Abolishing Personal Injury Law

Author: Kevin Holder
In: Article Published: Thursday 03 May 2018

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The Journal of Personal Injury Law recently published the address of Lord Sumption to the Personal Injury Bar Association in November 2017.

Provocatively entitled “Abolishing Personal Injuries Law,” his Lordship’s address condemns the fault principle as being expensive, inefficacious, and without moral foundation but predicts that it will “remain the touchstone of our law of personal injury,” albeit subject to erosion by statutory intervention on the one side to contain costs, and judicial hindsight on the other as Courts gradually convert the standard of care to strict liability. 

The lecture marked the 20th anniversary of Professor Atiyah’s “The Damages Lottery” which Lord Sumption describes as “one of the most eloquent polemics ever to be directed against a firmly entrenched principle of law.” Atiyah’s longstanding opposition to the fault principle was instrumental in providing the conceptual foundation for New Zealand’s Accident Compensation Act 1972, which replaced the right to sue for personal injury with a state-funded social provision. Although the Pearson Commission investigated and ultimately recommended the implementation of a similar regime in the UK in 1978, the recommendation was not adopted by the UK government owing to a lack of political consensus.

Cost

The Pearson Report estimated in 1973 that the 250,000 personal injury claims in that year consumed 1% of GDP. Lord Sumption estimated that the 1,200,000 claims recorded by the Association of British Insurers in 2013 consumed at least as much if not considerably more. His Lordship notes that far in excess of 90% of claims are made against insured parties and public authorities. It is therefore society as a whole that bears the burden of this cost through higher premiums or increased taxation. In the case of claims against the state, this diminishes the resource available for fulfilling other societal needs. In the case of insured claims, the cost of personal injury claims increase premiums, but according to Lord Sumption also risk eroding the profitability of the insurance industry. His Lordship posits that this could cause a contraction of insurance capacity and the possibility of insurers withdrawing from particularly exposed sectors of the liability market as occurred with product liability insurance in the US in the late 1980s.

An additional area of concern raised is the cost effectiveness of personal injury litigation. The Pearson Report found that legal and administrative costs accounted for 47% of the total cost of settling personal injury claims. The 2010 Young Report placed the figure at 36% of the total cost of settling personal injury claims against the NHS in 2009. It is axiomatic that legal costs are often out of all proportion with the value of the underlying claim. The demise of old style CFAs and the expansion of the fixed costs regime has certainly reduced the cost burden, however legal costs remain disproportionately high. The adversarial fault based system is much more expensive to administer than the state funded “fault free” system in New Zealand or the insurer funded “fault free” system in certain Canadian provinces.

In addition to direct financial cost, his Lordship raises the societal cost of the fault principle; commercial and municipal risk aversion reduces innovation and availability of higher risk albeit socially valuable products, services and facilities. Lord Sumption refers to the reluctance of pharmaceutical companies to invest in drugs for pregnant patients following the Thalidomide litigation in the UK and the Benedectin litigation in the USA, and the withdrawal of local authority facilities driven by a bureaucratic instinct to eliminate risk in the wake of Tomlinson v Congleton BC.

Efficacy

Central to Atiyah’s opposition to the fault principle was his view that it lacked social utility. Advocates of the fault principle contend that the common duty of care makes society safer by providing a financial disincentive for unsafe behaviour. Given that in excess of 90% of all claims are brought against insured parties, the incontrovertible reality is that the majority of the financial burden is imposed upon policyholders collectively rather than upon individual tortfeasors. This system of diffused costs is redistributive rather than punitive.

Although the majority of the financial cost arising from findings of negligence are borne by insurers, there is evidence that a prospective increase in premiums following an accident has a degree of deterrent upon conscious decision making concerning risk.  Although this might appear to support the efficacy of a fault based system, Kay Winkler’s article on no fault auto insurance (J.P.I . Law 2017, 1, 38-46) explains that this deterrent can be found in both fault and non fault jurisdictions. For example, in certain Canadian provinces there is a no fault system for road traffic, whereby drivers take out mandatory insurance. In the event of an accident, drivers claim against their own insurers irrespective of fault and injured third parties claim against the relevant driver’s insurer irrespective of whether the driver was negligent.

Winkler’s research found that the prospect of insurance premium increases following an accident had roughly equal impact upon the incidence of RTAs in both fault and non-fault jurisdictions; in other words a strict liability increase prompted by the incidence of an accident rather than a determination of responsibility for said accident. This contrasted sharply with “fault” jurisdictions with controlled premiums such as South Korea and Japan where all drivers pay a similar insurance premium irrespective of their accident history. These juridictions were found to have a significantly higher rate of RTAs.

The second argument against utility raised by Lord Sumption is that: “the whole notion of deterrence assumes that there is a minimum of reflection behind the actor’s decisions. Negligence normally consists in the absence of the very processes of reflection, which the notion of deterrence assumes. It generally happens through ignorance, incompetence, or oversight, none of them states of mind which are normally associated with reflection upon the possible consequences. On the roads, which is where the great majority of personal injuries occur, a collision is just as likely to injure the negligent driver himself as other road-users. Yet for all that, personal injuries sustained in road accidents have risen inexorably.”

Lord Sumption concedes that the deterrence effect of the fault based system has more coherence on a “procedural level;” ie where a “designer of a safety procedure or product is deliberately applying his mind to the question of safety,” however as he rightly states, this effect is “heavily diluted by the availability of liability insurance.” As his Lordship contends, the deterrent effect of a finding of negligence against an insured tortfeasor is likely to be less than the deterrent effect of reputational damage or criminal sanctions.

Perhaps the lacuna that civil negligence occupies is the standard of conduct which society feels is not so morally culpable as to warrant criminal punishment but not so innocuous as to escape consequence. It is a question of the level of severity deemed necessary to ensure reasonable levels of safety in society. It is a question for society whether a civil damages award is the appropriate consequence given that the wrongs of the almost always insured tortfeasor are borne by society as a whole.

If it is our purpose to be redistributive rather than punitive would it not be fairer to remove “fault” as a pre-requisite for compensation? Is the compensatory need of someone injured by an act of God any less than the compensatory need of someone injured by a negligent act of man? 

If the prospect of premium increase has a cautionary effect then why not adopt the Canadian model; it has a similar deterrent effect on unsafe driving, is much more efficient (and potentially fairer) as a redistributive mechanism for the benefit of the injured, and is substantially more cost effective than an adversarial fault based system with all of the cost and uncertainty that accompany it.

Foundation

Lord Sumption contends that the reason people instinctively approve of the fault principle has nothing to do with utilitarian considerations. Rather it is motivated by our “profound cultural instinct” to believe in the legal right to bodily integrity. An “innocent” act causing injury might be regarded as a misfortune, whereas a negligent act causing injury presents an injustice that should not go unanswered.  Whilst society may no longer demands an eye for an eye, the Fourteenth edition of the Judicial  Studies Board mandates damages from £48,080 to £57,590.

Lord Sumption considers that society, although complaining of “compensation culture,” holds dear two moral judgments: “he who causes physical injury must make it good financially” and “it is a proper function of the courts to find facts and distribute blame;” that is what justice demands.

Notably, Lord Sumption questions whether there is a moral case for imposing liability on the ground of negligence. He considers that other than professional undertakings premised upon contractual or quasi-contractual relations, negligence is a normal feature of human behaviour, and those who are negligent are not morally culpable. Whilst this may seem counter intuitive to those who believe “he who causes physical injury must make it good financially,” the reality is that negligence underdelivers on this promise.

Broadly speaking, negligence does not impose strict liability and therefore does not achieve the foregoing maxim. Lord Sumption concedes that there “may be a moral case for imposing an absolute liability on those who cause physical damage to others, simply on the basis that they are the agents of some invasion of the victim’s physical integrity,” and that there may be a moral case for imposing liability on those who intentionally or recklessly cause physical damage to others, but “liability for negligence does not depend on a person’s mere infliction of damage, nor on his state of mind.” 

As Lord Sumption explains:

it depends on his falling below some objective standard of conduct to which he has not usually assented, but which the law imposes upon him. The only possible justification for the law doing that is its social utility. Yet the arbitrary results and incomplete coverage of a fault based system, combined with its prodigious cost and unwelcome side effect seriously undermine the social utility of the law of tort as a way of dealing with personal injury.”

The other criticism directed by his Lordship is that not only is negligence costly, ineffective, and morally unjustified, but that it also frequently loses sight of its own objective standard of conduct. Statute has widened the scope of strict liability, particularly in product liability cases, but according to Lord Sumption the courts have also moved in practice closer strict liability without acknowledging they are doing it. His Lordship ascribes this to the fact that “the whole forensic process of attributing fault is inherently biased in favour of the claimant.”

 

He explains:

 “Once it is established that something has gone wrong that was caused by the defendant’s act, it can be very difficult to persuade a judge that it wasn’t the defendant’s fault. The law determines the standard of care, which it imposes on individuals in advance, but the court finds fault in arrears with all the forensic advantages of hindsight. The evidence will commonly reconstruct the exact chain of causation by which the injury occurred, starting from the injury and working backwards to the act, but the judge finding fault, looks at the chain from the other end, starting with the defendant’s act. The outcome seems obvious. What actually has happened was always going to happen, and what was always going to happen should have been obvious to the reasonable man, even if it wasn’t at all obvious to the particular defendant. The whole forensic process lends a spurious clarity and inevitability to a chain of events that is actually a lot less straightforward. The result may be very like strict liability, but it is strict liability with most of the uncertainty and all of the costs associated with a fault-based system.”

So why retain it?

Lord Sumption considers that although the fault based system is likely to continue to be eroded, it will largely remain for three reasons. The first is that although “no fault” systems are less wasteful because the legal and administrative costs of establishing fault are redundant, the removal of fault as a pre-condition for receiving compensation vastly increases the amount of compensation payable. Are policyholders prepared to accept the overall increase in premiums necessary to fund a no fault system? It is noteworthy that the New Zealand model has not been fully replicated by any other common law country. New South Wales which had a similar scheme in respect of RTAs found that it had to reduce the scope of compensation payable to injured to make the system affordable. It achieved this by restricting and in some cases excluding compensation for pain and suffering.

The second reason Lord Sumption considers it will remain, is the principle of “concentrated benefits but diffused costs,” whereby the injured receive compensation with the costs being “subtle, indirect, and thinly spread across the whole population.” Given that this is achieved by no fault systems, it is perphaps a less a compelling reason.

The third reason provided, is that it responds to “widespread public notions about personal responsibility and the proper function of law.

Perhaps the key reason that the fault principle is likely to remain is political expediency. Whilst Atiyah’s proposal in the Damages Lottery of eliminating the right to compensation for personal injury (leaving it to individuals to decide whether to purchase first party insurance) was unpalatable as it deprived personal injury of consequence for tortfeasor and victim alike, the Woodhouse and Pearson Commission proposals were coherent and reasoned. In the case of Woodhouse, all persons injured would receive insurer funded compensation according to need rather than their ability to attribute blame in judicial proceedings. In the case of Pearson the same would be true, but compensation would be funded from taxation rather than insurance; similar to national insurance or NHS entitlement. Presumably high risk actors would have been subject to commensurate taxation or contributions and health and safety standards would have been enforced by relevant prosecuting authorities. Whilst the New Zealand government implemented the proposals, the UK authorities lacked the political will. The reason for this almost certainly lies in the perception that the population would not support additional taxation to fund a socialised system or additional premiums to support an insured based system. Society does not want to pay for universal compensatory entitlement for the injured, but demands the edifice of redress provided for by tort law in the case of injury caused by negligence.

Although expensive, the tort system allows injured parties to establish wrongdoing of tortfeasors in open court and to receive monetary compensation if they do so. The cathartic and vindicating process of litigation is viewed as an indispensible part of obtaining and being seen to obtain justice for violation of an individual’s physical integrity; compensation from a common fund would leave this emotional need unanswered. A successful claimant will secure either an admission of fault and financial offer of amends or a public ruling confirming that they have been wronged and requiring financial amends from the tortfeasor. As a matter of law, an order for compensation is made against the tortfeasor; at least on paper the tortfeasor is penalised for wrongdoing. 

That the tortfeasor is able to seek indemnity from an insurer is a private matter, that in the eyes of society, does not detract from the value of compensation in providing redress. Indeed the widespread use of insurance assures the redistributive value of a court order, as it increases the chance that the tortfeasor will be able to satisfy an order for damages made against them. Whilst it is true that policy holders as a class ultimately assume the financial burden of satisfying the order, policyholders implicitly accept that responsibility on the basis of reciprocity; should they one day fall below the standard of care they too will receive indemnification.

Conclusion

Although the fault based system is far from perfect, it is perhaps the most socially acceptable compromise between New Zealand’s generous socialised system and Atiyah’s laissez faire abolition of the right to compensation for violation of bodily integrity; it is less expensive than a no fault system (even though the administrative and legal costs are high) but it does for the most part satisfy our human need for justice if we are harmed.

 

KEVIN HOLDER © 2018
BARRISTER
33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.