The Woolf reforms - all cost, no benefit?

United Kingdom

The Woolf reforms have imposed extra costs on PI insurers but Simon Chandler argues that imaginative use of the new rules can bring immediate financial benefits

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You might have formed the impression from reading the insurance press over the past six months that the introduction of the Civil Procedure Rules (CPR) was uniformly bad news for PI insurers. The 'front-loading' of costs in claims investigation, compliance with pre-action protocols and keeping up with the rigorous litigation timetables which CPR case management will impose represents a significant extra administrative and costs burden which is already hitting the insurer's bottom line. While there might be a benefit in the future from the reduced costs to be anticipated from a reformed and modernised civil litigation regime, against that hope one has to weigh the immediate costs being incurred. What if the hoped-for net savings prove in practice to be illusory? Even if reduced costs are achieved they might be years off, yielding results only once the reforms have worked through the system.

An antidote to this overly pessimistic view and an illustration of the real benefits and opportunities which the reforms represent for insurers comes from considering the outcome of a recent case heard before the author of the reforms, Lord Woolf M.R., in the Court of Appeal.

The facts

Gullis -v- Pile (C.A. 27th July 1999) concerned a claim by a builder suing for unpaid fees from his former employer, the building owner, following renovation work to a modest commercial high-street premises. The employer counterclaimed for damages massively exceeding the value of the builder's initial claim, alleging defective and incomplete works, delay and loss of profits from his business. The insured architect was also sued by the employer in third party proceedings for allegedly negligent supervision of the building works and over-certification.

Analysis of the employer's case concluded that it was not only weak in terms of supporting factual evidence, but the value of the counterclaim was hopelessly exaggerated. Furthermore, it was pursued on the basis of expert evidence which managed to encompass, in one case, almost every aspect of the old-style adversarial approach which the Woolf reforms were explicitly designed to eliminate. In particular, the employer's surveyor expert was appointed and instructed by the lay client with minimal input from the solicitors on the Court record. As a result the expert's reports were delivered late and did not adequately consider the evidence in the case or deal with the relevant issues. Meetings of experts ordered to reduce the very large number of issues to a manageable number were either ignored or thwarted by the employer's expert failing to communicate in a timely way or at all and by his lack of preparedness. Finally, the expert failed to comply with a Court Order designed to ensure, and require him to recite, that he understood his overriding duty as an expert to the Court (as opposed to the employer who was paying his fees). The result of the architect's application was that the defaulting expert was debarred from giving any evidence at the impending trial. The employer was left high and dry without any expert evidence in a professional negligence action and the entire claim was immediately dismissed without a further hearing. Under the previous rules the likely outcome would have been adjournment, with the trial date missed, while the employer sorted out his evidence, perhaps by changing experts.

The Appeal

The application to debar the employer's expert was made on 26th April 1999 (the day on which the CPR came into force) and the dismissal of the claim was ordered on 4th May. Although the Notice of Appeal was only dated 8th July, it was heard by the Court of Appeal within three weeks. The first instance decision dismissing the claim against the insured architect was upheld and the costs of the entire action and of the Appeal must now be paid by the employer.

The significance of the decision comes partly from the fact that it was given so quickly, and by the author of the reforms personally. The judgment is confirmation of the robust approach to be expected under the CPR to the use (or rather mis-use) of expert evidence and to exaggerated claims generally. It also illustrates the Court of Appeal giving active encouragement to judges to exercise fully their new powers of case-management.

The opportunities

If the Woolf Reforms achieve their aim then, over time, the number of cases which are actually litigated as far as trial will be substantially reduced, either because hopeless claims will never be brought in the first place or because those that are brought are pitched at a realistic level and early settlement can be achieved, through ADR or otherwise. Early settlement should mean reduced costs and should also 'free-up' the Courts and speed up the administration of justice generally.

In the meantime there remain a significant number of spurious and exaggerated claims, incompetently pursued, which the introduction of the CPR make ripe for attack. The key for insurers and their solicitors is to spot those claims and to target them for special attention at the earliest practicable date. By imaginative and, where appropriate, aggressive use of the CPR the soft-underbellies of such cases can be exposed and judicial case management should do the rest.

A proportion of these cases would go the way of Gullis -v- Pile, that is dismissal of the claim with substantial financial recoveries for the insurer. Probably a greater number would, once attacked, settle early on advantageous terms or, if they continue to be pursued, be amended to reduce or eliminate the 'exaggerated' portion of the claim. Reserves could then be correspondingly adjusted. In conclusion, provided such cases are carefully selected and appropriate pressure applied, the CPR present an opportunity for immediate financial pay-back for insurers, measured in weeks and months rather than in years.