Introduction.

The compensation bill was published by the government on 3rd November 2005 and will form the Compensation Act 2006 if passed. The bill’s focus is on the regulation of claims management companies who many feel have long been exploiting members of the public and giving them false expectations of large compensation payouts. The self-regulation of claims management companies has seen them stoop to levels that are unacceptable in order to generate enquiries. The government has now stepped in to regulate this area.

One of the main difficulties will be changing the public’s perception of what they can claim for and indeed in many cases, how they can make a claim. Whilst it has long been clear to solicitors and insurance companies alike that claims management companies can and do take advantage of members of the public, this is based on the public’s perception that claims management companies are on their side and solicitors are not.

Whilst the main incentive for the government to pass the compensation bill will be to shrink the 'compensation culture' and to fence in claims particularly those against public authorities, there is also an opportunity for solicitors firms and insurance companies to seize in order to benefit from the bill. Insurance companies will benefit from the governments attempt to shrink the blame culture which has seen the number of claims in recent years expand at an alarming rate as the public perceives that they need take no personal culpability for their actions. The irresponsible attitude of the public towards their own actions is surely based on the outlook that it doesn't matter if things go wrong because a claim for compensation can always be made and that idea is supported by claims management companies; they will take the chance to pursue a claim which has no merit in it because there is very little to lose and everything to gain. Whilst the U.K. has been derisory of the American compensation culture and stories of ludicrous payouts for self imposed accidents it seems that the U.K. is following suit.

The government has adopted a twofold approach to tackling these problems which is discussed below:

Part I - Government's Attempt to Limit Claims
Law of Negligence

The law of tort (civil wrongs) is one of the most complex and dynamic areas of law and is intrinsically linked to the development and progression of our society. One of the biggest factors which has influenced tort law recently is the expansion and increased sophistication of the insurance industry. The courts have made several important rulings in recent years based on the insurance position of the defendant.

In order to make a claim in negligence the onus is on the claimant to show that they were owed a duty of care, which has been breached, causing them loss. The standard of care owed by the defendant is a question of law whilst the question of whether the standard has been reached is one of fact. One important distinction to make is the difference between liability for positive acts and liability for omissions. In general, there will be no liability for a failure to act.

Desirable Activities

Part 1 of the compensation bill states that a court when considering a claim in negligence, may consider whether taking the steps necessary to reach the appropriate standard of care may prevent a desirable activity from being undertaken or discourage people from undertaking functions in connection with a desirable activity. This seems somewhat vague - what constitutes a 'desirable activity' is unclear and some commentators argue that this will only exacerbate the problem as the courts become inundated with test cases on this point .

The government's aim is to minimize the blame culture that is rapidly permeating our society, particularly when it effects public authorities; reports that schools have banned school trips and hanging baskets that are no longer allowed have prompted fears that the compensation culture is out of control.

It is important that potential claimants understand that they may not always have a claim even if the components of negligence exist. One of the main differences between claims management companies and solicitors is that some claims management companies will often give entirely inaccurate advice to potential litigants, raising false expectations as to their chances of success. As stated above, this is because claims management companies have almost nothing to lose by perusing a claim and everything to gain. This is unacceptable and there is a need for greater education of the public.

Part II - Claims Management Services

Provision of services
Part 2 of the compensation bill looks at claims management services in some detail. The basic premise is that claims management companies will now be regulated in order to protect the public from cowboys who do not have their best interest at heart. It is astonishing that no steps have been taken prior to this, especially after considering the stringent rules placed on solicitors.

The bill sets out that claims management companies must be regulated if they wish to:
 Provide financial services or assistance;
 Provide services by way of or in relation to legal services;
 Refer or introduce one person to another; or
 Make enquiries.

The bill has a clear proviso that expert services are not included in the above.


Regulation

It is clear that claims management companies need to be regulated. As Part 1 of the bill suggests, it is no coincidence that there is an increased public perception that compensation will be available for any untoward accident. Under the terms of the new bill, claims management companies will be scrutinized by a state appointed regulator who will ensure that:

 The claims management company is authorised; and
 The conduct of the company is regulated.

The regulator will promote the best interests of members of the public who use such authorised services. Interestingly, their function will also include promoting public awareness on the regulation of claims management services which may create a shift in the perception and use of solicitors firms from the outset of a claim as a result.

However, it seems that whilst this is a step in the right direction, the proposals fall far short of what is actually required. The regulating body is likely to be one which is already in existence which in effect means that claims management companies will be privately regulated. This is clearly undesirable as we have seen that self-regulation simply does not work.


Enforcement

If a person commits an offence in that they are not regulated, or hold themselves out as being regulated when they are not (specifically through advertising or promotional materials) then they will be subject to:

 Imprisonment;
 A fine; and/or
 Both.

Interestingly the bill refers to a 'person' so it remains to be seen how enforcement will be affected against corporate entities. The bill makes it clear that an offence is triable on indictment i.e. in the crown court in front of a jury which highlights the severe nature of this type of crime – it falls which murder, GBH and rape as the type of crime which can tried in the crown court. Whilst this message is clear, just how this will work in practice is not.

The defence which can be raised is that a person did not know and could not be expected to know they were committing an offence. This is a two part test, clearly it is not enough to say that a person did not know that they were committing an offence, as this subjective test is coupled with an objective test could not be expected to know and it will be interesting to see how the courts will interpret this in the future.


Conclusion

The bill is the first step in tackling the mounting problems created by claims management companies. Whilst not all claims farmers are exploitative, it has been clear for some time now that more needs to be done to regulate this industry. The insurance industry will become beneficiaries of the new bill if it does indeed reduce the number of claims which are being put forward in the hope that they will be settled regardless of whether there is any merit in them.

Whilst the government has taken some steps to tackle the issues surrounding personal injury litigation they have clearly not gone far enough. Whilst the courts must interpret all Acts, much of these proposals are vague and unsatisfactory and it remains to be seen how effective these proposals will actually be.

The insurance industry should use the compensation bill to take a more aggressive approach to dealing with claims. Claims management companies have created the perception that any claim is worth pursuing and in many cases this is true. By adopting a zero tolerance approach to these companies, the Insurance Industry can come out on top.