclough Homes Ltd succeed, insurers
could seek the strike out of all (even genuine) parts of claims where fraud exists.
However, some commentators see the decision in Ul-Haq v Shah as a hurdle to the
appeal. Could the fact that Summers features an exaggerated, rather than a
fabricated, claim mean that the Supreme Court may not consider the fraud to be
“as serious”?
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Looking ahead
So what could the Supreme Court’s decision in Summers mean for insurers and
insureds?
Appeal successful
1. Full repudiation of claims where a
claimant has been dishonest.
2. A shift in the claimant risk
assessment around litigation can be
expected.
3. Where exaggeration is easily
evidenced, more complicated fraud
arguments can be left out of
proceedings.
4. Exaggeration for “negotiation
purposes” will be driven out of claimant
behaviours.
Appeal unsuccessful
1. Exaggeration remains a tool with
which to attack claimant credibility.
2. All current available sanctions will
remain available to defendants,
including costs and committal
proceedings.
3. Defendants will continue to think
commercially in respect of fraudulent
exaggeration.
4. Subjective losses (i.e. soft tissue
injuries) remain open to attack in full as
are predicated on a claimant’s
credibility.
5. Reduction in costs. 5. Objectively evidenced losses should
be assessed proactively and settled
quickly.
The appeal will take place in the Supreme Court on 18 and 19 April 2012.
For further information please contact Martin Stockdale on +44 161 829 7456 or
email m.stockdale@kennedys-law.com or contact Helen Edwards on +44 1618 297
463 or email helen.edwards@kennedys-law.com.
Kennedys is a trading name of Kennedys Law LLP. Kennedys Law LLP is a limited liability partnership
registered in England and Wales (with registered number OC353214).
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