SOME ECONOMIC ASPECTS OF THE SETTLEMENT PROCESS: A STUDY OF PERSONAL INJURY CLAIMS
| Author | Keith Hawkins,Jenny Phillips |
| DOI | http://doi.org/10.1111/j.1468-2230.1976.tb01469.x |
| Published date | 01 September 1976 |
| Date | 01 September 1976 |
THE
MODERN LAW REVIEW
Volume
39
September
1976
No.5
SOME ECONOMIC ASPECTS
OF
THE
SETTLEMENT PROCESS:
A
STUDY OF
PERSONAL INJURY CLAIMS
I
“
A
SE-ITLEMENT,”
Atiyah says,
‘‘
is
a
business bargain in which the
plaintiff sells his claim
.
.
.
for what he can get and the buyer buys for
as little as he has to pay.” One important consequence of the com-
mercial nature of this transaction is that what is received in
a
claim
in settlement is by no means what the courts would necessarily
award. Moreover, claimants in minor cases of personal injury receive
a much higher proportion of their losses than those involved in
more serious cases. Perhaps the clearest evidence
so
far available to
support this latter finding comes from the survey of road accident
costs and payments carried out in Michigan in the early sixties.
Losses defined as purely financial (that is, excluding psychic loss
such as pain and suffering) were compared with recoveries from
all sources:
“When the economic loss was under
$1,000,
the chances were
quite good that it would be paid for with something left over for
psychic
loss.
But when the loss was
a
crushing one-over
$10,000,
for instance-it was very rare that the reparation even
came close to matching economic loss. Two-thirds of the
persons with such severe losses received less than a quarter of
their economic losses, with no consideration of psychic losses.
This contrast is all the more striking when one reflects that
the psychic losses are probably greatest in the cases of death
and permanent total disability, which produce the large
economic losses.”
*
This disparity is even more marked when sources of financial
support such as personal insurance are excluded, and tort recoveries
alone are considered. The following table compares the distribution
of settlements in cases in Michigan where less than
25
per cent of
1
P.
S.
Atiyah,
Accidenfs. Compensafion and the
Low
(London: Weidcnfcld and
Nicolson, 2nd
ed.,
1975).
p.
277.
2
A.
F.
Conard
et
d..
Aufomobile Accident
Cosfs
and
Paymenfs: Studies in the
Economics of Injuries Reparofion
(Ann
Arbor:
University
of
Michigan
Press,
1964).
p.
179.
Sea
also
ibid.
Fig.
6-14,
p.
197, and the discussion by
Atiyah
at
pp.
276-280.
497
VOL.
39
(5)
1
498
THE MODERN LAW REVIEW
[Vol.
39
the economic
loss
was recovered (again, excluding psychic
loss).
It
shows that those with the higher losses are more likely to bear
a
higher proportion, and therefore a much higher absolute amount of
their
loss
themselves than those with smaller losses.
Percentage
of
Michigan Claimants
Receiving Less Than
25
per cent.
of
Loss
Losses undcr
$5,000
Losses over
$5.000
From
Tort
Claims
ll*SYO
51
9'0
From all sources
18
Yo*
45.570
Includes cases where
no
recoveries were made.
These findings are also supported by those of a much larger survey
conducted in America in
1969
for the Department of Transportation.'
The only English evidence known
to
us
provides similar results.
In
a
small survey conducted in Oxford by Donald Harris the financial
losses recovered in
72
serious road accident cases
in
the Oxford
area were as follows:
Percentage
of
Losses Recovered in
72
English Road Accident Cases
(I
Loss
*
Average Percentagc
of
Loss
Recovered Number in Sample
E
,
1-
250 16270 36
E
251- 500 137%
13
E
501-1,000
113%
7
El
,001-E5,000
60%
10
Over
E5,OOO
2770 6
All
127% 72
*
Excludes
cases
where no money was recovered.
As
with American data,
losses exclude
"
psychic
"
loss,
whereas
tort
recoveries include an element
for
pain and suffering.
The similarity of the findings in English and American jurisdic-
tions is not surprising, in spite of the differences in legal practices
(of which the most marked for
our
purposes are probably the
existence in America of the contingency fee method of paying legal
fees and the use of juries rather than judges in deciding the level of
awards of damages). We shall argue that these results are the out-
come of rational economic behaviour in the face of the risks and
8
These flgures are derived from tables appearing in Conard
et
al.,
pp.
179-251.
4
U.S.
Department
of
Transportation Automobile Insurance and Compensation
Study,
Automobile
Personal Injury
Claims,
'Vol.
I
(Washington,
D.C.
:
G.P.O.,
1970),
Table
v-8,
p.
SO.
5
These figures are derived from the data produced in the courso
of
the research
for
(but not appearing in) the
"
Report of a Pilot Survey of the Financial Consequences
of Personal Injuries Suffered in Road Accidents in the City
of
Oxford during
1965,"
by
D.
R. Harris and
S.
J.
Hartz (unpublished,
1968).
All cases appearing in the table
involved either permanent disability or renilted in more than
six
weeks
off
normal
activities. Estimates made in the report
of
the value
of
medical services to each
case have been excluded in these calculations.
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