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AUSTRALIAN LAWYERS ALLIANCE SUBMISSIONS FOR TORT LAW REFORM IN NSW EXECUTIVE SUMMARY (i) Bring in a single system of compensation based on the Civil Liability Act 2002. (ii) Revert to a 3% discount rate in all cases. (iii) Require disclosure of insurer profits in each area of insurance. (iv) Repeal s338 of the Legal Profession Act 2004 to restore equality of cost bargaining. (v) Allow adequate cost recovery. (vi) Review the Civil Liability Act 2002, Motor Accidents Compensation Act 1999 and Limitation Act 1969 to deal with obvious injustices and errors. (vii) There is clear evidence of excessive insurer profits permitting more adequate compensation for those with significant injuries. An urgent review of these matters should have the above principles/proposals in mind. 2 1. THE NEED FOR A SINGLE SYSTEM OF COMPENSATION The current situation The changes to tort law in recent years have left us with a disjointed system with four major different compensation schemes in NSW: a) Public liability (eg. Occupiers liability, accidents i n public places) and Medical Negligence. These claims are governed by the Civil Liability Act 2002. b) Motor vehicle accidents. These claims are governed by the Motor Accidents Compensation Act 1999 (with some aspects of the Civil Liability Act 2002 also applying). c) Work accidents. These claims are governed by the Workers Compensation Act 1987, the Workplace Injury Management and Workers Compensation Act 1998, and in part also by the Civil Liability Act 2002 and Motor Accidents Compensation Act 1999. d) Intentional acts/assaults. These claims are specifically excluded from the operation of the Civil Liability Act and therefore common law still applies. For each of these types of claims there are different thresholds, different methods of assessment of damages for pain and suffering, different heads of damages available and different caps on the amount which can be awarded. This is quite apart from schemes representing special deals, such as that for coalminers and that for police. This is contrary to the recommendations of the Ipp Committee in their Review of the Law of Negligence Report 1, which recommended as follows: “Overarching recommendation Recommendation 2 The Proposed Act should be expressed to apply (in the absence of express provision to the contrary) to any claim for damages for personal injury or death resulting from negligence regardless of whether the claim is brought in tort, contract, under a statute or any other cause of action. Paragraphs 2.2 – 2.3‖ It is also contrary to the unanimous recomme ndations of the Legislative Council General Purpose Standing Committee of December 2005 2 as follows: 1 Review of the Law of Negligence Report, 2 October 2002, available at http://revofneg.treasury.gov. au/content/review2.asp 2 Available at: http://www.parliament.nsw.gov.au/Prod/parlment/committee.ns f/0/6DEB694C553E 0DB 8CA 25 70D100000C9A 3 ―…the Committee believes that where individuals suffer permanent injury with no realistic prospect of recovery, they should have access to the same level of compensation, regardless of whether their injury occurred in the workplace, a motor vehicle accident or in a public place.3 These differences cannot be logically justified. The same injury should get the same compensation regardless of whether the injury occurred in the workplace, a motor vehicle accident or in a public place. Money should not be wasted litigating over whether a factory injury involving an unregistered forklift is a motor accident or an employment injury or a case of occupiers liability, with very difference consequences (in terms of the damages available) for the injured party. These differences create unjust results, as noted by the Ipp Committee in the Review of the Law of Negligence Report as follows: ―The differences between the la w applicable in the various jurisdictions also give rise to perceptions of injustice. There is no principled reason, for example, why a person should receive less damages for an injury sustained in a motor accident than for one suffered while on holiday at the beach. There is also no principled reason why there should be large differences in damages awards from one jurisdiction to another.‖ 4 The toughest thresholds are for employees, most of whom have effectively lost the right to sue their employer if injured through negligence at work. A person injured, through the negligence of their employer, must reach a threshold of 15% whole person impairment before they are entitled to sue their employer, regardless of how gross the negligence on the part of their employer has been. Take for example, the recently publicised case involving the nurse injured during the course of her employment at the decaying Hornsby Hospital. If the nurse is not assessed at 15% whole person impairment she cannot sue her employer in negligence. If a person has been injured during the course of their employment, but the negligent party is not the employer (such as in a situation where their employer is a labour hire company), then damages are assessed under the Civil Liability Act 2002 against the negligent third party. Why should the rights and compensation be greatly different between two factory workers who, side by side, are doing the same job but one of whom is under a labour hire arrangement and the other of whom is a direct emp loyee? To get damages for pain and suffering in a motor accident, you must establish more than 10% whole person impairment. This means that if you have fractures of both legs and both arms, are off work for six months, require total care for most of that period and have been in severe pain, because you make a generally good recovery, you get nothing for pain and suffering. The 3 NSW Legislative Council General Purpose Standing Committee No. 1, Personal injury compens ation legislation, page x viii. 4 Review of the Law of Negligence, above n1, at 13.13. 4 impairment is not permanent. If the prognosis is five years of severe depression, because this is not permanent, you get nothing. If you have a 10% permanent physical impairment and a 10% permanent psychological impairment, because the two cannot be aggregated together and neither exceeds 10%, you get nothing for pain and suffering. If pain in an arm or a leg is so severe that you cannot use it but you have not lost the physical and theoretical capacity to use it, your permanent impairment is assessed at nothing. In addition the method of assessing the level of whole person impairment is different for motor accidents and work accidents. For motor accidents the American Medical Association (AMA) Guides edition 4 is used where as edition 5 is used for work accidents. In both cases, the guides states that they are not suitable for the use to which they are put in NSW. The proposal for reform The ALA proposes that there should be a single system of compensation in NSW and that system should be the one contained in the Civil Liability Act NSW 2002. This would effectively involve amending the Motor Accidents and Workers Compensation legislation to mirror the damage provisions contained in the Civil Liability Act 2002. 5 Importantly, this would bring the threshold for entitlement to compensation for pain and suffering to 15% of a most extreme case, regardless of how the person was injured. This threshold was recommended by the Ipp Committee which stated that ―a threshold based on 15 per cent of a most extreme case is more likely to be adopted and effectively implemented in all jurisdictions than one based either on a monetary amount or on a system of objective assessment of impairment.‖6 It was also specifically recommended by the NSW Legislative Council Standing Committee in 2005. In this regard, the Committee, stated as follows: ―The Committee believes that the current 10% WPI thresholds for accessing non-economic loss damages under the Motor Accidents Compensation Act 1999 and the Workers Compensation Act 1987 should be discontinued, in favour of the test used in the Civil Liability Act 2002, namely a threshold of 15% of ‗a most extreme case‘, coupled with a sliding scale of damages until the severity of the non-economic loss reaches 33% of ‗a most extreme case‘, as judicially assessed. Importantly, this measure encompasses an assessment of disability, not just impairment.‖7 5 This would not affect Workers Compensation claims where there was no fault on behalf of the employer. The Workers Compensation benefits that are available on a no-fault basis would be excluded from the proposed changes. 6 Ibid at 13.47 7 NSW Legislative Council General Purpose Standing Committee, above n3 at xxi. 5 It is the ALA’s submission that bringing all compensation entitlements to the standards currently imposed by the Civil Liability Act 2002 would be fair and affordable. In relation to the affordability of the proposed changes, the ALA makes the following points: a) The proposed scheme would maintain the current situation whereby those with minor injuries would be excluded from receiving compensation from pain and suffering. It would still be necessary for an injured person to have injuries that constitute at least 15% of a most extreme case. b) There would be significant savings in administrative costs in having a scheme that does not require medical assessors to determine the issue of entitlement to compensation for pain and suffering. Currently in the motor accidents and workers compensation schemes there are administrative bodies (the Medical Assessment Service and the Workers Compensation Commission) that employ hundreds of medical assessors, and even more administrative staff, to assess and process disputes about entitlement of compensation to pain and suffering. The money that is spent on these assessments could be better spent providing compensation to those that have suffered significant injuries in accidents. c) The current schemes are more profitable than predicted and there are sufficient funds available to provide for the proposed changes. By way of example, the Legislative Council General Purpose Standing Committee noted: ―However, the evidence specifically on the profitability of CTP and public liability insurers does suggest that they have been making strong profits in recent years following the introduction of the Motor Accidents Compensation Act 1999 and Civil Liability Act 2002.‖8 The Annual Reports of the Motor Accidents Authority 9 have been analysed by Cumpston Sarjeant consulting actuaries. A copy of their report, accepted by the Legislative Council General Purpose Standing Committee is attached. An update report on the Motor Accidents Compensation Scheme is attached to these submissions as well. One of the findings made by Cumpston Sarjeant is that the claims costs contained in the prospective premium filings were significantly higher than were actually experienced. In turn, the lower than expected claims costs provided significantly higher profits to insurers than were allowed for in the prospective filings.‖ 8 NSW Legislative Council General Purpose Standing Committee, above n3 at xix. 9 Available at : http://www.maa.nsw.gov.au/default.aspx?MenuID=136 6 The ALA urges the NSW government and opposition to adopt as a principle the need for a single system of compensation in NSW. 2. THE DISCOUNT RATE The current situation The State Government has imposed a 5% discount rate for future losses. That assumes that a lump sum can be securely invested to return 5% after tax and inflation. We know from historical material and from good actuarial evidence that that is impossible. The Motor Accidents Authority itself assumes a 2% return on its own investments after tax and inflation. The rate in England is 2½% and there is pressure to reduce it, not increase it. The consequence of having a discount rate that is too high is that those with long-term care needs, such as quadriplegics and severe brain-damaged infants, will get between 25 and 30% less than they need to survive. Their money will run out decades early. For some with high level care needs, this is an effective death sentence. Those with the greatest needs suffer the greatest discrimination. This is a disgrace. Because many of the inadequately compensated victims become a burden on the taxpayer, what is really occurring is an exercise in cost shifting between State and Commonwealth. The public still has to pay. The proposal for reform The Ipp Report and the Legislative Council Report unanimously recommended a 3% discount rate. In this regard the Ipp Committee states: ―…in the Panel‘s opinion, using a discount rate higher than can reasonably be justified by reference to the appropriate criteria would be an unfair and entirely arbitrary way of reducing the total damages bill. Furthermore, we have seen that the group that would be most disadvantaged by doing so would be those who are most in need — namely the most seriously injured. It would be inconsistent with the principles that have guided our thinking in this area to reduce the compensation recoverable by the most seriously injured by increasing the discount rate, simply because damages awards in serious cases could thereby be significantly reduced. In this context, it should be noted that although an increase in the discount rate can yield large reductions in awards in serious cases, such cases represent only a relatively small proportion of the total compensation bill.‖10 The Legislative Council Report relevantly stated: 10 Review of the Law of Negligence, above n1 at 13.105. 7 ―On a separate issue, the Committee also notes that all areas of personal injury law in New South Wales apply a discount rate of 5% to future economic loss damages paid as a lump sum. This discount rate is intended to acknowledge that a plaintiff awarded a lump sum gains control of that money straight a way, allowing the plaintiff to invest the money and gain interest. However, the Committee is concerned that the 5% discount rate is simply too high, meaning that many permanently injured people who receive a lump-sum will not have sufficient income on which to live in the future, and believes that a 3% discount rate would be more appropriate, in line with the recommendation of the Review of the Law of Negligence Report. Importantly, while other Government reforms to personal injury compensation law, notably the use of the thresholds, have sought to limit the amount of damages payable to the less seriously injured, the 5% discount rate affects the most seriously and catastrophically injured, who are most in need of assistance. 11 The ALA submits that the discount rate in NSW should be reduced from 5% to 3%. 3. DISCLOSURE OF INSURER PROFITS The current situation The Legislative Council Committee unanimously recommended that insurers be required to disclose their level of profit in individual areas of insurance, as they have to do in the ACT. 12 This reform was not implemented. This has resulted in a situation where the public has to “take the insurer’s word” for their levels of profitability without the insurers having to provide any useful information. The only area where we do have some real figures is in respect of motor accident third party/personal injury insurers, and as noted above, the CTP insurers are making a greater than predicted profit, and this has consistently been the position since the current legislation commenced in 1999. The proposal for reform The ALA submits that insurers should be required to disclose their profits in different areas so that the public can see whether we are getting value for money and whether excess profits can be diverted to compensate the seriously injured. 11 NSW Legislative Council General Purpose Standing Committee, above n3 at xxii. 12 NSW Legislative Council General Purpose Standing Committee, above n3 at 104. 8 4. LEGAL COSTS The current situation Governments have reduced the liability on the part of negligent parties to pay costs as a means of discouraging the injured from suing for proper compensation. Ordinarily, with competent and fair-charging solicitors, an injured person will recover no more than about 65% of their reasonable costs to run their case, and the balance has to come out of their own damages. This is unjust. However, the situation has been made even more unjust by the introduction of legislation which provides that in a claim for compensation up to $100,000, the injured person can recover no more than $20,000 in costs. 13 This is regardless of the number of hearings or the amount of work involved. An insurer might require an injured person to go through a mediation, an arbitration, a lengthy hearing in the District Court, an application for leave to appeal, an appeal in the Court of Appeal and potentially a re-hearing in the District Court, and the cap on recoverable damages from the insurer remains at $20,000. Obviously, this makes it uneconomic to sue if the insurer wants to make life as difficult as possible for the injured person. But the converse is not true in respect of insurers. They can recover the usual 65% of their costs. In the example just provided, if the injured person ultimately lost their case they might be liable for $300,000 for the insurer’s costs, whereas the insurer could only be liable for $20,000 in costs if the injured person was successful. This is manifestly unjust, particularly considering that insurers have almost unlimited financial resources and most injured persons have none. Since there is almost no civil legal aid, the absence of adequate cost recovery leaves some injured people without effective legal representation. The ban on personal injury advertising (but not property damage from the same accident) means that many people will not even be aware of the very limited rights. If a worker sues his/her employer in negligence they are required to attend compulsory mediation. Each party is required to have their best offers certified on the Mediation Certificate. If the worker’s best offer is rejected by the insurer and the worker has to issue court proceedings and proceeds to a judgment, the worker is only awarded payment of legal fees of the proceedings if the award is at least equal to their offer made at mediation. 14 If they do not achieve an award higher than the offer made at mediation by the insurer then not only do they not receive payment of their own legal fees but they are ordered to pay the insurer’s cost of the legal proceedings also. 15 This can include the cost of an appeal and re -hearing. If the award is between the two offers then the worker pays his/her own costs of the legal proceedings. 13 Legal Profession Act 2004, s338. 14 Workers Compensation Regulation 2003, Reg 89 15 Workers Compensation Regulation 2003, Reg 90 and 91 9 The proposal for reform a) The ALA submits that s338 of the Legal Profession Act should be repealed. b) The same law on advertising should apply to personal injury cases as to any others. c) There should be appropriate cost recovery for successful parties as in England. d) Regs 89 to 94 of the Workers Compensation Regulation 2003 should be revised to allow an order that the worker’s costs are payable by the insurer if the worker is successful with their claim. 5. REVIEW OF MAJOR DEFICIENCIES IN THE CIVIL LIABILITY ACT 2002 AND MOTOR ACCIDENTS COMPENSATION ACT 1999 AND LIMITATION ACT 1969 The current situation There are a large number of obvious injustices and drafting errors (which coincidently all seem to favour insurers) in these three pieces of legislation. Some examples are: a) The denial of compensation for nervous shock to police rescuers at the Waterfall disaster because they did not witness the crash. CLA, ss30 and 32. Sheehan v SRA  NSWCA 261. b) Section 43(2) of the CLA introduces a concept of administrative law including the Wednesbury test. It constitutes a serious barrier for plaintiffs who wish to prove liability on the part of an authority and goes much further than the recommendations of the Ipp Royal Commission. It should be restricted to decisions based substantially on financial, political or social factors as recommended by the Ipp Royal Commission. As it stands, public authorities such as schools and other institutions may not be liable for the failure to supervise because of the provisions under Part 5 of the CLA. This special treatment creates a substantial injustice. c) The decision that a road authority did not know of a dangerous road even though an employee knew but did not pass it on to the decision- maker, so that the road authority was deemed immune from being sued. Civil Liability Act, s45. North Sydney Council v Roman  NSWCA 27. 10 d) The decision that a tracked vehicle being driven on a road is not a motor vehicle requiring registration and insurance. MACA, s3. Doumit v Jabbs Excavations Pty Ltd  NSWCA 360. e) The decision that to be a motor accident injury must occur at the time of negligence, so that skidding on spilled fuel later and injury from the resultant subsequent accident leaves the original negligent driver without third party insurance cover. MACA, s3. Zotti v Australian Associated Motor Insurers Ltd  NSWCA 323. f) The requirement to reduce damages by at least 25% for contributory negligence if alcohol contributed to the accident even if it occurred in a pub through the publican’s negligence when the supply of alcohol was for the pub’s commercial gain and when the contribution of alcohol to the occurrence of the accident was minor. CLA, s50. g) The requirement that injuries to those using public and private ferries and on railways be deemed motor accidents and the provisions of the Motor Accidents Compensation Act apply even though the stated purpose of the Act is to control third party premiums and those operating ferries and railways do not contribute to the third party premium pool. MACA, s5 and Transport Administration Act 1988, s121. Landon v Ferguson (2005) NSWCA 395. Inconsistently, the NSW government has waived these provisions in relation to two railway disasters but not other events. h) Traditionally, an infant’s limitation period expired three years after the infant reached his/her majority (18). See s52, Limitation Act 1969. By amendment in 2002, infants are given the limitation period of their parents. A child crippled at birth by negligence must sue within three years (before the child can read or write) or lose its rights. It is dependent upon parents who may be ignorant or illiterate, or unable to speak adequate English, or who are simply negligent. The parent may lack any understanding of our legal system. The result is fundamentally unjust. The traditional s52 position should be restored. See s50F(2)(a), Limitation Act 1969. The proposal for reform a) The ALA submits that a thorough-going and urgent review of the relevant legislation should be undertaken immediately to deal with injustices, inconsistencies and drafting errors. b) The above specific injustices should be immediately remedied. 11 6. REVIEW OF THE INJUSTICES IN THE WORKERS COMPENSATION LEGISLATION FOR FAULT BASED NEGLIGENCE CLAIMS (WORK INJURY DAMAGES) The current situation 1. The threshold (s151H 1987 Act) A worker must be assessed as at least 15% whole person impairment before they are entitled to sue their employer in negligence. Assessments for psychological injuries and physical injuries cannot be combined to exceed the threshold. A person who has undergone a lumbar discectomy would not reach this threshold. 2. Restricted Damages (s151G 1987 Act) If a worker is entitled to sue their employer then all they are entitled to claim is compensation for past and future wage loss and superannuation. They are not entitled to claim any compensation for medical expenses or domestic assistance, attendant care services or home modifications. 3. Termination of workers compensation entitlements (s151Z(1)(b) and (c) 1987 Act) Rights to ongoing workers compensation benefits are terminated by the resolution of the negligence claim. This means that a person catastrophically injured, by the negligence of their employer, who requires significant ongoing care, treatment and rehabilitation expenses could not be advised to sue their employer as they would have no recourse to payment of much needed treatment and care services. This leaves them with no option but to remain under the no- fault workers compensation schemes where the maximum they can receive for economic loss for total incapacity after 26 weeks is capped at a statutory rate currently of $396.10 gross per week for a single rate person with no dependants, or $575.10 gross per week for a person with a dependant spouse and one child. In a great number of circumstances this rate is impossible to live on. Workers essentially have to elect whether they wish to recover their economic loss or whether they wish to have medical expenses paid and care provided. 4. Repayment to workers compensation insurer (s151Z(b) 1987 Act) Where a worker is injured through the negligence of both their employer and a third party (such as a head contractor on a worksite) then an apportionment of liability is made between the two negligent parties. Damages against the third party are assessed under the Civil Liability Act but the worker can only recover the restricted damages set out above against his employer. Despite not being able to be awarded compensation for medical expenses and care against the employer the 12 worker has deducted from any settlement or award the full amounts paid by the workers compensation insurer, leaving them significantly disadvantaged particularly where the employer is the most culpable. The Proposal for Reform 1. Apply the Civil Liability Act 2002 thresholds and assessment of damages. 2. Amend the Workers Compensation Act 1987 accordingly (and s151Z in particular).
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