Long awaited move towards fixed costs in clinical negligence claims suggests new ways of reducing costs in other types of lower value claims
31 January 2017
It is right for insurers to look for likely impacts on costs issues affecting the handling of lower value injury and non-injury claims from the publication yesterday by the Department of Health of their consultation 'Introducing Fixed Recoverable Costs in Lower Value Clinical Negligence Claims'. We can see from the consultation how the thinking of one government department in the form of the DoH can influence another, the MoJ, even though the Justice Ministry is not formally involved in the latest DoH consultation.
And in what is presumably pure co-incidence, the DoH released their paper on the very day that Lord Justice Jackson's consultation on the proposed extension of FRCs closed, on which he is expected to report by the end of July.
Contrasting the proposed levels of FRCs for this type of claim with the FRCs currently allowed for RTA, PL and EL claims could suggest that the existing levels of FRCs recoverable are now looking too high, especially when set aside a desire to move to less adversarial processes. The option of a discount from FRCs following an early admission is also one which could have a broader use.
In relation to use of experts again as part of the use of a less adversarial approach, the move towards a starting point where experts are instructed jointly, and a cap is used limiting the costs of expert evidence generally, could well also be a wider interest.
The costs problem in clinical negligence claims
Looking at the problem of claims for very high levels of costs in low value clinical negligence claims reminds us of what used to be encountered in other types of injury claims before FRCs were introduced into most claims for RTA, EL and PL, as well as to the limited proportion of EL disease claims which enter the portal and settle inside it.
In financial terms the issue for the DoH can be looked at in one of two ways, that is either by reference to all clinical negligence claims, or alternatively just by referring to the smaller clinical negligence claims worth up to £25,000.
Looking at all clin neg claims, the DoH report that between 2014/15 and 2015/16 the percentage of their outlays in these cases spent on claimant costs rose from 25% to 28%, while at the same time the element for defence costs fell from 9% to 8%.
But in terms of claims worth between £1,000 and £25,000, the position is at its most extreme. DoH statistics show that in 2015/16 no less than 62% of their outlay in these lower value claims was on claimant costs, with defence costs representing 10% of outlays. Put other way, in these lower value claims claimant costs were at a level which was 220% of damages.
Professor Fenn again
The DoH sees that there is a strong rationale to take action against this background to fix costs levels. They have involved Professor Fenn who has worked on most of the existing FRCs to advise them and his report written on behalf of the DoH has also been published. It is his involvement which has steered them away from their initially announced intention to fix costs in claims worth up to £250,000, to the current proposals.
After all, as Professor Fenn has pointed out, the lower value claims are where the problem is at its most intense, and indeed those smaller claims represent 45% of the total number of claims. At his suggestion, the DoH have now accepted that claims over £25,000 should fall into Lord Justice Jackson's project on extending FRCs upwards from claims worth up to £25,000, and that their own consultation should be limited to claims up to £25,000.
An updated claims process
As with other types of disease claims, there is already a Pre-Action Protocol governing this type of claim. Nevertheless the DoH believe that an updated process is needed, and it is worth considering the potential changes which they are considering introducing in the context of other types of claim, even though clinical negligence claims have their own particular aspects concerning the desire to learn lessons from what has gone wrong, as well as demonstrating increasing openness and transparency.
They are looking through updated rules to streamline current processes, and believe that good behaviour in turn will be incentivised by introducing FRCs. Their policy objectives include encouraging earlier resolution of claims, and creating a less adversarial climate.
Potential changed use of experts
One way they believe this could be done would be by requiring parties under a revised Pre-Action Protocol to have an early exchange of evidence including expert evidence at a pre-proceedings stage in order to encourage early settlement. This idea is being consulted upon.
Another idea which the government say they are sympathetic to is having a presumption in favour of a single joint expert not only in relation to matters of quantum, but also in relation to the main areas of debate in this sort of claim – breach of duty and causation. Indeed, the consultation suggests that an SJE should be appointed in all lower value clinical negligence claims to provide an early opinion on these main two issues on which liability will hinge.
Could the moves being considered here for clin neg claims be another marker in a continued journey towards the use of one genuinely independent expert in a specific discipline shared between the parties in all types of claim of which MedCo itself could also be part?
The fixed costs matrices
Two main options are presented through the consultation. A possible third approach involves taking either of the first two options and allowing a discount on costs where an early admission of liability was made such as during the protocol period.
The new FRCs would apply to clin neg claims settling at between £1,000 and £25,000. They would not apply to small claims track claims, so with the SCT for injury claims currently being £1,000 those claims would be excluded as of course only nominal costs are recoverable in that type of claim anyway.
Effects of the SCT limit
The DoH notes the recent whiplash consultation from the MoJ part of which proposed the SCT increase to £5,000 potentially to all injury claims including clin neg claims. But they do not expect it to change the landscape in relation to this type of claim, it is clear.
While it is only based on anecdotal evidence, the DoH notes that the vast majority of claims of this type which are presented in the bracket of £1,000-£5,000 get allocated not to the fast track but to the multi-track, and that only a very small number of small clinical negligence cases get allocated to the SCT. They say that if the SCT limit is increased, they do not expect this to change.
In other words, they seem to accept that an SCT increase would not have a significant impact on clin neg claims which would still be allocated to a costs bearing track, either the fast track or the multi-track. The same argument could be raised by claimants in defended injury claims of other types, EL and disease no doubt, but also in PL and RTA, depending on the categories of claim which are in fact included in the proposed SCT limit increase.
The actual figures
These are set out in table 6 of the consultation:
Table 6: Illustrative FRC Rates for Options 1, 2 and 3.
We are told that the figures in the matrix above are based on consideration of various factors: an estimate from an NHSLA advisory group of the time needed to be spent at each stage; use of data from actual claims; use of the current Guideline Hourly Rates from the court process, all capped off with a downwards adjustment on the basis that a new streamlined process will be used.
All three options use different figures for four specific stages of the claim, with a final stage being trial itself where the existing level of FRCs allowed for advocacy in RTA/PL/EL claims would be used and so added to the figures above, effectively as a fifth claims stage.
As the consultation document has been awaited a considerable time and was presumably originally drafted many months ago it misses the point that the advocacy fixed fees have been increased in the meantime. We use the updated figures in the analysis below.
The first option is a simple fixed fee depending on at which of the four stages the claim settled, wherever the value of the claim as long as it fell between £1,000 and £25,000, and assuming the case was a fast track or multi-track claim and not an SCT claim. You would simply note the stage reached and go to the table and read off the fixed fee. The fixed costs would therefore be the same as between a £1,500 settlement and another for £24,500, the only variant for the FRC figure would be the stage at which the claim concluded.
Option 2 introduces a value element into the level of FRCs, as is the case with the existing injury FRCs. The base element is lower, but the damages-related element is on top. At each stage of the claim there is a maximum and minimum costs figure to limit the range.
We would see the DoH as intending that both Options 1 and 2 as broadly providing the same result. The choice is between having a value-related element to the costs, or not. They say they are not consulting on the "absolute figures" themselves, just on which methodology to use.
How to use the tables
The Law Society Gazette when reporting this news yesterday on its website was of the view that in ascertaining the level of FRCs you added together the fixed costs for each of the stages through which the claim had passed so as to reach a total. So that if on Option 1 a claim settled at the final stage 'post listing' each of the four staged fixed fees would, they were suggesting, be added together to reach the FRC level in fact payable, (i.e. £3,000+£3,900+£5,650+£7,150=£19,700).
I fact it seems clear from surrounding data that that was always wishful thinking on their part and is not the correct approach. Instead, the system would operate so that there would be no adding together of costs for different phases of the case, instead the actual level of FRCs would be the figure in the column above for the stage at which the matter concluded, so that if on Option 1 this was at 'post listing', the fixed costs would be £7,150.
The consultation could have been clearer but the Gazette has since changed its report it seems to accept the approach which would lead to the correct fixed costs figure in that type of claim being £7,150.
Comparing the FRCs to other types of claim
Let us look at two examples to see the trend on the level of FRCs which the government may have in mind going forwards. In both cases, let's assume we are dealing with a claim worth exactly £25,000 as the conclusions are easier to demonstrate. What we need to do is to contrast the level of FRCs proposed for clinical negligence claims with the level currently allowed for RTA, EL and PL claims.
The first example is a claim which settles pre-proceedings. In the case of RTA, PL and EL this will have been through the portal: there is no intention to have a portal for clin neg claims.
The costs payable would be:
RTA = £3,430
PL = £3,870
EL = £4,000
Clin neg Option 1 = £3,000
Clin neg Option 2 = £4,000 (flat fee £1,500 + damages-related element £2,500)
And the second example is the same case which goes all the way to trial when the costs would be:
RTA = £9,360
PL = £12,370
EL = £14,318
Clin neg Option 1 = £8,855 (£7,150 + advocacy fee £1,705)
Clin neg Option 2 = £10,705 (flat fee £6,500 + damages-related element £2,500 + advocacy fee £1,705)
In both examples Option 2 produces a higher figure than Option 1 as the damages figure being used is at the top of the FRC bracket.
We can see that at the pre-litigation stage the new proposed clin neg FRCs are at a comparable level to the current FRCs, but when we look at the position at the final litigation stage, the new level of clin neg FRCs From Options 1 and 2 are both significantly lower than EL and PL claims, and on Option 1 lower than RTA claims too.
Discount for early admission
Option 3 in the table above incorporates that discount of 10-15%. It would be triggered where an early admission within say the relevant period allowed by a Pre-Action Protocol was made, and would apply then whenever the claim settled.
It would reduce the costs examined in the examples above by that percentage, where applicable. Does this concept have a potential wider usage in the future?
There is a proposal to cap the costs of experts at £1,200 per party, which the DoH say they think is sufficient "to obtain reports from an appropriate number of experts". The intention seems either to limit the number of reports, or drive down the cost of them, or both.
And while there is an intention to retain the existing "exceptional circumstances" exemption from FRCs, the DoH seem to want to limit its use. They wish to head off the argument that any clin neg claim is exceptional by reference to other types of claim by adding that exceptionality must arise in the context of claims of that specific type.
These issues will always arise with this type of reform. The government's preferred option is to apply the changes to cases where the letter of claim is sent after the implementation date, though they recognise that this would affect claimants/lawyers who had already agreed a retainer but no such letter had been sent. But adopting that course may lead to an increasing number of letters of claim being sent before this reform is implemented as an avoidance measure.
The alternative option of the changes only applying to incidents occurring after implementation is seen as less satisfactory and leading to a long implementation tail.
The consultation runs until 1 May. The Health Secretary, Jeremy Hunt, is quoted as saying that he would like the new process to be in place by the autumn.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.