04 Apr Impact of the ICBC No-Fault Strategy on Law Firms
Law firms may lose 20 – 30$ million dollars due to the ICBC minor cap, which would affect the government and employees dramatically.
With the introduction of the ICBC’s no-fault system for accidents on or after April 1, 2019, anywhere from 80 to 90% of all injury claims will be capped at $5,500 for pain and suffering for being a “minor injury” despite many of the injuries being anything but “minor”.
Anyone working on the side of injured victims in the legal field should be very concerned about the impact of this new NDP system on the profitability/viability of BC plaintiff only law firms. I am sure that there will be no public sympathy for lawyers as the consensus is that lawyers are overpaid ambulance chasers anyways. However, the impact of the new ICBC no-fault system will be devastating to many law firms as was the case across Canada whenever a Provincial government has rolled out a no-fault scheme. With BC, however, the system the NDP is imposing is one of the most severe schemes, taking away rights of injured victims more so than most Provincials.
ICBC Saving Money at the Cost of Serve Consequences to Injured Victims
If we use the NDP cost saving estimates, the no-fault scheme is set to save ICBC a net of at least $1 billion each year. That means the expected savings on settlement pay-outs to injured victims is closer to $1.3 billion or more because of the added costs of the no-fault scheme few talk about. First, the no-fault system has greatly increased the pay-out to all individuals in a car accident including the bad drivers that cause the accidents. It is hard to predict the increased cost of the no-fault benefits but probably the cost is at least $200 plus million a year. Second, ICBC, rather than shedding unionized staff, is greatly increasing the ICBC workforce to administer no-fault benefits at an extra cost of perhaps $100 plus million a year. In other words, to get the $1 billion in savings while rolling out a costly no-fault benefit scheme, the net reduction of settlement pay-outs to the victims of car crashes probably sits at least at $1.3 billion or more per year. The exact amount of the pay-out reduction is anyone’s guess as there are a lot of moving parts including all the legal wrangling that will occur to help dial back the severe consequences of the ICBC no-fault scheme on the injured victims.
Plaintiff lawyers work under contingency fee arrangements which means that the lawyer gets paid a percentage of the settlement received by the injured victim. The government has restricted the legal fees to a maximum of 33.3% of the recovery so the reduction in settlement values is likely to reduce legal fees by somewhere in the range of $300 million to $400 million a year.
The amount of an injured victim’s settlement cheque from ICBC will be a lot smaller even if the claim is not a “minor injury”. The ICBC no-fault scheme has taken a bite out of the amount of a settlement as follows:
- For “minor” claims, the pain and suffering award is capped at $5,500 for injuries that were worth up to $150,000 under the old system (e.g. chronic pain, brain injury, etc.);
- The innocent victim is no longer able to recover “user fees” for treatment so the amount of out of pocket expenses victims can recover is severely reduced;
- The past wage loss award in a settlement is greatly reduced because of ICBC’s obligation to pay more temporary disability benefits upfront plus ICBC no longer having to pay wage loss that a victim can receive from other insurance coverages;
- ICBC is now leaving part seven claims open indefinitely and not “cashing out” future care awards which will lower the settlement value;
- ICBC has a new policy of limiting future loss of earning claims so unless an injured victim is prepared to attend a trial, the settlement value of that head of damage is lessoned; and
- The limit on medical expert opinions allowed to prove a case will lower settlement outcomes.
You can quickly see that the size of settlements of all post April 1, 2019 cases is greatly reduced. It’s difficult to determine the impact on law firms of these policies but probably 50 to 75% of the revenue for plaintiff only firms will disappear quickly under the new scheme.
Law firms want to Help People
It is not all about the lawyers making less money. It is about the people that are indirectly affected by such a dramatic change in the system. First, a lot of support workers will be laid off as law firms look to cut costs to correspond to a drop in firm revenues. The bigger loser is the vulnerable citizens such as the elder, the disabled, the low-income earner, etc. who will no longer have access to justice as most lawyers cannot afford to take on a file where the injured victim’s damages are for pain and suffering only and the likely outcome is a “minor injury” designation. In that case, the lawyer can only bill a maximum of $1,815 on the file yet has to work 50-100 hours to see the file to closure. Lawyers can not afford to run an office with staff while receiving $18 to $36 per hour for all the work.
The impact on the NDP government budget, which no-one has spoken of, is the loss of PST on lawyer fees for the government. The PST provided funding to legal aid and general expenditures. Currently, the government charges 7% on all lawyer bills so $20 to $30 million is likely to be lost each year on the above numbers.
It is not just the plaintiff injury firms that will see heavy economic carnage. Rather, you can expect the ICBC Defence lawyers to see a lot less files over time because if many injured victims cannot hire a lawyer, there will be less files to defend.
Plaintiff injury lawyers will adapt, like what happened in other Provinces. Unfortunately, they will either move out of BC to a more favourable jurisdiction or move into other areas of law. As a result, increasing competition to lawyers in other legal fields. Hence, the indirect impact on most areas of law will be felt.
In summary, the new ICBC no-fault scheme will have a tremendous impact on the legal community and access to justice for vulnerable members of society. The extent of the carnage in the industry will be determined by how broad or narrow the Civil Resolution Tribunal defines “minor injury”. The more files captured by the definition, the more severe the outcome for plaintiff only law firms and their workforce.