Like the years between the sixth and seventh editions, those between the seventh and this edition have witnessed vigorous public debate, official reports, legislation and case-law developments in many of the areas covered herein. The most significant legislative changes have affected social security and the financing of personal injury tort claims. TheWelfareReformAct 2012, the various provisions of which will be phased in over the coming years, represents perhaps the most fundamental overhaul of the social security system since its establishment in the 1940s. It has necessitated major rewriting in Chapter 13, made more difficult by the fact that, at the time of writing, many of the details of the changes had yet to be settled or announced. In the wake of Lord Justice Jackson's 2009 Review of Civil Litigation Costs, major changes to the funding of personal injury tort claims were introduced by the omnibus Legal Aid, Sentencing and Punishment of Offenders Act 2012. Once again, at the time of writing, important details of the changes had yet to be settled, and so the discussion of the reforms is necessarily tentative in various respects. Further afield, in 2011, the Australian Productivity Commission recommended the introduction of two schemes – one for people disabled by injury and the other for people disabled by other causes – that would greatly improve and increase public provision for the most seriously disabled.

Accident victims and tort claimants

Who actually makes tort claims and gets tort damages? How are these claims resolved? What proportion of people who could in theory make tort claims actually do? In this chapter we investigate such important issues.

Cases reaching trial and set down for trial

According to the Pearson Commission, in 1974, some 2,203 cases of personal injury and death (less than 1 per cent of the estimated number of tort claims) were actually tried in the courts of the whole of the UK. In England andWales alone, the figure was 1,870. Of this figure of 1,870 cases reaching trial and receiving a full hearing, 1,169 were tried in the High Court, and 701 cases in the county courts. At the time these figures were compiled, personal injury and fatal accident cases constituted the overwhelming bulk of the work of the Queen's Bench Division. By contrast, personal injury actions formed a much smaller proportion of the business of county courts. This was still true in 1986 when, according to the Civil Justice Review, the number of personal injury trials completed was 1,400 in the High Court and 3,500 in county courts.

Where we are now and how we got here

Serious dissatisfaction with the operation of the tort system, as a mechanism of compensating for personal injury and death, first received widespread expression in the late 1960s. Terence Ison's book, The Forensic Lottery, was published in 1967, followed by D. W. Elliot and H. Street's Road Accidents in 1968, and the first edition of this book in 1970. At about the same time, the famous thalidomide affair was coming to a head. In the late 1950s and early 1960s, a large number of children around the world were born with disabilities of varying degrees of severity as a result of their mothers having taken the drug thalidomide during pregnancy. Tort actions brought against manufacturers of the drug came to the attention of the public in 1972 when the Sunday Times ran a series of articles in which one of the manufacturers, the Distillers Company, was heavily criticized for the way in which it was defending the actions. As a result, the proprietors of the Sunday Times were prosecuted for contempt of court, and the case eventually found its way to the European Court of Human Rights. By the early 1970s, then, there was a vigorous public debate in the UK about the shortcomings of the tort system as a compensation mechanism.

In this chapter, we examine the cost of the various compensation systems we have considered, and how the cost is paid. The Pearson Commission provided a lot of information about the cost of the tort system in particular. There are two different types of cost, private cost and social cost. The main function of compensation systems is to transfer money from some people to others; the sums so transferred are a (private) cost to those who have to pay them, but they are not a social cost. They do not reduce society's resources as a whole. In economic terms, they are transfer payments. So far as transfer payments are concerned, the relevant questions concern the total value of the payments and the way the burden is distributed. In the context of compensation for personal injuries, social cost is, in essence, the administrative cost of making transfer payments. Administrative cost is social cost because it is the measure of the resources consumed in making the transfer payments. The question of how much ought to be paid out in compensation is answered by reference to the goals of the compensation system in question; but the question of how much ought to be spent in making the compensation payments is purely a matter of efficiency.

The lump sum: predicting the future

Personal injury cases

Damages for personal injury and death typically take the form of a lump sum. The award or settlement is made once for all, and can rarely be increased or decreased later to take account of changes in the claimant's situation. In the great majority of instances where the injuries are relatively minor, this raises no real problem because the injured person is likely to be completely recovered long before the damages are assessed, and the whole episode is by then past history.

However, the lump-sum remedy does raise acute problemswherever a person suffers serious injuries, the effects ofwhichmay still be felt long after the damages are assessed. The Pearson Commission estimated that about 7.5 per cent of all tort claims (including claims in fatal cases) involved loss of future earnings after the trial or settlement of the claim. In cases of continuing income loss, orwhere the injured person will have a continuing need for hospital, medical or nursing care, two sets of predictions have to be made at the date of trial or settlement in order to calculate an appropriate sum.

Compensation

Some preliminary questions

So far in this book the word ‘compensation’ has been used loosely and in various contexts. We must now consider more carefully what is meant by the term, and ask why we compensate the victims of injury, disease and disability. One possible answer to this second question is thatwidely held notions of justice and fairness demand it. Unfortunately, however, we have very little evidence of what people think about compensation for death, injury and disability. Attempts have sometimes been made to ascertain common views by survey questionnaires, but the results are not particularly helpful. Onewriter concludes that ‘there seems to be rather little evidence that when asked, people actually do express consensus support for a fault-based compensation system’. Several (old) surveys found that an overwhelming proportion of those questioned were in favour of damages being awarded for pain and suffering; but, since those questioned were themselves recent victims of road accidents, what is surprising is not the majority of affirmative replies, but the substantial minority who did not favour such awards – some 20 per cent in one survey and around 30 per cent in another.

Types of first-party insurance

Injury and illness insurance

Under a ‘third-party’ or ‘liability’ insurance policy one person (the ‘first party’ we might say) is insured by the insurer (the ‘second party’) against the risk of being held legally liable to another (the ‘third party’). Under a ‘first-party’ or ‘loss’ insurance policy, the policy-holder (the first party) is insured against the risk of suffering loss specified in the policy by causes defined therein. Nearly all accident risks can be covered by first-party insurance of one kind or another. Life insurance, which usually covers death from any cause except (in some cases) sane suicide, is by far the most common form of first-party insurance against risks to the person (i.e. death from personal injury and other causes). A significant proportion of life insurance is mortgage-related – that is, it provides security against the death of the mortgagor. The popularity of life insurance is partly attributable to the fact that it is used as a form of investment, not merely as a protection against risks; but also partly to the fact that premiums for this type of insurance are low relative to the benefits provided.

Defendants

In legal theory, the victim of personal injury who wishes to make a tort claim can sue either the person whose negligence actually caused the accident; or, where that person was acting in the course of employment at the time the tort was committed, the victim may sue the employer who is vicariously liable for the employee's tort; or both may be sued. As a matter of law, the tort victim (except in limited circumstances: 9.3) cannot sue the insurance company that has agreed to indemnify the tortfeasor or the employer against the tort liability. The insurer has committed no tort, and the only person with legal rights against the insurer is the insured. But, if we look at the matter from a more practical and realistic viewpoint, we can see certain similarities between employers who are vicariously liable and liability insurers. Both may be legally liable for tort damages in the ultimate result; neither of them is (usually) in any way personally to blame for the victim's loss; both of them can act as ‘loss distributors’ in the sense that they can pass the cost of paying damages on to others, namely, premium payers (in the case of insurers) and customers, employees and shareholders (in the case of employers).

Introduction

A person cannot incur tort liability to pay damages for injury or damage suffered by another unless that injury or damage was caused by the former's tortious conduct. This is as true of strict tort liability as it is of fault-based tort liability. Causation of harmis essential to tort liability because tort lawis a set of principles of personal responsibility for conduct. Tort law compensates the injured, but only if someone else was responsible for those injuries; and normally a person will not be responsible for injuries unless their conduct caused the harm. In other words, the tort system is a ‘cause-based’ compensation system. These deceptively straightforward statements raise complex issues that are usually dealt with by considering two questions. First, did the tortious conduct in fact cause the damage? Secondly, whatever the answer to the first question, ought the tortfeasor to be held liable for the loss suffered by the injured person? If the answer to the first question is ‘no’, then the answer to the second will usually, but not invariably, also be negative. But answering the first question affirmatively by no means always leads to the imposition of liability.

The concept of over-compensation

How do the various systems for providing compensation and monetary benefits to disabled people fit together. Where a person is entitled to payments from two different sources (or ‘compensation systems’), three principal alternatives present themselves. First, the person may be allowed to receive and keep money from both systems so that in the result they receive more than either system alone allows. This is sometimes called ‘cumulation’. Secondly, the person may be allowed to receive compensation from one source only, and in this case it will be necessary to decide which that source will be. Thirdly, the person may be entitled to receive a particular amount (perhaps the larger of the two amounts on offer) partly from one source and partly from the other.

Where a person receives money payments from more than one source, they may receive more than is necessary to achieve the purpose that either of the payments is designed to serve. For example, if both payments are designed to replace lost income, a person who receives a payment from both sources may receive more in compensation than has been lost in earnings.

Foundations of the social security system

Workers’ compensation

Although the origins of the modern social security system have been traced to the poor law of the Elizabethan age, it is sufficient for our purposes (since we are concerned primarily with disability) to look no further back than 1897 when the first Workmen's Compensation Act was passed. In the nineteenth century the tort system rarely provided any compensation to the victim of an industrial injury because of three defences the courts had evolved for the protection of employers: common employment (denying liability for the negligence of a fellow worker); contributory negligence (denying liability where the worker was partly responsible for their own injuries); and volenti non fit injuria (assumption of risk) which (as then interpreted) denied liability for injuries occurring from a known and obvious risk. However, in 1880, Parliament passed the Employers’ Liability Act, which restricted the scope of the doctrine of common employment; and, in 1891, the House of Lords limited the availability of the defence of volenti. Furthermore, between 1878 and 1901, a stream of new factory legislation emerged dealing with the health and safety of workers, and the common law responded with the creation of the action for breach of statutory duty.

The nature of the duty of care

The concept of negligent conduct, which was discussed in Chapter 2, together with the notions of causation and remoteness of damage (which are discussed in Chapter 5), may be said to constitute the concept of fault as embodied in the tort of negligence. But not all faulty conduct in this sense gives rise to legal liability. The tort of negligence, it is sometimes said, cannot be committed ‘in the air’. A personwill be liable for negligent conduct only if that person owed the claimant a duty to take care. In the famous case of Donoghue v. Stevenson, Lord Atkin enunciated the equally famous ‘neighbour principle’ according to which a duty of care is owed to persons whom you ought reasonably to foresee as likely to be injured if you do not take reasonable care. On the basis of this principle, it was, for many years, said that the test of duty of care was foreseeability. However, in the 1980s, the House of Lords became dissatisfied with this test, especially in relation to cases involving liability for economic loss, and in a series of decisions it developed a threefold test for the imposition of a duty of care: first, was it foreseeable that the claimant might suffer damage if the defendant did not take reasonable care?