Counting the cost of negligence

Medical negligence victims can now expect record payments. But, Anne McGrath asks, will lawyers face a backlash and can more sensible settlements be established?

Last month's record pay out of over #3m to cerebral palsy sufferer Sam Mansell signals a new era in personal injury law.

Mansell, a young boy who developed cerebral palsy as a result of medical negligence, was the first beneficiary of the July House of Lords decision in Wells v Wells, which established a new method of calculating damages.

Nicola Castle of Altrincham-based Alexander Harris, who acted for Mansell and his family, says her clients' case is just the beginning of a sea change in award payouts.

“This outcome follows a string of higher awards made since the Wells decision, and should provide encouragement to plaintiffs that a realistic and, perhaps now, more achievable end is in sight.”

Michael Napier, senior partner at Irwin Mitchell, agrees, saying that while there is nothing unexpected in the size of the award, a “psychological barrier” can exist for judges making payouts which are much larger than previous precedents. This barrier was crossed by Mrs Justice Steele in the Mansell case, thus easing the way for others.

Waiting in the wings are numerous negligence claims, particularly those involving brain-damaged children.

Paul Kitson, a partner at Russell Jones & Walker, says that in effect, the Wells decision has set in place a framework to allow for an increase in compensation payments by up to 40 per cent.

In Wells it was acknowledged that plaintiffs should not be required to gamble their compensation in equities in order to obtain a 4.5 per cent return.

Instead, it was ruled, they should be allowed to invest safely in index-linked government stock – yielding a 3 per cent return. But such investment requires a larger initial lump sum in compensation.

“The lessons of the last few months in the stock market show the wisdom of this,” says Paul Ballen, secretary of the Association of Personal Injury Solicitors.

But there are problems on the horizon. Napier says section 1 of the Damages Act 1996 gives the Lord Chancellor, Lord Irvine, the power to proscribe a different discount rate, (affecting the rate of return). A Lord Chancellor's Department spokesman confirms that Lord Irvine is “actively considering the matter” and an announcement is expected soon.

Until a decision is made the future remains uncertain. But there are voices favouring both sides of the argument. Napier feels that Lord Irvine would be “flying in the face of reason and public opinion” if he were to return to the higher discount rates.

Kitson agrees, suggesting that if any change is made, it should be to “further reduce the rate to 2.5 per cent to take account of falling interest rates on government securities”.

But Bertie Leigh, senior partner at Hempsons, says he would like to see a return to the 4.5 per cent tables. He says that higher awards means less available funding for the NHS. It is the NHS, he says, which is “by far the greater victim”.

Still, the move towards higher compensation awards looks set to continue with the introduction of conditional fees, as more people will be able to pursue a claim.

So will increasing pay outs result in a backlash against the legal profession? And will the so-called “compensation culture” that is said to exist in the police shift into medicine?

“Lawyers will always be blamed as the effects reach the public via higher future insurance premiums, and as less money is available for healthcare,” Napier says.

Anne Louise Ferguson, managing solicitor for Welsh Legal Services, who defended the Mansell case, says: “The area of increasing costs of litigation to the NHS is one that the Government is looking very hard at. Proposals for 'clinical governance' and implementation of 'risk management' strategies underlines the commitment to raising standards across the board.”

Ferguson says the rising figures in litigation are not necessarily a reflection of falling standards. “We live in a more litigious society where people are made more aware of their rights and have much higher expectations,” she says.

But whatever the cause, it is clear that the Government is right to be concerned with the effects. National Health Service Litigation Authority figures show that litigation costs to the NHS for 1996-97 were a staggering #235m and have risen by 15 per cent over the last 5 years.

An NHS spokesperson says that as risk management strategies increase and the effects of clinical governance kick in, “litigation costs will start to fall, or at least level off”. But this will require an expensive investment.

The solution for defence solicitors to these high costs is the imposition of structured settlements or periodical payments – at least for very high medical negligence awards.

“This is the sensible way to proceed,” says David Mason of Capsticks. Mason believes this will mean plaintiffs have a tax-free income guaranteed for life, while the lump sum can be kept in the NHS coffers and fed back into the system to prevent future mistakes.

This was the solution suggested by Lord Steyn during the Wells case. It remains to be seen whether Parliament will sanction it in legislation.

Adrian Whitfield QC, a member of the Clinical Disputes Forum, argues that “periodical payments, having the same tax advantages as structured settlements, are the preferred alternative”.

But Nicola Castle feels that plaintiffs favour lump sum payments because the NHS “tries to pay out the absolute minimum in structured settlements or periodical payments”. Like other plaintiff solicitors she would welcome independent control in this area and says that “the sooner the judiciary gets involved the better”.

As Frank Dobson, the Secretary of State for Health, has pointed out, the best way to reduce medical negligence claims is to reduce medical negligence. Until this is done, his call that the only time a solicitor should be seen in a hospital is when they are under the surgeon's knife remains but a dream.