18 Sep 2014
The pendulum swings: Victoria looks at reducing Wrongs Act limitations on personal injury damages
by Sara Dennis, Yehudah New, Daniel Bolkunowicz
On one analysis, the recommended modest changes to damages awards would match the incremental increase to premiums, but they might be a sign of future changes to personal injuries damages recovery.
The Victorian Competition and Efficiency Commission has made recommendations which, if adopted, would modify some of the limitations imposed by the Wrongs Act 1958 (Vic) and make it easier for some victims of negligence to claim personal injury damages.
With an eye to keeping insurance premium increases to a minimum, the Commission carefully chose which limitations ought to be changed. If the recommendations are implemented, those in the private sector should expect to see a 2-5% increase in public liability and professional indemnity insurance costs.
Beyond insurance premiums, these recommendations also appear to signal what could become a relaxation of the current legislative barriers to recovery for damages in personal injuries cases.
Background: national tort reforms
In the early 2000s, as part of a national tort reform movement, the Victorian Government introduced limitations on, and thresholds for, claims for personal injury. The reforms enacted through the Wrongs Act, and largely mirrored in all jurisdictions, were driven by what was then perceived to be an insurance crisis. They represented a strong legislative intent to reduce overall claim numbers as well as recoverable damages in individual claims.
The reforms have been a constant source of discussion and scrutiny. Plaintiffs' advocates claim that they serve as a barrier to legitimate compensation. They also point to the fact that similar injuries across Victoria's three compensation regimes (ie. the Wrongs Act, the Accident Compensation Act and the Transport Accident Act) produce different damages awards.
Against this background, the current Victorian Government tasked the Commission with identifying clear anomalies, inconsistencies and inequities so as to improve outcomes for people injured as a result of negligence. However, the challenge was to avoid any "unduly adverse" impact on the availability and cost of insurance – which, after all, was the reason for the initial reform.
The Commission's recommendations: thresholds and damages caps
Having received submissions from a range of interest groups, the Commission made the following recommendations:
- Claimants with spinal injuries assessed at greater than or equal to 5% whole person impairment should be eligible to access damages for non-economic loss (currently, the threshold is greater than 5%).
- The psychiatric injury impairment threshold for eligibility to access damages for non-economic loss should be adjusted to greater than or equal to 10% whole person impairment (currently, the threshold is greater than 10%).
- The cap on damages for economic loss should apply to the gap between pre- and post-injury earnings. This means that high-income earners will be entitled to damages for loss of earning capacity even if they are able to earn a partial income post-injury. This addresses an anomaly between the Wrongs Act and the Transport and Accident Compensation Acts.
- In claims for expectation of financial support, deductions for the deceased person's expenses should be made before applying the cap on economic loss. Given that above average earners are more likely to have higher personal expenses to deduct, modifying when deductions occur will ensure that dependents of high income earners will not be unfairly and unjustly treated.
- The maximum amount of damages that may be awarded to a claimant for non-economic loss should be increased to align with the cap under the Accident Compensation Act.
- A limited entitlement for loss of capacity to care for others, otherwise known as Sullivan v Gordon damages, should be provided. This would bring Victoria into line with the law in NSW, Queensland, South Australia and the ACT. Importantly, these damages, previously available under the common law, are not currently available in Victoria. Therefore, this would represent the introduction, rather than a modification, of a damages entitlement.
- The impairment assessment for spinal injuries should take into account the claimant's post-surgery, rather than pre-surgery, condition to determine whether the claimant has improved or deteriorated after surgery. This would help to more accurately determine an appropriate damages award, and addresses an anomaly between the Wrongs Act and the Transport and Accident Compensation Acts.
What didn't make it in
Importantly, the Commission also recognised that some recommendations that it was asked to make, and that it certainly considered, would have an unduly adverse impact on the cost of insurance. As a result, the following recommendations were expressly not made:
- a reduction in the "discount rate" applied to lump sum payments to account for the net present value of an award, from 5% to 4%. This was despite acknowledging a strong case and the benefit such a reduction might provide to young and severely injured people. This benefit was offset by the unduly adverse impact it would have on the cost of insurance. Statistically, a 1% decrease would result in a 4% increase in public liability insurance premiums and an 8% increase in medical indemnity insurance premiums.
- A "narrative test" (ie. a description of the level of impairment / injury rather than a numeric threshold) to assess eligibility for non-economic loss claims that fall just below current thresholds (The Health Services Commissioner recommended this in its submission). This was informed by experience drawn from the accident compensation and transport accident schemes and the concern that a narrative test has the potential to lead to a significant increase in claims and hence insurance premiums.
Impact on premiums
The Commission estimates that its recommendations would impact the private sector markets for public liability and professional indemnity insurance premiums by around 2-5%. Naturally, this would also be impacted by other economic factors not linked to any legislative changes. Other factors may be the results of the upcoming state election (so far, only the incumbent government has promised to adopt the changes if re-elected in November, although it is likely that a Labor Government would do likewise) and the unknown impact of the National Disability Insurance Scheme.
A modest change to recovery for personal injury, or a sign of things to come?
In the end, the Commission's recommendations are somewhat limited, which is not surprising given the constraint of keeping insurance premiums at bay. On one analysis, the modest changes to damages awards which the recommendations would introduce would match the incremental increase to premiums. Also, any such recommendations are limited to Victoria.
However, as practitioners in the field, we should keep an eye open to see whether this may be a sign of things to come and a loosening of the legislative grip on personal injuries damages recovery.
The Commission made a technical assumption that "unduly adverse" meant limiting the aggregate increase in insurance premiums to about 5 percent or less.↩