Last year, as part of its 12th Programme of law reform, the Law Commission sought stakeholders’ views on areas of the law that it had identified as having potential for change.
One area was ‘fraud by victims of personal injury’. This is not a new issue, but rather one that has been rumbling on for years and on which there are entrenched views. Claimant PI firms and victims’ groups defend a position directly contrary to that of the insurance industry; on the claimant side, the fraud ‘problem’ in PI claims is without a basis in evidence.
Thompsons has been consistently clear on this issue: insurers work with others to spread fear of fraud, whether in scare stories about whiplash or in the overarching ‘compensation culture’. They do so in order to justify, not reduce – and indeed often increase – premiums. Moreover, the (non-specific) spectre of fraud has the advantage for insurers that the government will, without question, use it to justify civil justice changes that limit access to justice.
Logically, one might think that the insurer’s answer to identified fraud should be to deny payment and bring in the police. After all, fraudsters only profit if they get paid out. It might clog up the courts and slow down the system, but the threat of action would surely deter fraudsters. However, it is clear from headlines referring to the multi-million-pound ‘cost’ of fraud, that this payment is made despite being detected.
Of course, paying out feeds the headlines, which justify increased premiums. Rising premiums mean higher profits and happy shareholders. And there is no reason to let facts get in the way, either. It is better to ignore or gloss over evidence that fraudulent claims are actually declining.
Regardless of which side of the fence you sit, the fact that the commission decided to get involved should raise eyebrows.
In a letter to Thompsons in March, the commission said that it had decided to take forward for further consideration the proposal for reviewing the penalties for fraud by victims of PI. The commission was in dialogue with the Ministry of Justice to gauge its potential level of interest before making a final decision.
However, in June David Hertzell, law commissioner for commercial and common law, announced that the commission has decided not to proceed with the project on fraud. This was due, in part, to lack of government support.
What a gift it would have been for the insurer lobby had the investigation gone ahead. The mere fact that an independent body was investigating fraud would have endowed it with importance, elevating something the insurance industry itself has admitted is on the decline, into a problem worthy of serious scrutiny. Instead, the government has taken up the cudgels in its recent announcement requiring courts automatically to throw out claims in full if there is any suspicion of ‘dishonesty’.
The more one considers the commission’s interest, the stranger things look. The consultation it conducted on the issue never suggested it was a topic of great import to stakeholders. ‘Fraud by victims of personal injury’ only received 18 responses (compared with more than 250 proposals fed into the commission’s 12th Programme of law reform). Of the 16 that supported the investigation, nine organisations just happened to be either insurers or insurance organisations, or organisations with a similar agenda.
The criteria the commission should base their decisions on when selecting new projects include importance and suitability. The issue of fraud fails on both counts.
While fraud would be important if it were a real and present problem, it is not. If Thompsons is approached by a client with what we perceive to be a fraudulent claim we do not act – we turn it down – and it goes no further with us. Surely the insurance industry should apply the same approach? If insurers suspect fraud, they should not pay and they should also report the matter to the police – where is the problem?
The only way there is a problem is if they are paying out in cases they think are fraudulent. Headlines like ‘Whiplash becoming the “fraud of choice”’ and ‘Fraudulent car insurance claims up 20%, says Britain’s biggest insurer’, suggest that payment is being made. But that is an internal issue for the insurance industry.
The commission is by statue an independent organisation. It is not there to represent the views of any special interest group – nor the government – but to reform the law based on clear evidence and impartial analysis. It is worth reiterating that one of the main reasons given by Hertzell to drop the investigation was a lack of response from the government. This calls into question the extent to which the commission is acting independently from government when identifying areas of law to reform.
On the question of suitability and independence, it is also noteworthy that that the project was suggested to the commission by underwriters QBE and the Forum of Insurance Lawyers, as well as Keoghs. Hardly a broad coalition.
An issue which is only believed to be a problem by a powerful clique does not fit the suitability criteria. One must ask why the commission identified fraud as an area deserving further investigation when those seeking reform come from the insurance industry – and a government that has consistently met the insurer lobby’s demands.
According to the protocol between the lord chancellor and the Law Commission (2010), the commission should take account of the extent to which the law in that area is unsatisfactory; and the potential benefits that would flow from reform when deciding whether to include a project in its programme.
In respect of fraud, the evidence is that the law in its current form is satisfactory. Fraudulent claims have been decreasing, suggesting that, if it were a problem, it is one that is being effectively dealt with under the existing regime.
While reform may bring potential benefits for insurers, this is unlikely to improve a climate for policy-holders or genuine claimants over whom the shadow of suspicion of fraud is constantly cast. If Admiral and Direct Line have been able to pay nearly £1bn in dividends to their shareholders over the last two years, and not reduce premiums by a penny, things cannot be that bad.
What made the commission’s desire to investigate fraud all the more baffling is the judgment in Fairclough Homes Ltd v Summers  UKSC 26 from the Supreme Court. That makes the law in this area disputably clear. If the highest court in the land has pronounced – and recently – why did the commission want to revisit the issue?
The topic of fraud in PI law is one that has been around for years; it is not new or controversial (despite what Hertzell suggested in his recent letter). And it does not meet the commission’s criteria as an area of the law suitable for investigation.The commission’s interest in fraud was the only aspect of the matter that deserves further scrutiny.
Tom Jones is head of policy at Thompsons