How to tackle fraud in personal injury claims

The Criminal Justice and Courts Bill was introduced in February 2014 and includes measures relating to the treatment of offenders before and after conviction, changes to the system of judicial review, and changes to the powers of courts and tribunals. Clause 45 is a late addition to the proposed new legislation, brought about to tackle the issue of fraud in personal injury litigation.

The government justifies clause 45 of the Criminal Justice and Courts Bill in a fact sheet to accompany the proposed new legislation. It states that: "The government is concerned at the increase in the number of fraudulent and grossly exaggerated personal injury claims and the effect this has upon motor insurance premiums and the resources of local and public authorities and employers."

The fact sheet goes on to recite statistics from various sources including the DWP Compensation Recovery Unit and the Association of British Insurers which give the impression that "dishonest claims represent around 8 per cent of all motor claims registered with the DWP recovery unit in 2013", along with a general trend of increasing claims year on year.

However, a report from the House of Commons Transport Committee discussing the relationship between the cost of motor insurance and whiplash in July 2013 concluded that: "There is no authoritative data publicly available about the prevalence of fraud or exaggeration and no consensus about what constitutes fraud."

The reliability of the statistics regarding the relationship between the increase in the number of fraudulent and grossly exaggerated personal injury claims and increasing motor premiums and cost to public and private bodies may therefore be questionable.

The Justice Minister Lord Faulks explained to peers that "[t]he government simply does not believe that people who behave in a fundamentally dishonest way by grossly exaggerating their own claim or colluding should be allowed to benefit by getting compensation in spite of their deceit".

While at face value many (myself included) would not disagree with this statement, it is necessary to remind ourselves of the purpose of personal injury compensation, and to consider whether it is always a 'benefit'.

Restorative remedy

Compensation for personal injury is a restorative remedy, the purpose of which is to put the injured party back in the position they were (as far as money can) before the injury occurred. Injured people who recover compensation are not 'benefiting', or being put in a better position.

Compensation should not be awarded to an individual who has staged an accident, or lied about being involved in an accident when they were not and so have suffered no genuine injury at all. There is no genuine need for such a person to receive compensation as they have not suffered a loss.

However, when someone is injured in a genuine accident that is caused by another party's negligence, or breach of statutory duty, be it in a road traffic accident, at work or on the street, is it right that they should be denied all compensation, even if they are fundamentally dishonest?

Who will pick up the pieces when these individuals are denied all compensation? Inevitably they will fall back upon the resources of the state, including the NHS and the welfare system; the taxpayer will ultimately bear the cost.

One must remember too that it is not the purpose of the civil court to 'punish'; punishment for criminal behaviour such as fraudulently bringing a claim for personal injury should rest solely with the criminal courts.

In 2004 Ireland introduced legislation with a very similar positive obligation to strike out an entire case as proposed in clause 45. This legislation was also an attempt to "tackle insurance costs, which [were] being blamed on high legal costs in personal injury cases and insurance fraud".

However, ten years on, the legislation does not appear to have achieved its desired outcome, with press still reporting a 'compensation culture' ongoing in Ireland. Can we be certain that similar legislation introduced here would achieve better results?

There is no easy solution to tackle the claimant who does have a genuine case but who has exaggerated or lied about their losses in order to receive more compensation than they are entitled.

I am not sure that obliging the court to denying them all compensation is the best approach; this seems to be a disproportionate response.

The current common law allows the court to strike out a genuine case for compensation due to fundamental dishonesty in very exceptional circumstances. This power is available to the court in order to enable it to protect the legitimacy of its process, not for the purpose of punishing the claimant's immoral behaviour. There are criminal sanctions available to punish by way of contempt of court.

Strike out

This new law, if introduced, will compel judges to strike out cases unless they believe it will result in injustice. It is assumed that the strike out will only be available at trial because it requires a positive finding of fundamental dishonesty.

I agree with the concerns raised by the Association of Personal Injury Lawyers that the clause will "lead to increased satellite litigation" as lawyers quarrel over the meanings of 'fundamental dishonesty' and 'substantial injustice'. The Act could be said to contain a contradiction in terms - does being denied your genuine damages equate to substantial injustice?

It is clear that a balanced approach is required, considering all the circumstances of each case, but at the very least a clearer definition of these terms would assist both the courts and practitioners.

Clause 45, if enacted, will fetter judicial discretion, yet do nothing to address the procedural difficulties in securing convictions for contempt. No doubt it will please insurers who will find themselves in a windfall situation, avoiding any damages payment at all.

Nor is it clear why the legislation is limited to claims for personal injury where the provisions could equally apply to other areas of law, an issue queried by Lord Beecham.

As a final thought, why, while this legislation is being introduced to tackle the alleged increasing numbers of fraudulent and exaggerated cases, is there an absence of a ban on insurance companies making offers to claimants without any evidence of loss - so called 'pre-med' offers? When investigating the practice of pre-med offers, Jane Gittins said: "The insurer practice of providing injury compensation without requiring medical evidence is only ever going to provide them a short-term cost benefit, and may open the door to longer-term problems of fraudulent claims."

While this practice is allowed to continue it will only serve to encourage exaggerated and fraudulent cases. It would make complete sense for a provision to be included within this legislation.

Louisa Chambers is a solicitor and chartered legal executive in the catastrophic injury team at Spencers Solicitors