By: 7 March 2016
In need of medical attention

David Armstrong and Stephanie Barratt look at the prognosis for medical negligence funding in Scotland

Medical negligence cases face an uncertain prognosis when it comes to securing funding for claims.

In Scotland, medical negligence is thankfully rare but when care falls below the reasonable standard, the outcomes can be devastating for patients and their families. Claims inevitably arise as redress and compensation for loss or injury are sought.

However, the constraints on sources of funding, such as legal aid and insurance backed claims, could seriously jeopardise access to justice for potential claimants in Scotland. 2015 figures have revealed that a more cautious approach is being taken by organisations funding medical negligence claims in Scotland.

Complexity, cost and high risk mean that all but wealthy self-funding clients, or the small number entitled to legal aid, can consider pursuing a case.

With a conservative estimate of fewer than one in five cases in Scotland of alleged medical negligence being pursued, a significant business opportunity could present itself for some, if a solution to the funding crisis can be found.

Litigating cases: cost and risk

Medical negligence cases are notoriously expensive to run, largely due to their reliance on expert evidence.

Rarely does a report give change from £1,000, and in most cases multiple reports are required to prove negligence. Financing those reports and other outlays is a challenge to law firms. Experts are understandably reluctant to have their fees deferred in what are usually long running cases that can last several years.

As with most cases traditionally raised in Scotland’s highest civil court, the Court of Session, instruction of counsel is commonplace and generally merited. Like experts, the pool of advocates willing to work now and be paid later is diminishing, which is hardly surprising if settlement could be two, three or possibly four years away.

Recent reforms to the Scottish civil court system regarding moving business from the Court of Session to a specialist personal injury court seem unlikely to change counsel instruction significantly – the complexity of most medical negligence cases warrants counsel’s involvement, regardless of value.

From a law firm’s perspective, tying up work-in-progress in cases running for years is a financial gamble requiring a steady eye on cash flow and a confidence that the case will succeed. Nothing new for personal injury lawyers, you might say, but less attractive if the work required to settle or win the case is disproportionate to the return.

Reading through lengthy medical records, consulting with several experts, and dealing with an NHS legal system adverse to early settlement, make medical negligence a challenging area to work in. In short, costs are high and the risk is corresponding.

When a case is won, the results can be very rewarding – a pursuer will generally receive a five or six figure pay-out on damages, and the representing firm will benefit from the Court of Session fee scale. Yet, when a case is lost the pursuer may find their time and energy wasted, while their representing firm are left to foot the Defender’s fees.

In order to eliminate this risk to Scottish firms, there are two main funding models available in Scotland: legal aid or After the Event Insurance (ATE).

Legal Aid, the traditional funding model

The Scottish Legal Aid Board (SLAB) used to fund most of the medical negligence litigation brought in Scotland. However, with a diminishing legal aid budget and policy changes at government level, obtaining legal aid is not as straightforward as it used to be.

In 2013-2014, over half of civil legal aid applications to SLAB were rejected at the initial stage, with even fewer being given due consideration after the initial sift.

To qualify for legal aid, SLAB requires an applicant to prove financial hardship, a reasonable chance of success, a minimum value of £10,000, and that all other avenues of funding have been exhausted. A Scot with an average income will be unable to prove financial hardship, and without the preliminary views of a medical expert, reasonable prospects will be difficult to judge.

That means the pursuer outlaying their own funds for medical evidence that might not be supportive. Doing a tour of potential funding sources is rarely time well spent as we explain below. Consequently, legal aid is rarely granted.

Legal aid is not, of course, a golden ticket to success or an easy ride on finance. While outlays could be reimbursed and interim fees submitted to SLAB, they are usually granted at legal aid rates making return on work a challenge to make profitable. Unsurprisingly, Scottish firms are increasingly reluctant to act in medical negligence cases funded through legal aid.

Alternative funding: ATE Insurance

After the Event Insurance (ATE) ought to be the solution to the funding gap.

An ATE policy will provide cover against an adverse award of third party costs and will generally cover outlays incurred by the pursuer. In the event of recovering damages, the pursuer pays the insurance premium from damages. From an insurers point of view, the case requires reasonable prospects of success and to be of sufficient value to cover the policy premium.

Insurers will also consider strength of evidence, case value, level of cover sought, the outcome of previous similar cases, limitation period, causation, and liability. The latter is rarely clear cut as expert evidence is often required. The question is how to obtain that without ATE in place? It is catch twenty-two.

In previous years, ATE insurance providers were more willing to excuse the complications of other factors due the high amount of cover sought and the amount their premium could potentially return. This may have been the case throughout Scotland as there was an upward trend of litigated medical negligence – an increase of 18% between 2010 and 2011.

However, over the past two years, insurer attitudes towards medical negligence cases have cooled, adopting a more cautious approach and making securing ATE challenging.

To make insuring the risk worthwhile and profitable, some ATE providers offer premiums at anywhere between 40-60% of the amount of cover sought. Remembering that ATE premiums have never been a recoverable cost in Scotland, it seems that the Jackson Reforms may now be having their effect north of the border.

To assess the risk and in a similar manner to the legal aid quandary, many ATE providers require a supportive medical report to consider providing cover. But if the medical evidence is unsupportive or not recoverable in the action, then the client or lawyer will have to foot the bill. This obstructs those in the ‘squeezed middle’ – too well off for legal aid but not cash rich enough to pay for a medical report that they may or may not get the cost back for.

Finally, another compelling reason cited by ATE providers for their more cautious approach is the unpredictability and unfamiliarity of the Scottish system. One notable trend is that Scottish cases usually take a longer time to settle than their counterparts south of the border.

While at times that may be due to the complexity of the matter, experience suggests that much comes down to the policy approach of the Central Legal Office, the legal department that deals with claims on behalf of NHS Health Boards: settle late and don’t settle often.

Tackling the Funding Gap

In the absence of a radical shake up in litigation funding, access to justice appears to be closing for those who have potential medical negligence claims in Scotland, at least for those without cash to pay for reports up front. In the absence of new financial products, or at least the ATE market becoming less risk averse, a solution in how such claims are dealt with could be a cost effective solution.

Improving the predictability of the medical negligence system to reduce funder risk is desirable and of interest to pursuers. It ought to be of interest to defenders too, most of whom act for NHS funded organisations and have an obligation to act in the public interest. The Voluntary Pre-Action Protocol (VPAP) exists for Scottish personal injury cases. It encourages early disclosure of evidence and encourages settlement pre-litigation. It is successful in controlling costs and to an extent, the level of damages.

At present there is no system of rules designed for medical negligence – no disclosure, timescales, or scale of costs, thus increasing unpredictability on both sides.

A protocol for medical negligence, while requiring flexibility for the complexity of medical negligence cases, could make them more attractive to third party funders such as insurance providers.

Currently many law firms in Scotland are unable to absorb the substantial cost and risk a medical negligence claim can represent. At Brodies, our specialist medical negligence team work closely with ATE providers to ensure the merits of each case are considered on an individual basis.

Equally we work with many clients able to self-fund medical reports in the first instance. We would like to help those in the ‘squeezed middle’ to access the justice system more easily.

With some pragmatic reforms such as a protocol for pre-litigation and reducing unpredictability in the whole system, perhaps more ATE providers could be encouraged into a rewarding and important area of law.

David Armstrong is a partner and Stephanie Barratt a trainee in the personal injury team at Brodies