On attaining government in 1972, Labor Prime Minister Gough Whitlam set up an inquiry into accident compensation headed by Justice Woodhouse. Woodhouse had earlier conducted an inquiry in New Zealand.
The inquiry recommended an overhaul of the common-law system of awarding damages to those injured in public places, workplaces and through medical negligence. Legislation was drafted, passed the House and was knocked back by a conservative majority in the Senate. And now 30 years later, the conservatives want the system overhauled – for different reasons.
Yesterday, the Minister for Small Business, Joe Hockey, said, “”We’re calling on state governments to review the common-law system.”
In 1974 the Woodhouse inquiry found a litany of sins against the common-law system of compensatory damages for injury. Among the sins was that the system paid far too much in legal fees – money that would be better going to injured people. This is partly the gripe of Joe Hockey and others – that business and even community events can no longer afford the public liability insurance premiums to cover themselves if someone sues for personal injury and that the lawsuits were becoming too common and expensive because of the legal profession.
But the matter of legal costs was not the greatest of the sins cited by Woodhouse. Other faults were that the adversary system with its costs and delays and winner take all attitude meant that many injured people were force to go for broke. Rather can concentrating on getting better and back to work, they highlighted (or even exaggerated) their injuries. Combined with delays typical of the legal system, it put many subjects who otherwise might have got back in a state of litigation neurosis. Lump-sum payments were damned. Better to pay people periodically something under their ordinary pay giving them the security needed to get better and the incentive to get back to work. Moreover, the lump-sum damages invariably were inadequate for the injured.
In the past 30 years, every headline mentioning record damages was greeted with gasps, as if someone had won a lottery, but ultimately the money became inadequate, verging on the paltry. Amounts of several hundred thousand dollars in the 1970s made people gasp, but even wisely invested could never produce the income needed to keep someone in permanent care. Inevitably, they fell back on the public welfare system – even though their injuries were caused by someone else’s negligence.
The other big sin was that the common-law system was an all-or-nothing affair. If you were lucky enough to be able to point to someone else’s negligence you got (often very large) damages. Another person with the same injuries might get nothing. Coupled with insurance and the increasing propensity of judges to pity plaintiffs, the test for negligence has become successively lower. Virtually anyone injured in a public place these days can point the finger and get a count to agree that it was caused by negligence – and the big damages flow. What was the morality for putting one wheelchair-bound person into penury because the accident was caused by a blow-out or a bee and another with large damages because it could be nailed to someone else’s moment of inadvertence. And what of the justice of a case where an injured party gets huge damages and soon after (as often happens) dies, leaving the bounty to richly undeserving relatives.
The lump-sum payments system has to guesstimate life expectancy.
Now, 30 years later, the common-law system is under attack, not for its parsimony, arbitrariness and inadequacy, but because it is seen as too generous and too much of a burden. Money, not compassion or need, are driving the new debate.
Hockey says businesses are facing premium increases of more than 500 per cent. He wants a system similar to the one in New Zealand where businesses pay a levy to the Government-run compensation scheme which pays injured and ill people, but those injured cannot sue.
This was the very scheme proposed by Woodhouse for Australia 30 years ago which was knocked back by the Liberals in the Senate at the behest of the insurance industry that it now wants to protect and the legal industry which predicted that people would get a worse deal under a national compensation scheme.
Now the Insurance Council of Australia endorses the Hockey plan – a plan that 30 years ago got the insurance industry into such a lather of opposition that it gave its workers time off work to demonstrate against the evils of a socialised compensation scheme.
The New Zealand system has had its difficulties. As costs blew out, changes had to be made. Since 1974 the New Zealand scheme has covered all accidents – car, work, medical, home – irrespective of fault. Changes included: Forms of no-claim bonuses; incentives for safer practice; employees (as well as employers) to contribute for home accidents; competition in raising levies and paying claims; and most important that the scheme had to be self-funding. Compensation has been paid on a fairly strict schedule based upon a percentage of income and damages for pain and suffering and the loss of amenities of life have been strictly capped. But the one-size-fits all involves serious injustice, particularly to the high-income self-employed and the very active with major long-term injury – they get poor compensation compared to common-law.
Thirty years ago the conservatives were the champions of the common law and opposed to (socialised) national compensation schemes which the Labor Party favoured. Now, it is the other way around. In Victoria, in 1997, the Kennett Government abolished common-law claims in the workers’ compensation field. The workers protested furiously. The Labor Government restored them.
You have to ask why the volte face. Some things have changed. The rules binding lawyers now allow them to take cases on contingency: no-win, no-pay. This encourages plaintiffs to take actions that in an earlier day they would have shied away from because of lawyer’s fees. Class actions also enable lawyers to drag in many more plaintiffs who earlier would not have bothered. Courts have opened the floodgates, allowing more claims for more things and have (until recently) found negligence more readily. Insurance has been more widespread.
The big question is whether the Hockey scheme is a quick-fix to help small business now facing higher premiums. Or is it going to be a thoughtful plan embracing compensation in general – including medical negligence and work, road and home injury as well.
A national scheme has advantages: there is no aiming for a pot of gold which encourages people to exaggerate injury rather than recover; there is an emphasis on rehabilitation and the security of immediate periodic payments – this saves costs in the long run; there are no large legal fees; no contingency gambles; no extra costs of class actions; and it self-funds compulsorily so there are no problems with uninsured defendants. There are no lotteries of finding of negligence and there is no lottery in guessing life-expectancy upon which lump sums are based.
The common law has advantages: people get individually assessed and there is a strong incentive by defendants to improve safety practices to lower premiums. This last point need more emphasis.
A quick fix to lower premiums now will not work. A blended system to get the advantages of both common-law and national scheme will help accident and negligent victims and the people who pay.