Is Europe increasingly in the grip of a US-style compensation culture? This was one of the topics discussed at the 360 Live Debate – Is business facing a liability crisis? which took place at Lloyd’s on 20 May 2008.
The spread of compensation culture is a key issue discussed in the recent Lloyd’s report Directors in the Dock. Research for the report, carried out by the Economist Intelligence Unit (EIU) reveals that 67% of EU leaders believe that US-style compensation is spreading to Europe. This argument was supported by Lord David Hunt at the Lloyd’s event on 20 May, in a head-to-head session entitled “Compensation culture – reality or myth?” Lord Hunt, a Partner in the Financial Services Division in the law firm Beachcroft, argued that indications support the existence of a compensation culture: “There is… evidence of a have-a-go culture, indeed my own law firm and many others are seeing a substantial rise in what are termed vexatious and nuisance claims - claims without any real substance.”
Opposing the existence of a compensation culture in the UK was Amanda Stevens, President of the Association of Personal Injury Lawyers. Stevens believes that statistics reveal that a compensation culture is in fact a myth, and furthermore that the UK is not a good breeding ground for such a US-style culture. For example the existence of the National Health Service in the UK means that an injured party does not need to pay for health care as a result of an accident. She also cites lower average payouts than the US in compensation cases, preventing excessive litigation: “We do not have punitive damages, not the regular use of juries, which are more generous in their awards than the judiciary.”
A recent Lloyd’s website poll asked “Is there a growing compensation culture in the UK and Europe?” The responses were mixed, underlining the overall lack of consensus on this issue. Forty-one percent of respondents feel that corporate litigation is increasing. Thirty-one percent are not sure, although feel that is seems as though there is more litigation, and 35% feel that the levels of litigation are the same as they always were.
A report produced by the Better Regulation Task Force in 2004 suggests that the media is partly to blame for sustaining the belief that there is a compensation culture. It states that: Regardless of perception, the truth behind the compensation culture is somewhat different to how it is portrayed by the media and commentators. Many of the stories we read and hear either are simply not true, or only have a grain of truth about them.” The report goes on to say that: “The perception of the "compensation culture" is largely, though not entirely, perpetuated by the media. Whilst appearing to despise the phenomenon, it fills many column inches in newspapers. The media regularly report claims for apparently exorbitant sums, without later reporting the final outcome, which may have been very different.”
Whatever the case, it appears that perception has become reality in many minds. At the 360 Live Debate Lord Falconer, Labour Peer and former Lord Chancellor, argued that just the threat of litigation can be enough, regardless of the court’s final decision. He says of such cases that: “costs and the cloud hanging over individuals and institutions are hard to deal with, and constitute to those individuals and institutions, a real threat.” He went on to state such threats can almost constitute blackmail, as organisations or individuals are forced to settle to prevent long term damage to their reputation and ongoing legal costs.
Lord Falconer feels that the impact of cases which settle out of court can be equally as damaging as ones that reach a court ruling, and that the courts should take action to ensure frivolous cases are nipped in the bud: “It is vital the courts are willing to strike out the hopeless case. The consequences of not doing so can be just as damaging as bringing a winning case.”
So what are the implications of compensation culture, be it real or perceived, on our economy and wider society? Lord Hunt believes that urgent steps need to be taken to prevent the trend spreading: “The alternative is risk aversion, stifled innovation and a gradual but inexorable erosion of our competitiveness as a nation and our wellbeing as a society.” This is supported by Lloyd’s research, which shows that as a result of an increased risk of liability, 36% of European business leaders are already more cautious of investing in new products and 45% are more concerned about investing in new markets or regions.
Lord Falconer fears that an increase in compensation culture could affect Britain’s commercial competitiveness on a global scale: “We succeed as a trading nation because our commerce and our law understand what risks everyone take on themselves. We must continue to do that. If we do our trading advantages continue. We must demonstrate that there isn’t a compensation culture in this country.”
Lord Falconer also believes that there could be severe ramifications in adopting a more litigious approach to compensation: “In the personal arena they lead to there being no bouncy castles at children’s birthday parties. And fewer school trips. And fewer places of interest to visit because their owners – local authorities or others – will not be willing to open them to the public if they run the disproportionate risk of being sued. Each of those losses is sustainable on its own, but the combination of these things having an effect on the quality of all our lives.”
So do we have a compensation culture or a common-sense culture in the UK? It is a divisive question and there are a range of views. One thing, however, that all parties agree on is that compensation should ultimately benefit the injured party. Lord Hunt feels that: “Rehabilitation has to be swift, and effective, and also appropriate. And so far as is possible, injured parties should be returned to the state they were in before they were injured.” In a society where common sense is applied, those truly deserving of compensation will receive it.
