What were the major changes to personal injury laws?

Whole person impairment thresholds

A primary mechanism used in a number of jurisdictions to limit the rights of injured persons to claim damages are ‘whole-person impairment' (WPI) thresholds. WPI thresholds prevent people injured due to the negligence of others pursuing their common law rights unless their injuries result in a certain level of physical or psychological impairment.

A person's level of WPI impairment is assessed by a medical professional in accordance with the American Medical Association's Guides to Evaluation of Permanent Impairment (the Guides). The Guides are used for this purpose, despite a clear warning in the preamble to each edition that:

"...the Guides is not to be used for direct financial awards nor as the sole measure of disability. The Guides provides a standard medical assessment for impairment determination and may be used as a component in disability testing." [American Medical Association, Guides to Evaluation of Permanent Impairment, 5th Edition, page 12]

It is important to note that the Negligence Review Panel did not recommend using the AMA Guides to reduce awards of damages. Instead, as a means of bringing national consistency to awards of general damages, the Panel recommended that the Commonwealth, together with the States and Territories, develop an Australian guide similar to the UK Judicial Studies Board's Guidelines for the Assessment of General Damages in Personal Injury Cases. The purpose of the UK guide is not to assess permanent impairment, but to provide an upper and lower limit for general damages for certain injuries, based on past precedent.

Thresholds are regarded as the primary reason for a massive reduction in the number of compensable claims. Thresholds vary from requiring greater than 5% WPI before legal action may be commenced (for example, in Victoria); 10% (for example, in NSW motor accident claims); 15% of the "most extreme case" (for example, in NSW civil liability claims); to 30% WPI for Tasmanian workers compensation claims and Victorian traffic accident claims (although the threshold in Victoria is mitigated by a "narrative test", which enables a court to consider the subjective impact of the injuries on the plaintiff).

In practical terms, an injury exceeding 10% WPI will be very serious and may significantly affect a person's lifestyle and future employment prospects. For example the following may not exceed the 10% WPI threshold: substantial loss of range of movement in a limb or elbow; loss of fingers or toes; fracture to right leg and ankle bones requiring surgery and leaving one leg longer than the other and pain in both legs when standing and sitting; loss of mammary gland for a woman of childbearing age; complete loss of smell and taste. On the other hand, injuries exceeding 30% WPI will be bordering on catastrophic. Examples of injuries not reaching the 30% threshold are: substantial (73%) loss of use of a leg; loss of sight in one eye; substantial loss of use of one hand; and total loss of movement in wrist.

Caps on general damages

The Parliaments of some jurisdictions have implemented maximum allowable awards ("caps") for "general damages". (General damages are to compensate injured and permanently disabled plaintiffs for the pain and suffering they have endured, and will endure over the course of their life as a result of their injuries).

The cap is different in each jurisdiction it has been applied and even within the same jurisdiction. For example, in NSW the cap varies from around $416,000 for civil liability claims, to $50,000 for Workcover claims. In Victoria, the cap for general damages in civil liability claims was set at $380,950 (CPI indexed). In SA and NT the cap is around $250,000. In WA there is a formula limiting damages below $52,500. In Queensland, the cap is based on 3 times average weekly earnings.

Loss of earnings

Most jurisdictions have established some formula for calculating the amount payable to plaintiffs for past and future loss of earnings. Whilst past loss of earnings are often easily quantifiable, future losses may depend on a range of factors including the plaintiff's projected period of incapacity, prospects for promotion or higher earning capacity in the future, prospects for rehabilitation or retraining in a suitable field or profession, etc. The inherent uncertainty in such predictions has led many jurisdictions to specify in legislation a formula, which includes a maximum amount payable, based on "average weekly earnings" (e.g. three times average weekly earnings - although the specific formula varies between jurisdictions).

Discount rates

Discount rates are used to reduce damages for future economic loss by a certain percentage (specified in legislation in all jurisdictions except the ACT), based on the premise that the plaintiff has the benefit of early receipt of future moneys, which may be invested and accrue interest. The discount rate is therefore (in theory) used to offset the supposed benefit obtained through opportunity to invest in "reasonably safe" investments.

On this basis, the ostensible bench-mark for the discount rate in each jurisdiction should be the return on ten-year bonds issued by the Commonwealth Treasury. In reality, discount rates are often used as an arbitrary means of reducing common law damages payments. Discount rates are inconsistent across different jurisdictions and have not been amended in accordance with expectations about returns on "reasonably safe investments". While the High Court of Australia has determined that a reasonable discount rate would stand at around 3% (Todorovic v Waller), most jurisdictions apply an interest rate of 5% or higher.

If discount rates are high, they tend to impact most harshly on young, catastrophically injured people, whose damages for future loss of earnings would have been significantly greater because of their age and substantial incapacity for work. Ironically, one of the stated objectives of tort law changes implemented since 2002, as stated by the State governments which introduced the changes, was to ensure better compensation for those who need it most while keeping smaller claims out of the courts. Clearly, higher discount rates run counter to that objective.