THE COMPENSATION CULTURE

John Isherwood, Barrister, on 28 February 2002

People are frequently surprised at the magnitude of the sums awarded for damages in court cases. These are most often very large where compensation is being claimed for defamation or personal injury. Mr Isherwood set out to explain how they came to be assessed. He is particularly involved with personal injury cases.

In such cases there are two reasons for awarding damages: general damages are awarded for the physical or psychological harm caused and are limited to a maximum amount of £150,000 for very severe injuries, such as those requiring round-the-clock nursing; additional damages are awarded for loss of earnings and cost of care, and these are calculated by actuaries based on the life expentancy of the claimant. These can be very large and this has led to a few firms, known as `ambulance chasers', to advertise for claimants who they then `sell' to solicitors.

If a 20-year old person receives injuries that make it impossible for him ever to work again, and to need continuous nursing, it is understandable that the damages would be very large. The calculation would be that he had 45 years of loss of earnings, which might be assessed as worth £100-300,000. The cost of care would depend on the amount of nursing and medical treatment foreseen, but might be as much as £1-3 million.

In cases involving defamation of character, for example following wrongful arrest or unfair dismissal, the amount of compensation is decided by the jury, not the judge. Juries are notoriously generous with insurance company's money. The situation is different in the USA and the UK: there are no punitive damages allowed in the UK, only the need to establish a fault.

The law on employers' liability, for example, for stress in the workplace, has recently been changed by a decision of the courts in greater favour of the employer. Unless the employee has complained of the stress a claim would not be successful - it will pay to whinge!

The compensation awarded is generally paid by an insurance company, although some public organisations such as the National Health Service and the Police bear the cost themselves (i.e. the taxpayer pays). The employee who caused the fault by negligence or carelessness does not pay personally. This is tending to encourage claims. The introduction of the No Win, No Fee (conditional fee) arrangement, based on the American `contingency' fee, has led to an increase in claims and a substantial decrease in legal aid. However, the situation is not as clear-cut as claimants may imagine. The US contingency fee is based on a percentage of the compensation awarded, so, as demonstrated above, it may be very large for the lawyers if they win. In the UK, the conditional fee only allows the lawyers to increase their charges by 100% if they win. Both systems have the disadvantage that they give the lawyers a personal stake in the outcome of the case, so there is some temptation for them to recommend an out-of-court settlement for a smaller amount than might be obtained by fighting the case, to be sure of getting some fee.

Mr Isherwood was gloomy about future trends, particularly in medical and school cases. The NHS closes beds or wards for lack of money because it has been spent on compensation claims, and schools are increasingly being sued. He suggested that school trips would cease and that school playgrounds would be closed in case children got injured in them. There might be fewer claims if compensation was limited. One country requires the claimant to exclude the first five days loss of earnings, or in the case of police officers who get medical pensions if they are made unfit for duty by the injury, to accept a lower pension. Such rules have substantially reduced the number of claims.

Discussion

In a No Win, No Fee situation the loser has to insure to cover any costs awarded against him. If the compensation awarded is less than £1,000, no costs are awarded.

It is not the practice to review an award some years after its is granted to see if the claimant is responding to treatment and thus paying out less than was calculated (or v. v.). In exceptional cases, an award may be supplemented if the original injury develops after many years e.g. a fracture may heal but years later cause arthritis. Injury from inhaling asbestos may take decades to cause serious injury.

If compensation is obtained by fraud the amount paid out can be reclaimed.

Donald Lovell