780 Degrees of Separation - The Hallam & Kennett Lies

The resilience of the profession is being tested by the state governments disgraceful plans to scrap recourse to common law for seriously injured workers. However, the so-called reasons for the changes are worse. Government MPs have allowed themselves to be conned, and that is putting the matter at its mildest. They have been duped by the Victorian WorkCover Authoritys claims that costs are rocketing. Wildly exaggerated figures have been bandied about to scare the public who should, instead, be afraid of losing their rights to court action.

On 7 October, the day the Minister for Finance Roger Hallam announced the changes, his news release talked of "the 780 percent increase in common law costs". The dupe is these figures did not include the old WorkCare scheme. The actual increase was 75 percent. Moreover, the previous scheme did not include compensation for future economic loss, so like was not compared with like.

This was but a part of the scam. The legal costs were simply a bullet aimed at lawyers. An obliging Herald Sun reporter uncritically accepted figures for legal costs of WorkCover to get a headline of "Million-dollar lawyers". It hardly needs adding that this report said: "Soaring legal costs are behind the Governments decision yesterday to overhaul the WorkCover compensation scheme by abolishing common law claims . . ." But it does need saying again that the figures are wildly exaggerated since, as even a basic inquiry by the paper would have established, the amounts "paid to 26 firms of solicitors" included disbursements and other costs. So the figure of $2 million to each of ten firms in the past year must be cut by at least 40 percent.

Abolition of common law will produce little or no cost saving. This is because of the commensurately increased weekly payments and statutory lump sums, as shown in a letter from the consultants Trowbridge to the VWA. Common law simply brings forward payments of compensation that would be made over many years. It is not inherently more expensive than weekly payments and statutory lump sums.

The real cause of the rise in the cost of the scheme is a greater than expected increase in the number of long-term claimants. Even the schemes actuaries do not blame common law, but describe its ameliorating effect. For example, a 50 percent increase in common law claims means a 50 percent decrease in long-term claimants.

But even if there were some possible savings by the abolition of common law, this would be lost by long-termadministration and handling costs to insurers and employers, such as medical examinations at $500 a time and file reviews that are all but avoided by the "once and for all" nature of common law. In this context, it is important that I point out that legal costs associated with common law in 1996-97 were $33.5 million, not $100-110 million as has been claimed

In all the early drafts of the Legal Practice Bill, the Attorney-General intended that professional indemnity insurance should be compulsory and that all firms should be required to insure through the Solicitors Liability Committee. However, Cabinet insisted on a change in the insurance arrangements and private insurers were to be allowed into the market. The Attorney obtained approval for a report from KPMG. KPMG barely discussed the issue with the Institute. The report came down in favour of the introduction of private insurers.

At the same time, the SLC indicated to the Institute that if competition was to be allowed it would not compete. Further, it expressed its belief that nothing would change the Cabinets mind and that it was certain that private insurers would be permitted.In these circumstances, faced with the certainty that this was going to happen, the Institute sought to do the best that it could for its members, notwithstanding the Institutes view that the SLC had done a very good job for Victorian solicitors. We started exploring various avenues within the private market. We have thus reached the situation of saying: "If it is to happen, let it happen now." This is based substantially on our view that the market is at an historically "soft" level at present and that premiums will be reduced more this year than in any other year. If our members are going to be inconvenienced by a new scheme, with changes of insurer and all that brings, let them at least get the benefits of substantially cheaper premiums. There are a number of problems associated with the changes, but the representatives of the private market who have addressed the Institute are convinced that they can be overcome.

It is entirely on the basis of these assurances that the Institute has adopted the position that it has of urging the government not to postpone the introduction of the private market.

Geoff Provis
Past President, Law Institute of Victoria
Nov 1997