Insurers face higher payouts in Scottish following rate decision

News that the discount rate for personal injuries in Scotland has been set at -0.75% compared the to -0.25% in England and Wales has been met with dismay.

The decision announced this week will see claimants in Scotland set to receive far higher compensation payments for personal injured with the likelihood that policyholders will see a hike in rates.

The UK Government actuary has made the decision and the fear is ow that claimants in England and Wales will seek to have their claims heard in Scotland in the hope of bigger awards.

Alastair Ross, Assistant Director, Head of Public Policy (Scotland, Wales and NI) at the Association of British Insurers said the decision would have repercussions for policyholders.

“This is a bad outcome for Scottish insurance customers and taxpayers that does not reflect the real world environment of how investment decisions are made,” he said.

“It means that compensators, including the NHS, public bodies and insurers, will face higher payouts in Scotland. A discount rate that’s lower for Scotland than England and Wales will mean higher insurance costs North of the Border which could push up premiums for Scottish motorists as a result.”

Gordon Keyden, Partner and personal injury expert at Clyde & Co told Insurance Times: “This is not the first time that Scotland as decided not to follow the England and Wales figure. We have a different rate for fatal claims.

Forum shopping fears

“The biggest issue will be the move towards forum shopping in which claimants will seek to have their case heard in courts which can award higher compensation levels. I can see a move towards seeking to have the case heard in Scotland and it is not necessarily bad behaviour on the part of the claimant’s solicitor to do so.”

Keyden explained the issue would be around the ability to find the necessary link to Scotland that would allow the case to be moved north of the border. “It will be those case where there is a case for a choice of jurisdiction or there will need to be an obvious basis for Scottish jurisdiction,” he explained.

However, the water may well become murky.

While the same jurisdictional rules apply in Scotland and they do in England and wales the key will be if the party claimed to be the wrongdoer has any links to Scotland and this may well simply be an office or operation.

Keyden believes it may well be an issue for logistics firms which operate across the English-Scottish border and as such could be deemed to have business interests in Scotland. At the extreme for instance if a retail firm which has outlets across the UK, may find that because they have premises in Scotland they may face attempts to have any injury claim decided in Scotland even if the event occurred in England or Wales.

However, there are arguments for lawyers to resist such moves. “There is the issue of convenience for the case to be heard in Scotland,” he explained. “There is the argument that it would be inconvenient for witnesses and police officers to travel to Scotland if the incident has occurred elsewhere.”

The rewards are substantial given the disparity in the rates. “There is a significant difference in terms of the level of judgment,” added Keyden. “Depending in the age of the victim and the severity of the injury we could well be talking about millions more in the compensation figure.”

Political decision?

However, the decision not to fall into line with England and Wales did not come as a shock for Keyden. “There was a degree of politics behand the decision,” he added. “There is a will for Scotland to be seen as independent from the rest of the UK.”

He added that he expected that the decision would impact the costs of cover for Scottish policyholders, in particular motor cover.

The Federation of Insurance Lawyers (FOIL) Scotland’s Kate Donachie, explained to Insurance Times the issue was around the ability of the Scottish legal system to be more prescriptive when it came to personal injury awards.

“While the UK Government actuary sets the rate, the Scottish legislation has put the limit on investment period at 30 years whilst in England and Wales the discount rate is based in a figure for an investment period of currently 43 years,” she said. “In Scotland there are also rules on the type of investments that can be made with such sums awarded while in England and |Wales there is no such restriction.”

Donachie added the impact of the ruling would be higher damage awards and with it the attraction for forum shopping by claimants.

“There will be an incentive to legislate in Scotland and there maybe grey areas which could provide scope.”

She added that it is likely that in the months to come the boundaries of what Scottish courts will accept in terms of the level of linkage required for the case to be heard in Scotland will be tested.

“Given the difference in the sums awarded it may well be that claimants will see to try the case in Scotland and if that fails will then revert to the English courts,” she said. “It is likely that we will see cases in the coming months which will test the limits in terms of what is acceptable by the courts.”

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