In edition 199 of BC Disease News (here), we reported that the Civil Justice Council’s NIHL Working Party had published its final report entitled, ‘Fixed Costs in Noise Induced Hearing Loss Claims’ and proposed a fixed fee scheme for handling NIHL claims. In this feature, we consider whether insurers will achieve a lower indemnity spend under a fixed fee scheme compared to current handling regimes.
The fixed fee scheme-a recap
But first, let’s remind ourselves of the proposed fixed fee regime which would apply to more ‘straightforward’ NIHL claims. The Working Party report states that these claims ‘are still the majority’. As such, the proposed matrix of costs is restricted to cases which would remain within the fast track (both on value and on complexity), cases which are considered less suitable for fixed costs, or are more complex than the norm, for example:
- Single defendant cases where the defendant puts their name on a list for all their cases to commence within the EL/PL portal
- Single defendant cases commenced within EL/PL portal which subsequently fall out of the portal.
- Military claims.
- Claims valued at more than £25,000.
- Claims with more than 3 defendants.
- When a defendant argues in their letter of response:
- The occupational loss is de minimis
- Requests a second audiogram
- Requests their own medical evidence
- Treats this as a ‘test case’ (the scope of this has not been agreed).
Any argument by any defendant under 6 a) to d) will remove the ‘whole case’ from the fixed fee regime. So once the claim falls out of scope for fixed fees it cannot come back in and costs going forward will be assessed on the standard basis. This is not the same where claims, pre-litigation, are run under the fixed fee regime and then fall out once litigation has started. These claims will attract the fixed fee outlined for pre-litigation but the post litigation costs will be paid on the standard basis.
The scheme includes:
- A new letter of claim which will need to be accompanied by:
- An audiogram produced by a suitably experienced and approved provider;
- Schedule of employment from HMRC; and
- Search results from the Employer’s Liability Tracing Office (ELTO).
- Audiograms will need to be from an ‘acceptable UK “quality standard” audiologist’ and the to be test conducted in acceptable conditions.
- A new letter of response.
The scheme is underpinned by single audiometry. For reasons we have extensively reported on in editions 2 (here) and 160 (here) of BC Disease News, this will inevitably result in claimants without NIHL being paid compensation, even where the audiometry is performed under acceptable conditions. Based on our most recent analysis of over 20,000 claimant audiograms c. 95% are diagnostic of NIHL when there is a simplistic application of the CLB[i] / LCB[ii] Guidelines.
The costs under the scheme
There are 4 different procedural stages defined in the Working Party’s report, as follows:
Liability Is Admitted
2A = A claim that settles before the claimant’s solicitor has prepared papers to issue proceedings.
2B = A claims that settles after the claimant’s solicitor has prepared papers to issue proceedings.
Liability Is Denied
3A = A claim that settles before the claimant’s solicitor has prepared papers to issue proceedings.
3B = A claim that settles after the claimant’s solicitor has prepared papers to issue proceedings.
The fixed costs are determined by the stage at which a claim concludes and also the number of defendants involved-with an additional £500 for each defendant successfully pursued as shown in the table below:
All these fees are exclusive of VAT and any reasonable disbursements.
In addition, restoration fees of £1,280 (exclusive of VAT) per restored defendant successfully pursued will be paid, plus any reasonably incurred disbursements but not counsel’s fees.
Pre-litigation costs will be paid as per fixed costs - irrespective if the claim falls out of the regime on litigation, with post litigation costs paid on a standard basis.
Below is the proposed matrix of fixed recoverable costs for litigated NIHL claims:
The £4000 figure for pre-issue in this matrix refers to the pre-litigation fee in the table above for the category ‘3B’ i.e. a single defendant where the claimant solicitor has prepared papers to issue proceedings (which of course they would have if this litigated matrix is being used). As per the pre-litigation matrix, £500 is added per extra defendant.
Once the claim is issued, post litigation costs for a single defendant (excluding VAT and reasonable disbursements) are as follows:
For each additional defendant successfully pursued a 20% uplift is applied per defendant at each stage.
The figures in the post-litigation matrix are cumulative so you can see that once the claim is issued, but not yet allocated, a single defendant claim would have a fixed fee of £5,650. We have broken down each stage, along with the uplift calculations for extra defendants below:
Post Issue – Pre Allocation Calculation
£4000 (pre-litigation fee) + £1,650 (issued to allocation for single defendant) = £5,650.
If there is an extra defendant, you must add £500 from the pre-litigation stage to 20% of the £1,650 (£330) issue to allocation fee, which will give you the £830 uplift at this stage.
Post Allocation – Pre-Listing Calculation
If the claim is then allocated but not yet listed, another £1,656 can be added, which represents the £7,306 figure.
Again, if there is an extra defendant, you must add the £500 from the pre-litigation stage to the 20% uplift for the issued to allocation stage (£330) and 20% of the post allocation to listing fee (£331) which will give you the £1,161 uplift for this stage.
Post- Listing – Pre Trial Calculation
Finally, once the claim is listed £1,881 can be added which equates to £9,187 as above.
If there is an extra defendant, you must add the £500 from the pre-litigation stage to the 20% uplift for the issued to allocation stage (£330), plus 20% of the post allocation to listing fee (£331) and 20% of the listing to trial fee (£376) which will give you the £1,537 uplift.
In addition to the above and as previously stated, a fee of £1,280 would be recoverable for restoring a company to the register.
The Working Party did not reach full agreement on the trial advocacy fee, however, Jackson recommended that these be the same as those proposed for Band 4 claims in the new ‘intermediate’ track i.e. £1,380 so this can be added to the final fee of £9,187.
Each stage in the post-litigation fixed fee matrix also has the 20% figure which would need to be added for each extra defendant.
Where there is more than one defendant, the applicable fees for pre and post-litigation can become fairly complicated and difficult to navigate. As such we have created an easy to use tool which will calculate the fees available depending on each particular scenario - please contact us if you would like a copy.
Spend on NIHL claims is largely driven by repudiation rates and leakage into litigation. The more claims that can be successfully repudiated pre-litigation the lower the spend. In edition 144 of BC Disease News (here), we reported on the Institute and Faculty of Actuaries UK Deafness Working Party statistics indicating that the mature repudiation rate for claims notified between 2013-2015 notification years would be c.75%. This was significantly higher than the mature repudiation rate for 2010-2012 claims (between 52% and 64%). We also reported (here) that Aviva’s repudiation rate was 85% in 2015.
Let’s look at the estimated spend of settling 1,000 NIHL claims applying differing repudiation rates and assuming 5% of claims leak into litigation.
For all scenarios, we assume typical spend as shown in the table below. It is assumed that currently most claims involve relatively low level NIHL with average damages of £5,000[iii].
Assumed typical spend per NIHL claim
Scenario 1 - 90% Repudiation Rate
Overall 900 claims are repudiated and 100 are paid. 50 claims leak into litigation. 950 claims are concluded pre-litigation - 865 defended and 85 paid. In all scenarios, we assume 70% of claims which leak into litigation are repudiated - i.e. 15 paid in litigation and 35 defended in litigation.
Therefore, of the 900 claims repudiated, 865 are pre-litigation and 35 are litigated.
Of the claims paid, 85 are pre-litigation and 15 are litigated-see figure of claim outcomes below.
Applying the above assumed spend per claim, then the overall spend is £2,590,000 as shown in the figure below.
With each 10% increase in the repudiation rate the overall spend decreases by an average of £1,165,200 - see the figure below.
Figure: Spend by differing repudiation rates
Spend under the new fixed fee scheme
The dynamic of claims handling may well change under the fixed fee scheme and over time some insurers may adopt a no fault liability approach, similar to that under the historic ‘GMB-Iron Trades Scheme’. In our first scenario below we assume 80% of claims paid and 20% repudiated. We again assume:
- average damages of £5,000 per claim
- average disbursements of £1,000 per claim
- 5% leakage into litigation
- A broadly equal spread of claims settling at the different procedural stages of the fixed fee scheme
So, with 80% of claims paid, the total indemnity spend is just under £7.9 million.
This is the equivalent spend which would be reached with a c. 45% repudiation rate under current handling.
Any current repudiation rates above 45% means that indemnity spend would increase under the new scheme.
In the table below we show how spends would differ by repudiation rates.
Table: Spend comparison between current & fixed fee scheme (assuming 80% claims paid under scheme)
Making your own assessment on spend
We have prepared an easy to use calculator to compare your current claims spend against predicted spend under the new fixed fee scheme. You will need to know:
- Your pre-litigation repudiation rate
- Current pre-litigation claim cost for a repudiated claim
- Current pre-litigation claim cost for a paid claim
- Your % leakage into litigation
- Your litigation repudiation rate
- Current litigation claim cost for a repudiated claim
- Current litigation claim cost for a paid claim
We will shortly publish a full White Paper on the scheme which outlines its potential risks on damages, claims volumes and costs.
[i] Coles R.R.A., Lutman M.E., Buffin J.T. (2000) Guidelines on the diagnosis of noise-induced hearing loss for medicolegal purposes. Clin. Otolaryngol. 25, 264-273
[ii] Lutman M.E., R.R.A Coles, Buffin J.T. (2015) Guidelines for quantification of noise-induced hearing loss in a medicolegal context, on-line
[iii] Our analysis of c. 10,000 audiograms on first introduction of the LCB Guidelines indicated 75% of claims with NIHL of 10 dB or less applying the LCB full method to determine disability.
[iv] Assuming claim outsourced or internal cost of handling plus disbursements