Road Accident Fund Amendment Act: The constitutional court decides

Craig Woolley

The Constitutional Court has ruled unanimously that a number of the contentious sections of the Road Accident Fund Amendment Act such as limits on damages and the abolition of personal claims against negligent drivers are not unconstitutional. The Court did however find that the proposed tariff for claims to be paid for hospital and other medical expenses was inconsistent with the Constitution and invalid.

The judgment brings finality to the constitutional challenge and has important consequences for individuals, particularly those who earn in excess of R180 000 per annum, and for the insurance industry.

The application sought to set aside certain provisions of the Act on the basis that the sections were irrational and unjustifiably limited the constitutional rights of road accident victims.

The sections which the applicants sought to have set aside were those which abolished the common law claims for damages not recoverable against the Fund (Section 21), and which limited the amount the Fund is obliged to pay for claims for loss of income or a dependant’s loss of support claim (section 17).

The applicants also sought an order setting aside Regulation 5(1) which provides that the funds liability to accident victims for costs of medical and healthcare services must be based on tariff identical to the Uniform Patient Fee Schedule which is 300% to 500 % lower than the tariff which the Workmen’s Compensation Commissioner pays for the treatment of injured workers.

The Abolition of Common Law Claims

Prior to the introduction of the Amendment Act, a victim of a road accident was entitled to claim from the Fund. In the event that no claim lay against the fund, or its liability was limited, the victim retained a residual common law claim against the wrongdoer. Section 21 of the Amendment Act abolishes this right subject to two exceptions. The first is if the Fund is unable to pay any compensation. The second exception is in respect of claims for loss or damage resulting from emotional shock sustained as a result of a claimant having witnessed, or being informed of the bodily injury or death of another person as a result of a motor accident.

The Court examined the rationale behind the abolition of the right of action against the driver personally. The Minister of Transport furnished an explanation to the effect that a system for the compensation of road accident victims must be integrated into a comprehensive social security system that offers life, disability and health insurance cover for all accidents and diseases. The government’s intention is to replace the current system with a set of limited no-fault benefits which will form part of the broader social security net.

The court accepted that the retention of common law claims would have no bearing on the financial viability of the Fund but commented that it would not “sit well with a social security system that aims to provide equitable compensation for all people regardless of their financial ability”. The common law losses would only be recovered from those drivers or owners who would be capable of paying compensation or were able to afford the required insurance. In addition the right to sue would only be exercised by those that could afford to pay legal fees.

In the circumstances the Court found that the abolition of common law claims is rationally related to the legitimate government purpose to make the compensation scheme equitable.

The Court also examined the contention that the abolition of common law rights is an infringement of the road accident victim’s constitutional right to security of the person. It accepted that when a person is injured or killed as a result of the negligent driving of a motor vehicle, the victim’s right to personal security is severely compromised. In the circumstances the state has obligations to road accident victims and the abolition of the common law claim diminished the victim’s capacity to protect and enforce the right to the security of person. This would render the abolition unconstitutional unless it is justifiable.

The court found that the abolition was reasonable and justifiable because it formed part of the scheme to put in place a compensation regime directed at ensuring that the Fund is inclusive, sustainable and capable of meeting its constitutional obligations towards victims of motor vehicle accidents.

Cap on Compensation

The applicants contended that the cap on compensation for loss of income or of dependants’ support infringed the right to property under section 25 (1) of the constitution. They argued that the Amendment Act deprives victims of property in the form of reduced compensation for loss of earning capacity or support. In order to succeed they would have to prove that the scheme was irrational, because the constitution only protects arbitrary deprivation of property.

The court found that the scheme was not irrational. It followed that the offending sections did not constitute an arbitrary deprivation of property.

Regulation 5(1) and the Prescribed Tariff

In regulation 5(1) the Minister has prescribed that the tariff for claims to be paid by the fund for hospital and other medical treatment is that prescribed in the Uniform Patient Fee Schedule (UPFS) tariff. The applicants contended this was irrational, unreasonable and deprived innocent victims of an effective remedy in breach of section 12 of the Constitution.

The evidence before the court was clear that the regulation would make it impossible for road accident victims to obtain treatment in a private health care centre. The tariff was found to be “wholly inadequate and unsuited for paying compensation for medical treatment of road accident victims in the private health care sector”.

The actuarial evidence showed that the implementation of the UPFS tariff would save the fund no more than 6% of its total compensation bill. This was seen as a relatively meager saving against other compelling factors which indicated that the tariff was unsuitable.

The court struck down Regulation 5(1) with retrospective effect. The Fund will therefore be liable for the cost of healthcare needs for accident victims from the inception of the amending act in August 2008.

What are the consequences?

The judgment brings an end to the uncertainty brought about by the constitutional challenge. The Amendment Act introduced important and far-reaching changes to the compensation scheme for road accident victims.

Individuals whose earning capacity is compromised as a result of an accident may only recover the capped amount from the Fund which currently stands at R180 000. The gap between what the individual previously earned, and what is recovered from the Fund may not be recovered from the wrongdoer.

The loss of a breadwinner will result in a claim for the capped amount regardless of whether the breadwinner earned substantially more than the capped amount. An example of the difficulties that may arise would be where a deceased breadwinner earned R500 000 a year and has commitments commensurate with these earnings. The family would have to readjust to live on the capped amount.

No claims exist either against the Fund or against the wrongdoer for general damages unless the injury sustained is assessed as a “serious injury”, in which case a claim lies against the Fund.

Insurance companies will have certainty that no passenger liability claims will arise against them from the date of the Amendment Act. Any reserves which may have been held in this regard may be released except in cases where potential emotional shock claims exist.

Personal Accident policies and income protector type policies will be important to most households whose main breadwinner earns more than the capped amount. Motor insurance policies may have to be amended to include contingency cover in the event that the Fund is unable to pay any claims which are brought against it, and for emotional shock claims.

On the positive side passenger claims are no longer restricted and this means that bus and mini bus passengers will enjoy claims against the Fund to the same extent as other road accident victims.