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Stone, Andrew --- "Teething problems in the new CTP scheme" [2019] PrecedentAULA 37; (2019) 152 Precedent 58


TEETHING PROBLEMS IN THE NEW NSW CTP SCHEME

By Andrew Stone SC

Since 1 December 2017 motor accident claims in NSW have been subject to the provisions of the Motor Accident Injuries Act 2017 (the MAI Act). Statutory benefits form a significant element of that scheme. Its early performance has given rise to considerable concern as to whether the new statutory benefits regime is meeting its intended aims. The teething problems are seemingly widespread.

THE GOALS OF REFORM

The NSW government has been trying to ‘reform’ the NSW CTP scheme since 2013. The first two efforts at scheme redesign in 2013 and 2016 floundered, in part due to legislative numbers in the NSW Upper House and in part due to campaigns by the Australian Lawyers Alliance (ALA) opposing unfair reform.

The 2017 legislative reform occurred against the backdrop of the government ‘having the numbers’ in the Upper House and rising premiums due in part to claims-harvesting practices.

As always, the primary goal of scheme redesign was to cut premiums for motorists. The secondary objectives were to improve scheme efficiency by achieving quicker delivery of benefits to claimants, lower levels of disputes and lower outlays on legal expenses. There was also a concerted push from some areas to move towards a partial, if not complete, no-fault statutory benefits based scheme.

TORTS v SOCIAL WELFARE

Our judicially centred fault-based system of tortious compensation has evolved considerably since the turn of the last century. Developments such as mandatory insurance for motorists and employers (to ensure a solvent defendant); the abolition of contributory negligence as a complete defence; and the extensive prescription of the recovery of damages have significantly modified tort-based compensation systems.

The heart of a torts-based system remains imposing responsibility on the (insured) tortfeasor to make good the damage caused to the victim.

Statutory compensation schemes approach injury from an entirely different philosophical basis; that society should collectively take care of the injured. Such schemes are usually no-fault and involve socialisation of risk and the extension of benefits to those who cause their own injury.

Medicare and the NDIS are effectively broad-based statutory compensation schemes, socialising the risk of illness and injury and providing benefits irrespective of cause or fault.

Personally, I am not wedded to a fault-based system of tortious compensation for personal injury. I believe in society taking proper care of the sick and the unfortunate, even where their misfortune comes as a consequence of their own carelessness or recklessness.

However, we unfortunately do not live in a world where a fair and adequate no-fault system can be fully or properly achieved. It is impossible to go three minutes into a meeting with compensation scheme administrators or government without hearing about ‘the premium envelope’. Politicians are very sensitive to cost of living expenses such as the price of a green slip and are keenly aware that there are few votes tied to the benefits recoverable in compensation schemes.

My personal objection to statutory benefits schemes is that the broad coverage they provide (to those not at fault and at fault) means that the benefits paid ultimately end up being parsimonious. I do not believe that innocent accident victims should have to live on a subsistence wage, lose their homes and receive next to nothing for pain and suffering so that identical modest benefits can be provided to those who cause accidents and injure themselves.

Given that there is a very finite edge to the premium funding envelope, fault effectively becomes a rationing mechanism for the limited premium dollar. The initial proposal for the 2017 NSW legislation was for no-fault benefits to be available for between two and five years and for lump sum damages (for those who could prove fault) to be provided only to those who exceeded 10 per cent whole person impairment (WPI).

The problem with this proposal was that it meant financial ruin for a considerable number of accident victims with significant injuries that fell below the 10 per cent WPI threshold, despite those injuries seriously affecting their earning capacity.

There is a value judgement over the trade-off. Should some accident victims be denied full compensation when they are innocent of any wrongdoing in order to provide modest statutory benefits to those who caused their accident? Given the existence of other social welfare safety nets, such as Medicare and Centrelink benefits, my own view is that if there is to be rationing of recovery of benefits, then fault is an appropriate part of that rationing mechanism.

THE MAI ACT

The key provisions of the MAI Act are as follows:

(i) No-fault statutory benefits for six months post-accident comprising medical expenses and wage payments.

(ii) Cessation of statutory benefits at six months for those with a ‘minor injury’.

(iii) Cessation of statutory benefits at six months for those who are at fault or mostly at fault (more than 61 per cent contributorily negligent).

(iv) For those who clear the six-month hurdles (minor injury/fault), then a lifetime of statutory benefits for treatment and care expenses.

(v) For those who clear the six-month thresholds, continuing receipt of wage payments pending resolution of a damages claim.

(vi) An entitlement to claim a top-up of past economic loss and future economic loss and damages for non-economic loss (if over 10 per cent WPI).

(vii) The abolition of any recovery of damages for voluntary domestic assistance. However, paid care to be available for all those who need it.

(viii) Heavy regulation of legal costs and the provision of a new dispute resolution system, with a primary barrier of requiring internal review by CTP insurers before disputes could proceed to an independent assessment.

The foregoing is very much the bare bones of the new system. The system is not straightforward or easy to navigate. The existence of over 60 categories of potential dispute that could be resolved by the new Dispute Resolution Service (DRS) gives some idea as to the complexity.

The ALA has been very active in raising issues with the operation of the new scheme with the State Insurance Regulatory Authority (SIRA) and the government.[1] What follows is a brief summary of just a few of those issues.

NO CHANGE IN INSURER BEHAVIOUR

A very large element of the intentional design of the new scheme was that the provision of statutory benefits was to occur with very little involvement from the legal profession. Insurers are to deal with claimants and lawyers should not be necessary.[2]

Such arrangements succeed only if there is a fundamental change in insurer conduct. Leaving claimants to deal with the power and might of an insurance company works only if there is strong emphasis on the insurers treating claimants fairly and absolute fear and terror on the part of the insurers that a pro-active and powerful regulator (SIRA) will descend upon them with vigour if they misbehave.

It was repeatedly said as the new scheme was introduced that ‘insurer conduct would have to change’. The adversarial approach to claims had to be abandoned.

Over 12 months experience of the operation of the MAI Act indicates little change in insurer conduct. The process remains deeply adversarial. All that has changed is that claimants no longer have lawyers to protect them.

Examples of the ongoing adversarial behaviour include:

(a) denying liability after six months on scant or unreliable or even no evidence;

(b) hasty and ill-considered decisions in rejecting ongoing statutory benefits on the basis of minor injury;

(c) the continued making of excessive allegations of contributory negligence;

(d) unfair and misleading communications with unrepresented claimants in which the insurers fail to fully inform the claimants of their rights;

(e) excessive resourcing of some statutory benefit disputes – insurers using forensic accountants to work out modest claims for weekly loss of wages and using accident reconstruction experts to deny liability where an unrepresented claimant has no prospect of challenging such evidence; and

(f) failure by insurers to disclose liability investigations when the new Act requires open disclosure of all liability materials when an adverse liability decision is made.

Whether the cases we see of such conduct are isolated examples or part of a wider pattern of insurer misconduct is difficult to judge. The vast majority of statutory benefit claimants in the new scheme are not legally represented.[3] It is only where a claimant happens to wander into a lawyer’s office and the lawyer is prepared to act for minimal to no fees in investigating the statutory benefits dispute that examples of this insurer misconduct come to light.

If there is more widespread misconduct, it is going to require an active and vigorous regulator (SIRA) randomly auditing and vigorously prosecuting for misconduct to identify and deter such misconduct. SIRA has yet to publish any guidance notes issued to insurers, information about complaint rates or information about disciplinary measures being taken against any CTP insurers.

From my admittedly limited perspective on the new scheme (I tend to see only the cases that generate dispute) the conduct of insurers has not changed one whit under the new Act. The same combative approach to minimising the payments of benefits and indifference to the trauma for the claimant appears as deeply ingrained in insurer culture as it has ever been.

MESSY INTERFACES WITH WORKERS’ COMPENSATION

The MAI Act has already required amendment due to drafting oversights. One of the biggest areas of immediate concern was the interplay between CTP and workers’ compensation rights.

The ALA has successfully lobbied to have amendments to the MAI Act and the Workers Compensation Act 1987 (NSW) so that those with dual workers’ compensation and CTP rights are not unduly disadvantaged.[4]

There are still specific problems within the legislation for those who have a dual entitlement to non-NSW workers’ compensation rights (such as workers covered by Comcare or interstate workers’ compensation schemes). Without launching into a lengthy and complex explanation of the operation of s151Z of the NSW Workers Compensation Act and the new MAI Act, the short message is that any Comcare worker or interstate worker injured in a NSW motor vehicle accident should decline having treatment expenses paid by their workers’ compensation regime (or by TAC if they are in a Victorian vehicle) and should immediately insist upon having their treatment expenses paid by the NSW CTP scheme.

There is concern that the NSW CTP insurers and SIRA are not yet fully seized of the need to ensure that persons with dual rights are given early and accurate advice about the appropriate exercise of such rights.

NO-FAULT ACCIDENTS

Statutory benefits are cut off at six months for those who are at fault or mostly at fault. The onus of proving that the claimant is at fault or mostly at fault seems to rest with the insurer (although one insurer is challenging that they bear any onus).

When it comes to a damages claim, the reverse applies. The claimant needs to prove fault on the part of the insured driver in the way they have always had to prove fault.

For statutory benefits purposes, there is a category of drivers involved in single-vehicle accidents who are not at fault or mostly at fault who will not have a damages claim. At least one CTP insurer is vigorously arguing that statutory benefits can be cut off at six months, using a deeming provision in s5.2 of the Act. SIRA disagrees and has said so in writing to the ALA. However, that insurer is being permitted to pursue an administrative appeal in the Supreme Court, challenging the entitlement of the fault-free driver in a single-vehicle accident to be paid statutory benefits beyond six months.

The short facts of this case are that a truck and trailer tipped over due to the sealed container on the trailer being misladen. It was agreed that there was no fault on the part of the driver. Nonetheless, the insurer sought to cut off statutory benefits at six months.

A DRS assessor determined that there was an ongoing entitlement to statutory benefits as the driver was not wholly or mostly at fault. The insurer continues trying to use the deeming provision in s5.2 to cut off benefits. The administrative appeal alleging error of law on the part of the DRS assessor is listed for hearing in the Supreme Court in September.[5]

It is incredibly disappointing that a brand new Act, presumably drafted with some care and thought, can give rise to such immediate disputation. Presumably SIRA and the government knew in drafting the Act who they wanted to cover for statutory benefits and who they did not. If the intent was to cover this group of drivers, then the Act should have clearly provided so (for my part I believe it does). If the intent was not to cover this group, then the Act should have equally clearly so provided.

Individual claimants should not have to be the guinea pigs (or scapegoats) for either drafting or policy failures on the part of SIRA and the government because they have not thought through the full application of the Act.

MEANNESS TO FOREIGNERS

In 2017, someone somewhere in the NSW government took the firm view that statutory benefits for treatment expenses should not be provided to foreigners who return home. People in this category lose their statutory benefit for treatment expenses when they leave Australia. They are unable to make up the loss through a damages claim (no damages for past or future treatment cost).

There has already been an example of a couple from Singapore who were medivaced home with stoma bags due to intestinal injuries and had to pay for their own surgery upon return to Singapore to have the stoma reversed. These innocent accident victims got sent home horrendously injured and without their medical expenses covered.

Apparently, the philosophical objection within government to extending coverage for treatment expenses to foreign tourists and foreign students was that they should all have travel insurance. Clearly, whichever genius in government took this view had not read any travel insurance policies and discovered the limited scope of the coverage provided, even on the most expensive of such policies. The top quality coverage held by the Singaporeans did not cover their surgery needs months after they returned home.

The NSW Standing Committee on Law and Justice has recommended that the government reconsider this aspect of the legislation.[6] It remains to be seen whether it will.

THE PERFORMANCE OF THE SCHEME

As best as the ALA can tell, the scheme is not working as the actuaries projected. Claim numbers are down on projections, which will mean excess profits for insurers. There is a profit clawback mechanism in place for the first three years of the scheme, but how well it will work is unknown. The mechanism being used to claw back profits is entirely untested.

Additionally, the number of so-called ‘minor injuries’ appears to be well in excess of actuarial projections. Whether this is a result of a combination of insurer misbehaviour and an inability of claimants to fight the mischaracterisation of their injuries is unknown.

It is true that dispute numbers are down, but that is because the legal fees on offer to conduct a statutory benefits dispute are limited to $1,633, a fee so paltry that no significant dispute could properly be run for that amount. It is no triumph to claim a drop in disputes if there is a corresponding rise in injustice.

There are legitimate fears that the new scheme is operating on the basis that claimants get what the insurers give them, in an environment where insurers are not being held fully or properly to account in their new role as the all-powerful administrators of benefits.

The ALA is committed to trying to make the new NSW CTP scheme work, albeit preferably with fairer rules, less power in the hands of insurers and more aggressive regulation of insurer conduct.

At present, the teething problems the current scheme is experiencing will require more than the odd filling. There are gaping holes in dentition.

Andrew Stone SC is a barrister at Sir James Martin Chambers and the ALA NSW State President. EMAIL stone@sirjamesmartin.com.


[1] Australian Lawyers Alliance, Submission to the Standing Committee on Law and Justice (18 June 2018) <https://www.parliament.nsw.gov.au/lcdocs/submissions/60918/0009%20Australian%20Lawyers%20Alliance.pdf>.

[2] Cost regulations supporting the Act make minimal provision for recovery of legal costs and in many disputes no costs are recoverable.

[3] On recent data provided by SIRA the legal representation rate on statutory benefit claims is under 25 per cent.

[4] The Workers Compensation Legislation Amendment Act 2018, sch 6.

[5] AAI Ltd t/as GIO v Singh, NSWSC.

[6] Parliament of NSW, Standing Committee on Law and Justice, 2018 review of the Compulsory Third Party insurance Scheme (February 2019) Report No. 68, Recommendation 6, p46, <https://www.parliament.nsw.gov.au/lcdocs/inquiries/2489/2018%20review%20of%20the%20CTP%20insurance%20scheme%20report.pdf>.


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