Proposed Reforms To The CTP Scheme

Changes to the Rights of Victims of Motor Vehicle Accidents

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WHAT RIGHTS DO THOSE INJURED IN MOTOR ACCIDENTS PRESENTLY HAVE IN NSW?

 It is compulsory for drivers in New South Wales to hold third party insurer which covers any injuries covered to any person whilst driving a motor vehicle. The policy is not limited and it means that all victims of motor vehicle accidents are covered for the injuries that they suffer.

The compensation that is payable is usually referred to by the courts as ‘damages’.

a/ CTP Scheme Common Law Damages – Modified – for Victims of At Fault Accidents

Victims of motor vehicle accidents in New South Wales are currently entitled to modified common law damages. The object of an award of damages is to put the person back in the same situation as if the accident had not occurred. For reasons of economy, the entitlement to compensation is capped in several respects. Damages are awarded on a ‘once and for all time’ basis.

Damages are tailor made to the specific circumstances of the injured party. The damages are assessed in ‘heads’. The heads of damage that are usually claimed include:

i/ General damages for pain and suffering.

ii/ Loss of wages. This includes past loss of wages as well as the anticipation of loss in the future, including the loss of opportunity for profit, advancement or promotion.

iii/ Past and future medical expenses.

iv/ Nursing and domestic assistance.

Some of the ways in which the entitlement to damages is currently modified, or limited, include:

i/ There is no entitlement to recover general damages for pain and suffering except where the injury is found to have constituted a less than 10% whole person permanent impairment.

ii/ There is no entitlement to recover damages for care and assistance gratuitously provided unless the care has been provided for at least 6 hours per week and for greater than six months.

iii/ The reliance upon a 5% actuarial multiplier which lowers the damages awarded for future losses.

b/ No-Fault Compensation

Damages are also available irrespective of fault in the following limited circumstances:

i/ Catastrophically injured victims of motor vehicle accidents receive medical expenses and care on an as incurred basis.[1]

ii/ Damages are available when the injuries are suffered in a “blameless” motor vehicle accident (the Sophie Delizio amendment).[2]

iii/ Children under the age of 16 have a special entitlement to recover damages for medical expenses, care and funeral expenses irrespective of fault.[3]

iv/ Medical expenses and potentially loss of wages are payable up to $5,000.00 irrespective of fault, provided the claim form is issued within twenty eight days of the accident.[4]

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c/ Benefits of the Current Scheme

i/ Compensatory Damages:

For the majority of innocent victims of motor vehicle accidents of New South Wales, the compensation awarded to them is assessed depending upon their particular circumstances. The intent of compensatory damages is to ensure that the injured party does not suffer as a result of another driver’s fault.

ii/ Immediate Payment of Medical and Rehabilitation Expenses:

During the course of the claim most medical expenses are paid as incurred and at the conclusion of the claim an amount is awarded to cover additional anticipated future expenses.

iii/ Payment of Legal Costs:

A victim of a motor vehicle accident who establishes an entitlement to compensation is entitled to have the majority of their legal costs paid by the insurer of the party at fault. In some circumstances the amount that can be recovered for legal costs is capped, but there is no restriction on a person’s entitlement to retain a lawyer at their own cost. When we buy a cupboard from Ikea, we expect an instruction manual. Most of us would be in a great deal of trouble without that assistance.

iv/ A Tailor Made Approach:

At common law, the court has an open discretion to award such amount of compensation as is necessary to put the injured party back in the situation as if the accident hadn’t occurred. While money can only do so much, it is intended that the compensation will cover all loss that has been suffered. This is important because no two cases are ever the same. Consider, for example:

  • An apprentice who will expect to receive a significantly greater wage when they obtain trade qualification;
  • Medical treatment that has been completed but may require a joint replacement in the future;
  • An injured party that is able to return to work after an accident but may need to retire early;
  • A mother who intends to return to work in the future.

CHANGES TO THE SCHEME

The Benefit Designs Options paper provided by the Government appointed reference panel stipulates at Page 1 that it has already been determined as Government policy that there will be changes to the CTP scheme to introduce a hybrid model of compensation, with benefits defined in the legislation (defined benefits) available to all, regardless of fault and limited common law damages available to those who can prove fault on the part of an owner or driver and whose injuries give rise to a permanent impairment of greater than 10% whole person impairment. The Benefit Designs Options paper, together with consultation documents provided by SIRA, indicates that the severely injured will have vastly reduced common law benefits under the proposed hybrid compensation model.

a/ Moderate to Minor Injuries

It appears clear that an arbitrary whole person impairment rating level is likely to be viewed as the gateway for accessing any form of common law benefits

For those who have not suffered a whole person impairment of greater than 10%, entitlement to loss of wages will likely be dictated by the insurer who is participating in the scheme for profit. Page 4 of the paper suggests that an insurer can undertake a work capacity decision for a person at any time. It appears that persons considered to be moderately injured or with ‘minor’ injuries, will have no access to legal representation unless a claimant lacks legal capacity or an insurer has denied liability for all benefits (example, by an allegation of fraud).   Access to justice by way of legal representation appears to be further limited by a stated policy that legal practitioners be prohibited from contracting out of prescribed set maximum legal fees in matters where claimants are allowed to utilise the services of lawyers.

Those injured would be entitled to defined benefits irrespective of fault. Injuries would be compartmentalised and the payment of a benefit would largely depend upon the categorisation of the injury, rather than the actual loss suffered. Wage loss would be compensated as the loss arises, but only as a proportion of the actual loss. The entitlement to claim loss of wages would end at a defined point in time irrespective of whether the injured person has the ability to return to work.

b/ Severely Injured

The government has as its preferred option an additional entitlement for the victims of “at fault” motor vehicle accidents, only in circumstances where the injury meets a requisite threshold: 10% whole person permanent impairment.

The impairment threshold is arbitrary and intended to operate as a gateway to define the ‘haves’ and ‘have nots’. There is no pretence that the 10% threshold is just or equitable, but merely economical. For example, a person who is in a coma for six months but then recovers may be found to have a 0% whole person permanent impairment.

WHY ARE THE CHANGES UNFAIR?

 a/ Access to Legal Rights

The government proposes that ordinarily only those who are severely injured will be legally represented. The victim of a motor vehicle accident will be prohibited from paying for legal advice from their own pocket unless they are severely injured. A severely injured victim may not realise that they have the opportunity of passing through the gateway and being determined as ‘severely injured’ without the benefit of legal advice. Good luck with that Ikea flat pack.

In all aspects of our daily life we look to experts for advice. It is a fundamental tenet of a free and just society that we are able to obtain legal advice about our rights. The government wishes to curtail access to legal advice because people who do not understand their rights will not make claims.

The independent review of insurer profit conducted at the request of the government found people who were legally represented obtained outcomes that are eight times greater than the outcomes for unrepresented Claimants.

Further, the proposed changes deny even an unrepresented victim access to the courts. The government proposes that disputes about a level of pay or the reasonableness of medical expenses would be determined by bureaucrats after hearing from the injured victim and the insurer, or its lawyer. The evidence that would be considered by the bureaucrat would be the documents obtained by the insurance company and submissions that it, or its lawyer, prepared compared to the documents that the unrepresented injured party was able to offer.

b/ Defined Benefits

The common law approach of assessing what loss and damage a victim has suffered is substituted for defined benefits which seek to pigeonhole compensation. The government intends to save money by paying defined benefits with the intention that the cost of the scheme will be more easy to calculate and as a result mean the cost of a green slip can be more readily determined. In fact, the saving will be made by reducing the entitlement to compensation.

c/ Finality

In our experience, most people who suffer injury want a final resolution. That usually involves payment for past losses and an allowance to cover the future all paid in one lump sum. The changes to the scheme will mean that even seriously injured victims will not be allowed closure. For the severely injured, payments of medical expenses can be accessed for life but subject to satisfying an insurer that the treatment is reasonable and necessary.

CONCLUSION

We are sceptical of the government’s intention with respect to the changes to the scheme. The government wants to remove access to justice and put in its place a bureaucratic scheme that offers defined benefits. The government is significantly more concerned with the cost of a green slip than it is of the rights of those injured in motor vehicle accidents. Aside from insurers, very few people will benefit from the government’s proposal.

[1] Motor Accidents (Lifetime Care & Support) Act 2006

[2] Chapter 1, Pt 1.2, Div 1 Motor Accident Compensation Act 1999

[3] Chapter 1, Pt 1.2, Div 2 Motor Accident Compensation Act 1999

[4] Chapter 3, Pt 3.2 Motor Accident Compensation Act 1999

Accident Compensation Law

Why Does the Government Want to Change the Scheme?

Stated goals of reform

The stated goals of reform are as follows:

i/ Increase the proportion of benefits to more seriously injured people;

ii/ Reduce the time it takes to resolve a claim;

iii/ Reduce opportunity for claims fraud and exaggeration; and

iv/ Reduce the cost of green slips.

 Subject to ascertaining how many additional claims are made by persons at fault in accidents, regardless of whether they are deemed to have minor to moderate injuries or serious injuries referable to a whole person impairment scale, it appears that the proposed reforms will achieve the stated goal of increasing the proportion of benefits to more seriously injured people. The key issue with this stated goal, in the author’s opinion, is that it will be of little comfort to the persons assessed as being ‘more seriously injured’ that they are receiving out of the scheme a greater proportion of compensation than before, if each of their individual claims results in the actuality of them receiving less compensation per claim than they would have before.   It is clear from the Benefit Designs Options paper that seriously injured people will receive far lesser sums for general damages and will have an inability to capitalise future claims for other heads that are presently available. Subject to how many additional claimants enter the scheme, by virtue of it being opened up to drivers at fault, beyond those catered for under the $5,000.00 limit pursuant to the Accident Notification Form process, for seriously injured people to receive a greater proportion of the overall benefits available to all injured persons, anyone with a minor to moderate injury will necessarily need to receive some fraction of the compensation previously available to them – which appears to be the clear scheme design.

In relation to the second stated goal of reform, reducing the time it takes to resolve a claim, it is difficult to see how any injured person, whether having injuries deemed to be minor, moderate or warranting the descriptor ‘more seriously injured’ can benefit from timeframes for cases being necessarily reduced. That is, under the present scheme, all innocent victims of accidents due to the fault of others are able to receive interim payments for medical expenses and for wage loss due to financial hardship and must allow a longer period to receive the balance of damages available as stabilisation of injuries under the medical guidelines is paramount for properly determining future impacts upon earning capacity, requirements for medical treatment and for domestic assistance. Forcing claimants to finalise claims without legal representation in order to achieve ‘claims velocity’ is likely to necessarily cause claims to be closed for persons before any opportunity is available to properly assess the longer term effects of their injuries. This appears to be a significant basis of concern for persons deemed to have minor to moderate injuries.

The third stated goal of reform is to reduce the opportunity for claims fraud and exaggeration.

To this extent, the Government should be congratulated on introducing a fraud task force for the purposes of achieving this end. One may be entitled to be more circumspect about praising media announcements to the effect that fraud is costing the NSW CTP Scheme in excess of $400,000,000.00 annually.   It is inherent in discussing the fraud element of any compensation scheme, that the extent of fraud can only ever be estimated. That is, if fraud were able to be measured with accuracy, there ought to be steps taken in order to address those responsible for the fraudulent activities and the discussion of the extent and cost of fraud in the scheme reflective upon statistics compiled referable to actual documented cases.

In any event, the introduction of the fraud task force is of such recent occurrence, that it appears premature to force upon innocent victims of motor accidents a reduced compensation scheme before the longer term work of the fraud investigation task force is known and understood.

The Government has taken positive steps to promote the reporting of suspected fraudulent claim activities.

Concern attaches to the extent to which the proposed scheme reform can eliminate or reduce fraud.

To a large extent, the policing of fraud has been within the province of the insurers who have derived on average 19% profit per annum for operating under the licensed conditions pertaining to the NSW CTP scheme. It would not appear unreasonable to suggest that the insurers would increase their activity to deter, monitor and report fraudulent claims.

It is unclear as to how the introduction of a no-fault scheme will deter fraud. The experience in the United Kingdom with the introduction of a no-fault scheme appears to indicate that opportunities for fraud actually increase in a no-fault environment. That is, the initial accident reporting procedures and ease with which persons can obtain entrance to the scheme are consistent with persons of mala fides electing to chance their hand to obtain compensation payments on a repeated basis.

In relation to the goal of reducing the cost of green slips, it is still not the case that any Government representative has guaranteed that premiums will reduce by way of response to introduction of proposed scheme reforms.

It appears reasonable to assume that by mere virtue of its existence, the fraud task force recently set up by the Government will reduce the tendency of some persons to attempt claims exaggeration or fraud and will have a significant effect on systemic attempts by any networks of persons to initiate fraudulent claims.

On that basis alone, it would appear prudent in relation to allow for the further passage of time before imposing wholesale change upon the scheme.

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Why Do I Pay for a Green Slip?

NSW motorists of registered vehicles pay green slips because it is compulsory to do so. The compulsory third party system was introduced many decades ago in order that there be protection to motorists from law suits and to ensure that persons injured by motorists can have the certainty of there being an insurance policy behind any necessary claim for compensation.

The green slip payment in NSW also covers persons injured in circumstances where injuries are caused by an unregistered or unidentified vehicle – the Nominal Defendant Scheme.

The Nominal Defendant meets compensation claims by appointing a licensed CTP insurer to deal with such claims commensurate with its percentage market share overall.

Is CTP Insurance Expensive?

The answer to the question largely depends upon what a person receives in exchange for paying the compulsory third party premium.

Under the proposed new system, there will necessarily be many more Claimants than presently under the existing scheme.

For this to occur and for there to be no significant premium increase as a result, it follows necessarily that each injured person (whether innocent or at fault) will receive compensation that is some fraction of what innocent (not at fault) victims presently receive under the existing scheme.

A green slip does not hold much value for an injured person if they are unable to receive adequate compensation for injuries and are forced out of the compensation scheme due to a unilateral review of entitlement to wage loss, as appears to be proposed.

The Government’s own internal report (published by State Insurance Regulatory Authority) into the review of insurer profits in the scheme, indicates that in real inflation adjusted terms, green slip premium prices “are comparable to those of fourteen years ago”. This report, published by SIRA of the independent review of insurer profit within the scheme, is publicly available.

The report needs to be read in the context of the broadened coverage that is provided by way of categories of claimants under the scheme presently by virtue of introduction of blameless accident provisions and the no fault compensation scheme that already exists up to the sum of $5,000.00 for drivers at fault (all of which was introduced during the fourteen year period referred to). That is, presently, persons injured in motor accidents (including usually a motorist who in turn pays for a CTP premium) is getting more coverage out of the present compensation system for the same price in real terms.

The Injured Persons Association in 2013, when writing to the then Acting Minister for Finance, Andrew Constance MP, pointed out that over a longer period of time, the average premium from 1988 to 2013 had increased by only 60% to an average of $550.00. The CPI had increased 120% over that same period.

In nominal terms, as well as in relative terms, CTP insurance is cheaper than ensuring a motor vehicle comprehensively for property damage and the coverage, in real terms, is much greater.

Has Anyone Made Submissions Regarding Changes to be Made on Behalf of the Insured to Date?

Submissions were allowed to be publicly made by any interested person at the invitation of SIRA in relation to proposed scheme reform.

Submissions were made by and on behalf of the usual ‘stakeholders’.

It appears obvious that the most numerous stakeholders – the millions of premium paying motorists in NSW and the tens of thousands of persons effected directly and indirectly by motor accident related injuries in NSW each year, have not been adequately consulted. Most individuals do not properly understand what they will lose in terms of legal rights and insurance coverage by way of the proposed claims.

The first time that most people will find out about the true extent and consequence of the proposed change is when they have to make a claim in respect to injuries that affect their ability to work and provide for family members.

Aside from the noticeable increase in advertising by insurance companies promoting income protection insurance policies, there appears to have been no real step taken to adequately warn innocent victims of motor accidents of an increased need to consider taking out additional insurance policies such as income protection policies and sickness and accident policies in order to offset the harsh effects of the proposed legislation on compensation rights.

It appears likely that tens of thousands of individuals including those who rely directly upon bread winners within the family will be adversely affected within twelve months of the introduction of any legislation that purports to offer less than basic and fair compensation pursuant to the basic compensation principle that underpins the common law.

This appears to be yet another reason for the State Government to allow more time to elapse before hurriedly putting through proposals that appear to be patently harsh and disadvantageous to the majority.

In discussions between the ‘stakeholders’, as opposed to the members of the public who have no idea about the true nature of the proposed changes, it has been observed that the vast majority of citizens within NSW would prefer to sacrifice a potential saving of $2-3 per week in green slip pricing to remain with proper common law based compensation, rather than risk the financial perils of being unable to meet mortgage payments and other necessary payments that may occur in circumstances where persons are forced out of the system with inherent residual restrictions that effect their earning capacity, both short term and long term.

Submissions have been offered by various bodies including the Australian Lawyers Alliance, DRIVE, The Law Society of NSW and the Bar Council.

The submissions have ranged on focusing on the historical super profits made by insurers under the scheme with the suggestion that this ought to be the only area of focus for legislators in formulating any renewed CTP legislation. The submissions offered by persons purporting to represent injured persons in NSW have included representations to the Government that it would be appropriate to set capped legal fees for claims which have less than a certain quantum value (the quantum suggestions have ranged from $30,000.00 upwards to $50,000.00).

Has Anyone Made Submissions on Behalf of the Insurers to Date?

Submissions have been made on behalf of various insurers in relation to schematic change.  These submissions have focused on a suggestion that all injuries that are not catastrophic injuries can be successfully rehabilitated within a relatively short time. The submissions also point to claims exaggeration and fraud.

How Do Insurers Manage Claims Against People Without Legal Representation?

Duty to shareholders

Insurers have a duty to shareholders, not road users and certainly not injured persons who need to make claims for motor accident compensation.

Insurers are not criticised for fulfilling their primary obligation, which is to maximise profits for shareholders. It is simply necessary to acknowledge that obligation exists when giving consideration to how insurers are expected to behave when provided with a claims scheme that enables them to make unilateral decisions in relation to whether claimants remain within the scheme without fear of the claimants obtaining access to justice through legal representation.

The suggestion by insurers that rehabilitation is the way of solving problems for all persons injured on the road except for those most seriously injured with injuries greater than 10% whole person impairment may not fully acknowledge the necessary tendency of those doctors who are empanelled by insurers to take steps to ensure they remain on the panel of providers after the next internal review by insurers.

SIRA proposes, with the suggested scheme changes that appear to be on the table, to oversee and manage the actions of the insurers through adherence to guidelines through its staff (which will need to increase in numbers by a multiple that is difficult to estimate). The experience of thousands of injured workers in the workers compensation scheme in an analogous context pertaining to merit reviews performed by insurers in relation to wage loss disputes will be the subject of an Upper House inquiry in relation to the workers compensation scheme in October this year.

Again, when considering who the real stakeholders are in relation to the CTP scheme, it is important to acknowledge that insurers must account to their shareholders, not to their member road users.

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Involvement of Compensation Lawyers

Legal costs have understandably been the focus of much of the discussion and perhaps form the major impetus for the proposed scheme reforms. Less than twelve months has passed since SIRA introduced compulsory reporting of solicitor/client costs and disbursements by lawyers in NSW representing injured plaintiffs.

The precise data has not been released in this regard.

We would suggest that, as with the introduction of the fraud investigation squad, the mere existence of the reporting requirements ought to be such that any untoward practises by a few would have ceased in a way that requires the passage of at least a further twelve (12) months before any probative review of the figures can be provided in terms of scheme outlook (and hopefully published).

On the statistics front, the SIRA report in to the independent review of insurer profits in the scheme notes that for claimants with legal representation under the scheme as it presently exists, the gross pay out figure has on average been 8 times greater than for claimants who are unrepresented. This would appear to be a fairly logical stand upon which to support the fact that individuals require legal representation when dealing with insurance companies.

Scheme Stability

It is acknowledged by most observers of the scheme, including the minister introducing the scheme reforms, that scheme stability is critical to the ability of the insurers to predict their profits and in turn, adequately price green slip premiums to cover the cost of claims.

In actual fact, according to SIRA’s own documentation (admittedly in the context of analysis of insurer profits, not reducing Claimant’s rights) the Scheme has been stable in terms of pricing relative to inflation for in excess of 14 years, despite broadened coverage that has occurred with introduction of blameless accidents and the no fault entitlements under the Accident Notification Forms.

Social Consequences

It is entirely predictable that injured persons under the proposed CTP Scheme will be removed from the Scheme without being adequately compensated pursuant to common law principles in relation to any future heads of damage.

Persons exited from the proposed new scheme will have their needs met by the tax payer, if they are entitled to receive Centrelink benefits.

Persons medical and financially able to obtain income protection policies will be the few not adversely affected by the changes.

Mark Nelson, Beilby Poulden Costello Lawyers