Tort Reform Needs an Injection of Fairness
Recent reforms to personal injury and compensation laws should have helped insurers to lower their costs of personal injury claims and make insurance more affordable. However, the reforms have yet to translate into lower premiums, despite the dramatic reduction in the number of civil claims being filed in Australian courts, as reported by the Productivity Commission last week.
Tort reform has not been approached in a comprehensive and principled way. Governments wanted the quickest fix for skyrocketing premiums without looking at the other side of the equation: what compensation do victims of negligence need, and how best can that need be met?
What is needed is comprehensive and principled reform whereby the stakeholders, insurers and claimants alike can assess the status quo and make considered plans for the future for a fairer, sustainable system for all.
Comments by Chief Justice Jim Spigelman of the NSW Supreme Court about the problems of recent tort reform are a cause of concern for insurers. The Chief Justice drew attention to the effect of the introduction of caps and thresholds on damages and the restrictions placed on legal fees that make many small injury claims unviable.
He dramatically illustrated the effect of tort reform by quoting the number of claims filed in the NSW District Court's civil registry, which deals largely with personal injury claims. In 2001 there were 20,000 claims filed. In 2003 there were 8000, and the number of filings is decreasing.
The Productivity Commission's latest figures indicate that claims in District Courts nationally have fallen by 31 per cent, with NSW recording the greatest fall at 60 per cent - a reduction of 43,000 claims nationally. Those figures should bring joy to the ears of underwriters who, for years, have been working in a very pro-plaintiff judicial environment. As the Chief Justice said, judges were aware that there were insurers with deep pockets behind many defendants. That knowledge has sometimes encouraged courts to compensate injured plaintiffs irrespective of what common sense might suggest are the merits of the cases before them.
According to the Chief Justice, in recent years new judicial attitudes have emerged that have tightened the laws of negligence at about the same time as parliaments around Australia were introducing tort reform legislation.
However, one of the effects of tort reform has been that many genuine victims of negligence, who have suffered personal injury, are uncompensated or are not being adequately compensated because of the thresholds and caps on damages that were established. The decreasing number of personal injury claimants suggests that those with "minor" injuries, which may, nevertheless, be very significant and disabling to the victims, are not able to make claims.
At the other end of the scale, those who are able to claim and whose pre-injury income exceeds the caps may find themselves having to accept a verdict or a settlement that leaves them disabled and very much out of pocket through no fault of their own. The changes may provide insurers with a short-term shot in the arm as far as the cost of claims goes.
However, underwriters are cautious of reducing premiums until they see if the worm has turned for good and while their liability is unclear under policies with very long liability tails.
Another aspect of tort reform that may cause growing unease is that different levels of compensation apply to different types of claimants. Even before the dramatic rise in premiums that sparked tort reform in 2002 and 2003, the Chief Justice was arguing for a principled reform of the law of damages so that there was consistency across the entire system.
Why, for example, should an employee who slips at work due to negligence of his or her employer be awarded compensation on a different scale from a guest who slips in the same place due to the negligence of the same employer?
The answer is that different pools of funds are underwriting compensation for different classifications of injuries and, thus, insurers can afford to compensate people differently depending on where the money is coming from.
However, this may not satisfy an injured claimant who finds that he or she is being awarded less compensation for a similar type of injury by the same negligent party from another victim who is compensated on a different scale.
And therein lies the rub with tort reform as it has proceeded in Australia in recent years.
It has been, according to the Chief Justice, a response to a perceived crisis in the price and availability of insurance. We have applied a plaster to stem the rise in premiums in the short term without looking at questions of fairness and proper compensation.
What is needed is a principled look at our compensation and plans made for the future in which all stakeholders feel they have had a fair say. The cynicism of the insured, who find their premiums have not gone down, and the anger of victims, who find that their genuine needs are not addressed by the reforms, may yet forge a powerful coalition for change.
Recent reforms have addressed issues of affordability and availability of insurance. In the rush for change, we have not looked at what is needed to make a fair system that provides adequate compensation to the injured. Insurers should be alert, but not yet alarmed, that the tide may be beginning to turn on personal injury and compensation reform.
Robert Pelletier is a partner at industrial relations and employment law firm Toomey Pegg Drevikovsky. He represents the self-insured and insurers in personal injury claims.