Forum shopping is perhaps a lesser known phrase to some, but following an announcement last month that the Government Actuary has recommended the Scottish personal injury discount rate be fixed at -0.75 per cent, it is something the insurance industry will be acutely aware of.
The discount rate is a tool used in personal injury actions to calculate a lump sum which reflects a loss that has not yet occurred and will actually accrue over several years in the future.
Often the loss will relate to earnings or the cost of future care.
It broadly reflects the return which can be earned from the lump sum if it were invested by the affected individual; on the basis that the full loss is being paid now, and not incrementally in the future.
The lower Scottish rate means that damages awarded in Scotland will be higher than in England and Wales.
The differential between jurisdictions across the UK may well result in forum shopping, where some individuals seek to raise claims in Scotland, rather than England and Wales.
It is feared that this approach will, in turn, cause more focus on where claims are raised, bringing delays and higher costs.
The incentive to raise claims in Scotland may also drive up fraudulent claims activity north of the Border.
At present Scotland experiences relatively low levels of organised fraud in the claims sector. However that may not remain the case in the context of several changes to the claims environment.
In England and Wales, a claim which is genuine but significantly exaggerated (fundamentally dishonest) can be dismissed by the Court in its entirety. In Scotland the genuine core of a claim cannot be dismissed, notwithstanding fraudulent exaggeration and the claimant will receive compensation for that genuine element.
This different response to fraudulent claims will soon be coupled with lower damages in England and Wales for whiplash injuries and following last month’s announcement – with substantially lower damages for future losses.
Furthermore, in Scotland, 2020 will see the introduction of QOCS (qualified one way costs shifting) whereby a losing claimant will only be liable for the defender’s legal costs in limited circumstances.
In short, this is a very disappointing outcome for the insurance industry – and is likely to impact on insurance cover costs for businesses across the country as the benefits to be reaped from a fraudulent claim are increasing when, at the same time, the consequences of the fraud being apprehended are lessened.
Kate Donachie is a Managing Associate with Brodies LLP