A breach of protocol

In January 2006, following discussions between a Law Society of Scotland working party and the Forum of Scottish Claims Managers, a Voluntary Pre-Action Protocol for Personal Injury cases was introduced in Scotland (Journal, December 2005, 28). The Protocol was loosely modelled on a compulsory pre-action protocol which had been established in England and Wales as part of Lord Woolf’s reforms of the civil justice system. 

While any attempt to speed up the claims handling process seemed worthwhile, some of us on the working party harboured major reservations as to how effective the Protocol would prove in practice. Our concerns related to, first, the ability or willingness of insurers to resource the claims handling process in ways which would allow them to comply with the Protocol and, secondly, whether the insurance industry could actually move away from a culture of deliberate under-settlement of claims to a position where it sought to put forward realistic pre-litigation offers. 

The experience of my own and other pursuer firms since the introduction of the Protocol would suggest that such concerns were not unfounded. At the time a cynic (it may have been me) suggested at an Update seminar that the Protocol might at least result in insurers putting forward inadequate offers within a rather shorter timescale. Events since January 2006 have led me to conclude that even that limited expectation may have been unduly optimistic. 

Against the tide

Those of us dealing with volume personal injury litigation have recognised for many years that, in general, the only means available to force insurers to put forward realistic offers was to litigate. In recent years, that stance has been reinforced by two significant developments: the adoption by an increasing number of insurers of software packages such as Colossus, which are expressly designed to produce valuations well below the level of judicial awards, and the introduction of the Coulsfield rules in the Court of Session. 

The Coulsfield rules, which now govern almost all personal injury litigation in that court, have been outstandingly successful in encouraging realistic settlements and in removing much of the intrinsic delay of the old procedure. The average time between raising and settlement in my firm’s cases is now less than six months. Given that background, I had fairly low expectations that the introduction of the Protocol would bring with it a cultural change in the insurance industry and that the necessity for litigation could be reduced, let alone avoided. Any hopes which I may have had for the Protocol very quickly disappeared as it became clear that many insurers were unable or unwilling to comply with the Protocol time limits which they had agreed to, and that the culture of under-settlement appeared to be more firmly embedded than ever. 

I was aware from discussions with colleagues in other firms that they shared my views. I was equally aware that much of the evidence for this perception was anecdotal and that what was needed was rather more in the way of facts and statistics. I decided, with considerable assistance from my partners and staff, to examine all litigated cases concluded between 1 January 2005 and 31 December 2007 in an attempt to explain properly why it proved necessary to litigate these cases. This study involved the creation of additional fields in our case management system in order to capture the history of pre-litigation negotiations in each case. The results may surprise some but not, I suspect, those of us with experience of claimant personal injury practice. 

Telling statistics

The study produced a total of 2,148 litigated cases which were concluded during the three year period. These were broken down into three categories: cases in which a pre-litigation offer was made; cases in which the insurers had denied liability; and cases in which liability was not formally denied but no pre-litigation offer was made. The success rate was above 99.5%. The figures are shown in tables 1 and 2.

I will consider each category in greater detail:

Pre-litigation offer made 
[see tables 3, 3a & 3b above]

It will be noted that insurers made offers in just over one in five cases. Of these offers, the bulk (74%) were made in low value cases which resulted in sheriff court litigation. The average multiples represent an average of the multiple for each case rather than the figure produced by dividing average damages by the average offer. That figure would be distorted by a number of cases where substantial damages were obtained. Gratifyingly, the minimum multiple was 1, which means that in no case did the damages recovered amount to less than the pre-litigation offer.

Liability denied
[see tables 4 & 4a below]

The disparity in damages recovered in the Court of Session and the sheriff court is explained by the fact that my firm, in common with other volume personal injury practices, has adopted a policy of raising only low value cases in the sheriff court.

No denial of liability but no offer
[see tables 5 & 5a overleaf]

This category, which makes up 51% of the sample, is a mixed bag. In some cases we were never contacted by an insurer. In others, the insurer either failed to indicate a position on liability or, having agreed to deal with the claim, failed to produce an offer.

Dumbing down claims handling

The introduction of the Protocol has demonstrably failed to tackle the principal causes of litigation, namely, a serious under-resourcing of the claims-handling process and the deliberate policy of under-settlement which the insurance industry has adopted. The past 20 years have seen a sea change in the way claims are handled. When I first became involved in personal injury work more than 30 years ago, claims tended to be dealt with by experienced claims inspectors, most of whom had a reasonable understanding of the liability and quantum issues. They would meet claimants’ solicitors face to face, and while there would always be cases in which litigation was inevitable, a substantial volume of claims were settled extrajudicially, including some fairly substantial cases. 

That system has largely disappeared. The insurers have moved to a call centre approach in which such negotiations as there are tend to be conducted by telephone with fairly junior personnel. It is relatively rare that the person one speaks to will have visited the locus or conducted the investigation of the claim. Levels of knowledge among claims handlers range from mediocre to woeful, particularly in employers’ liability claims. It is commonplace when dealing with a claim based on a strict liability statutory provision to be met with a common law defence such as non-foreseeability. Frequently, when such cases are subsequently litigated, the defences are accompanied by a minute of tender. This dumbing down of the claims handling process may make sense to a cost-accountant, but does nothing to reduce litigation.

The growing practice among insurers of using software programmes to drive down settlement levels was discussed in Ronnie Conway’s excellent article “A Colossus in the room”, Journal, January, 14. There is little that I can usefully add to his very full treatment of the subject, other than to endorse his views and to point to my firm’s statistics, which fully support his position. As is clear from the comparison between pre-litigation offers and litigated settlements, insurers are not pitching offers just below the level of judicial awards. The reality is that cases have to be litigated because insurers are making offers which represent only a fraction of the true value. The average settlement in sheriff court cases was twice the pre-litigation offer; in the Court of Session it was nearly three times more.

Don’t copy the Irish

Finally, I believe that this study carries implications for two matters which have been touched on by Lord Gill’s civil court review in its recent consultation paper: mediation, and the Irish Personal Injuries Assessment Board. Mediation is sometimes advanced as a serious alternative to litigation, and sometimes as an interim process which parties would require to negotiate before being permitted to litigate. There is a welcome recognition in the consultation paper that, in order to succeed, mediation really requires two parties who wish to mediate. While there are areas, such as family law and consumer disputes, where mediation might provide a useful auxiliary settlement tool, it would be a curious and unsatisfactory outcome if accident victims were prevented from raising proceedings without first being channelled into an expensive mediation process with the very insurers who have up to that point shown such little inclination to negotiate realistic settlements.

The Irish Personal Injuries Assessment Board is a body which insurers are keen to replicate in the UK. Their enthusiasm for the Irish model is not difficult to understand. When the PIAB, which is run by the Irish insurance industry, was set up in 2004 it was intended to be a “lawyer-free zone”. All personal injury claimants were expected to apply to the Board, which would not meet the cost of legal representation. It was claimed that the Board would speed up the claims process and that unrepresented accident victims would receive fair levels of compensation. 

In 2006 the PIAB announced cost savings of 30.7 million euro compared to the pre-PIAB system. In fact this claim is quite disingenuous. As reported in a damning article in the Irish Independent (Dearbhail McDonald, “Thousands Flee State’s Personal Injury Agency”, 31 October 2006; see also Pat Leahy, “Injuries Board Needs Treatment”, 5 November 2006), 90% of claimants have voted with their feet and have instructed solicitors to represent them, despite the fact that they will be unable to recover legal costs. The supposed cost saving is simply the result of shifting the cost of representation from the insurers to the claimants. 

Insurers have seen their profits soar since the PIAB was set up. Motor insurers alone have posted increases in profits of 25%. The same article points out that only some 10% of applicants to the PIAB have actually had their claims processed and settled. It is easy to see why Irish accident victims are unwilling to submit themselves to the tender mercies of the insurance industry without representation. My experience of the Protocol in Scotland would suggest that if my firm, which is a specialist personal injury practice, cannot make insurers put forward realistic offers, there is little prospect that unrepresented claimants could. The notion that the insurance industry would treat unrepresented claimants better than at present is at best naive and at worst dishonest. 

Graeme Garrett is a partner in personal injury litigation solicitors Digby Brown. The views expressed in this article are his and do not necessarily reflect the views of the Law Society of Scotland or the Protocol working party.