Failure of state social security – what are the implications?

At the end of 2014, it was reported that one of the main state social security entities, the Road Accident Fund (RAF), may in future not pay compensation, for damages such as pain and suffering, to victims of road accidents. This change is contained in the legislation the RAF seeks to place before Parliament.

The proposed change has been necessitated by the Fund’s desire to cut costs and improve its financial soundness. This is part of a process dating back to 2007/8 when the RAF started implementing reforms to curb various items of compensation it pays to victims of road accidents.

The RAF is a statutory body owned by government and is funded through a levy on fuel purchased at the pumps by motorists. Its purpose is twofold.

First, the RAF performs the vital function of compensating victims of road accidents, or third parties, injured or killed, due to negligence or some other wrongful act on the part of drivers, owners of motor vehicles, or their employees. The negligence, or wrongful act, must occur in connection with the driving of a motor vehicle on South African roads.

Legislation, in the form of the Road Accidents Fund Act of 1996, specifies the circumstances under which the RAF shall become liable to compensate road accident victims.

Second, the RAF also acts as an insurer for persons whose negligence or wrongful acts may result in the Fund being liable for a claim.

As a general rule, a road accident victim, whose claim meets the requirements of the Road Accidents Fund Act of 1996, is prohibited from suing the negligent driver, vehicle owner or employee of the owner. The victim must instead claim from the Fund.

In the past, the RAF paid claims in terms of common law rules. In other words, there were few restrictions on the amount one could claim, as long as the amount was proved and justified to the satisfaction of the parties or the court.

Over the years, a number of restrictions to amounts payable have been introduced in an attempt to cut costs and improve the solvency of the Fund. For instance, claims for loss of income were limited to R160 000 per annum in 2008.

While the primary objectives of the RAF are noble, the institution has fallen victim to serious agency issues, which have culminated in escalating costs over the years. As a consequence, the Fund has been insolvent for the past 30 years. Previous attempts to cut costs and return the institution to financial viability have been unsuccessful, and it remains to be seen whether the results of current proposals will be any different.

Interestingly, the main causes of the Fund’s skyrocketing costs are well known. For example, it is an open secret that legal fees are perhaps the single largest cost item in the entire structure of RAF claims, but little appears to have been done over the years to address this problem.

However, a more relevant question for purposes of this discussion is: What are the implications for employers when a state institution, meant to perform a vital role like the RAF, fails?

It must be noted that a sizeable number of vehicles on public roads are owned by employers and, at any given time, these vehicles are driven by employees of the owners in the course of employment.

At common law, if such a vehicle is negligently driven and causes injury to a third party, the third party has a claim against the employer of the driver under the doctrine of vicarious liability.

However, due to the existence of the RAF, this common law position has over the years generally been inapplicable, because, once a claim meets the requirements of Section 17 of the RAF Act, the driver, and by implication his employer, cannot be sued as Section 21 of the Act prohibits such actions.

It is, however, conceivable that a common law claim could be brought against the driver and his employer if, for some reason, the RAF is unable to pay a particular claim.

Given the cuts seen in recent years to amounts victims can claim from the Fund, it is important to determine how these savings will be used. Take the current proposals by the Fund, to stop paying damages for pain and suffering, as an example. The question is: If victims of serious road accidents are no longer allowed to claim these damages from the Fund, then who will be responsible for their payment?

One can foresee two possible solutions to this question. One option would be to take the route used in workmen’s compensation and ban such claims altogether. In terms of South African workmen’s compensation legislation, an employee injured in the course of employment cannot claim common law damages, including pain and suffering, from the employer in terms of Section 35 (1) of the Compensation for Occupational Injuries and Diseases Act
no. 130 of 1993.

Another option would be to transfer the claims, excluded by the RAF in its cost-cutting drive, to drivers and owners, whose negligence or wrongful acts result in injury to third parties. Thus, in terms of the current proposals, if Parliament resolves that the RAF should not pay damages for pain and suffering anymore, then victims should instead be allowed to sue the driver, owner, or employee of the owner (and by implication his employer) for those damages.

Option one appears a less likely proposition. This is because people put vehicles on public roads for a variety of reasons, including for the purpose of business and pleasure. If all vehicles plying our roads were serving the same purpose – being used for business and, therefore, helping in wealth creation for the country, for example – then option one would have some merit.

The reality is, however, that not all vehicles are on the road for business purposes. Some are on the road for social and other reasons, which have nothing to do with business. As a result, when drivers of vehicles negligently injure or kill third parties, against a background of increasing failure by state entities, like the RAF, to meet their obligations, we should expect to see more responsibility for the cost of these accidents being shifted to private individuals and employers (in the case of accidents caused in the course of employment).

The persistent restriction of claims, for which the RAF accepts liability, represents a failure on the part of this vital institution. It is unbelievable that the RAF has been insolvent for such a long time without a solution being found.

In addition, when state entities designed to provide a critical, social and economic service, such as compensating victims of road accidents, respond to their failure by limiting the scope of protection they are supposed to provide, under the banner of cutting costs, invariably the very same costs that are cut (if at all) are transferred to the people who are supposed to be protected.

When the RAF was established, employers were, to a very large extent, insulated from vicarious liability claims associated with negligent driving of motor vehicles by their employees. This is because, as long as the accident fell within the scope of the RAF Act, the driver (employee) could not be sued and nor could the employer.

At the time, cover provided by the RAF was wide, since victims were compensated according to common law principles. Today this is no longer the case. The RAF cover continues to shrink with the net result that liability for damages, for which the RAF is absolving itself from paying, will ultimately be borne by employers and private individuals.

Legally Speaking is a regular column by Albert Mushai from the school of Economics and Business Sciences, University of the Witwatersrand. Mushai holds a master’s degree from the City University, London, and was the head of the insurance department at the National University of Science and Technology in Zimbabwe before joining the University of the Witwatersrand as a lecturer in insurance.