Announced on 27 and in force from today, 28 March 2017, the Scottish Government has followed the UK Parliament and fixed the discount rate for lump sum future loss payments in personal injury claims at minus 0.75%. The Damages (Personal Injury) (Scotland) Order 2017 is very brief and does nothing more than fix the new rate, but as Scotland is a few weeks behind England and Wales let’s look at the experience there so far, and how it might be seen north of the Border.

When the previous rate of 2.5% was fixed in 2001 it took Scotland almost eight months to follow suit – this time, it has taken just four weeks. During that time insurers will have noticed that although many pursuer solicitors were not immediately increasing every schedule of damages, there was an understandable reluctance to engage in settlement meetings unless obliged by the court timetable. Now that the rate is fixed, what trends are we likely to see?

The immediate impact of the Lord Chancellor’s statement on 27 February was considered in our previous article. Since then, a number of interesting trends have been noted.

  • The promise of a swift review and consultation, expected by Easter, prompted many insurers to be rather cautious about increasing their reserves and has underpinned a general uncertainty over how to approach this new era in personal injury damages.
  • Most insurers did, however, immediately review all outstanding claimant Part 36 offers as many claimants clamoured to withdraw offers that suddenly became much less attractive to them. With pursuer offers just around the corner in Scotland, this may lead to some interesting tactics over the coming months.
  • Insurers have not been routinely settling on the basis of the new discount rate, and although claimant schedules have been drafted at that level, many claimants have been content to accept lump sum figures based on 2.5%. With the claimant firm investment vehicles promising returns in excess of 4%, that is probably not much of a surprise.
  • Claimant firms have not been pushing for joint settlement meetings, and there have been instances where insurers have refused to participate. Again, uncertainty underlies such tactics, but this is expected to change as the new rate remains in force over the coming months.
  • Whilst PPOs appear, on the face of it, to be more financially attractive to insurers, they remain reluctant to take the plunge.

So what can we expect as the change takes effect in Scotland?

  • Insurers will be reluctant to rush into settlement meetings, whereas pursuers may push for settlement while the position is as certain as it can be.
  • Defender motions to adjourn proof/trial dates or otherwise vary court timetables may face firm opposition as claimants try to push cases towards settlement.
  • Pursuers will take immediate advantage of the new pursuer offers when they take effect on 3 April.
  • Scottish Courts are unable to impose PPOs which must be entered into by agreement. They are extremely rare, and will now become even more so.
  • Defenders and insurers will need to be ready for these tactics, and a full review of reserves is highly recommended. Where possible, attractive offers that may tempt a pursuer - even if not at the full -0.75% discount rate - should be given serious consideration.

It is expected that, even though the promised review will begin swiftly, the rate will remain in force at least until the end of 2017 so it is likely that things will settle down over the coming months, with more settlements, court judgements and approvals being seen at the -.75% rate. The judiciary is extremely likely to feel bound by the rate in force. The first such case was a £5.5m increase in LMS v East Lancashire Hospitals NHS Trust and the volume of cases that directly affect the public purse may persuade the UK Government to move away from what was a much more significant change than had previously been predicted.

The situation may well prompt a wholesale review of the Ogden tables, not only to address anomalies such as the Roberts v Johnstone effect and the increase in deferred or certain term damages, but also to take account of issues like the need to address life expectancy by region. In May, the Expenses and Funding of Civil Litigation (Scotland) Bill will be introduced to the Scottish Parliament, and the new discount rate will undoubtedly have an impact. Most notably, there will be calls to ensure that the introduction of Damages Based Agreements will include a provision that ring fences future losses to preserve pursuers’ compensation.

The immediate impact is difficult to predict with any accuracy, but it seems likely that each side will circle each other for a time to allow the dust to settle, with pursuer offers likely to strike the first blow. In the meantime, an immediate review of reserves and any outstanding offers from each side is highly recommended.