Tort Reform in Australia

 

Interview with Dallas Booth - January 24, 2005

Introduction - The Federal, State and Territory governments of Australia have enacted comprehensive tort reforms during the past two years. This interview with Dallas Booth, Deputy Chief Executive of the Insurance Council of Australia (ICA), examines some of the key features of the Australian reforms, and their relevance for the United States.

Dallas Booth - Dallas Booth is the Deputy Chief Executive of the Insurance Council of Australia (ICA). He joined ICA in October 1998 to head up a newly created statutory classes division, and now has senior executive responsibility for ICA’s policy and research functions, regional offices and media and communications. He led the ICA work on tort reform. From May 2001 until August 2003, Dallas was Managing Director of HIH Claims Support Limited, the organization running the Federal Government’s HIH Assistance Scheme. Prior to joining ICA, Dallas was General Manager of the Motor Accidents Authority of NSW. Dallas was admitted as a barrister at law in New South Wales in 1980, and has been involved in legal policy, legislation and insurance issues since that time.

What are the most significant differences in personal injury tort law between Australia and the United States? Personal injury compensation in Australia and the United States both reflect the English common law concept of negligence, and damages for personal injury or death. To this extent, there are many similarities between the laws of the two countries, although there can be and often are significant differences on matters of detail. For example, jury trials (while possible) are rarely used in Australia for personal injury damages claims, legal costs rules do not permit contingent fees, and punitive damages are rarely awarded. Australia has some "representative actions", but does not have the history of class actions of the United States. In Australia, the Federal Government has no constitutional power over tort law, but some Federal statutes can be used as the basis of claiming personal injury damages (by claiming breach of a statutory duty rather than claiming damages for negligence).

Does tort reform in the United States impact tort reform in Australia?   Australian tort reforms were developed following an Expert Panel Review of the Laws of Negligence. The Expert Panel was appointed by the Ministerial Forum that was convened to examine the issue and possible solutions. The solutions chosen largely reflect damages reforms already introduced in Australia for auto or workplace injuries. Nevertheless, some regard is had to reforms introduced overseas, including in the United States.  My observation of the tort reform debate in the United States is that the discussion dwells almost entirely on the rights of the injured person. In Australia, the debate has accepted the need for fair compensation for injured people, but has also recognized the important role public liability insurance plays for community groups, small businesses and many other organizations who would be financially crippled by a personal injury damages verdict. Governments have also recognized that such insurance must be affordable across the community. In other words, there must be a balance between the level of benefits available for personal injury, and the level of premiums policyholders must pay to fund those benefits.

What is the history of tort reform in Australia? Since the mid 1980s, Australian States and Territories have been passing legislation which alters the nature and level of damages for personal injury arising out of automobile crashes or workplace injury, death or disease. As in the United States, some States have abolished tort claims altogether, but in most cases they have been modified by the use of some form of threshold for claims for general damages (non-economic loss).

What is the current status of tort reform in Australia? Following a crisis in the supply and cost of public liability and products liability insurance in Australia in 2001 and 2002, tort reforms were also applied to actions for negligence arising in circumstances other than automobile or workplace death injury. Australia now has a comprehensive range of tort reforms applicable to virtually all forms of personal injury claims.

Why was tort reform needed in Australia? Tort reform normally occurs when legislators accept that the financial and political cost of compensation is more than the community is prepared to pay. They then take steps to modify the entitlement to damages or the level of damages to ensure that premiums can remain affordable and to ensure that cover remains widely available in the insurance market place. In relation to public liability insurance, Federal State and Territory Governments agreed to a comprehensive program of reform because the overall level of claims costs was requiring substantial premium increases, and ongoing claims cost inflation would require ongoing premium increases, well in excess of the normal level of inflation in the economy.

What tort reform solutions have been enacted? Two types of tort reforms have been introduced in Australia. Firstly, the laws of negligence have been defined in statute, with a view to removing the capacity to claim personal injury damages for "obvious risk" or other forms of activity that might contain some risk but those engaging in the activities effectively assume those risks.  The second type of reform limits damages for pain and suffering (general damages or non-economic damages) in cases of minor injuries. The States and Territories have adopted a range of general damages thresholds to achieve this outcome. Federal Trade Practices law (statute) has also been amended to ensure that a claim for breach of Federal statute does not provide more generous damages that a claim for negligence.

Is tort reform a national or a state-specific issue?  As previously noted, tort reform is largely the constitutional responsibility of the States and Territories, although the Federal Government has amended its Trade Practices statute to ensure it cannot be used as an alternative mechanism to claim generous damages. The Australian tort reform program was developed by a Ministerial Forum of finance or insurance Ministers (Secretaries of State) representing the Federal State and Territory Governments.

Were the problems and solutions the same or different among the States and Territories? The problems were consistent across the States and Territories: the overall cost of claims for damages for personal injury, and the underlying claims cost inflation. The level of inflation did vary between States.

Who were the proponents of tort reform in Australia? While it is often asserted that the main proponents of tort reform were the insurance industry, in reality there was widespread community protest at the level of premiums insurers had to charge to fund the cost of public liability claims, and broad media criticism of the awarding of generous damages in claims were there was little identifiable negligence, and voluntary assumption of serious risk.

Who are the members of the Insurance Council of Australia (ICA)? The Insurance Council of Australia represents general insurers (property and casualty insurers) operating in the Australian market, who are authorized to operate in Australia by the Federal regulator. ICA members transact over 90% of the business conducted in Australia, and include the top 15 insurance companies by market share. These include both local and overseas insurance companies and Lloyds of London.

What benefits do the proponents claim will result from tort reform? The aim of the tort reform program was to ensure public liability insurance was readily available for the wide range of community and not for profit organizations, small businesses and others, at reasonable cost. In other words, governments aimed to promote the availability and affordability of public liability insurance.

How will tort reform impact:

• Settlement negotiations?  Settlement negotiations now have to take account of the relevant legislative reforms now applicable to the claim, depending on the State or Territory of the place of the injury. In many cases (particularly very minor injuries), only out of pocket expenses will be paid, and it will not be economically viable for trial lawyers to pursue claims of this nature.

• Settlement planning? All Australian tort reforms took careful steps to maintain the maximum level of damages for those with the most severe injuries, particularly those with serious permanent impairment. There is therefore likely to be little impact on settlement planning in the case of major injuries.

• Trial process? There is likely to be a major reduction in the number of personal injury damages actions in civil trial courts in Australia as a result of these reforms. Where the general damages threshold is met, the claim will proceed in the usual manner.

Who were the opponents of tort reform in Australia? The main opponents of tort reform in Australia are lawyers who regularly represent those who pursue claims for damages. Some States also have action groups of injured persons.

What were their arguments against tort reform? Those who argue against tort reform believe justice dictates people who have been injured by the negligence of others should be able to claim damages. Some also assert that tort reform was not necessary in the first place, essentially by rejecting the actuarial evidence of claims costs and claims cost inflation.

Do you anticipate constitutional challenges? The Federal, State and Territory Governments have now passed virtually all tort reform measures. There has been no indication of any constitutional challenge to the reforms.