This is an alert for insurers in connection with valuing and
reserving fatal claims in Scotland. Changes are on the immediate
horizon. Certain changes also apply to injury cases. There are
three separate factors.
1. The increase in loss of society claims based upon recent Jury
awards.
2. The implications of the Damages (Scotland) Bill.
3. The development of Ogden 7, and within the foreseeable future
Ogden 8.
1. Loss of Society Awards by Juries
Over the last few months three cases were contested at Jury by
the Ministry of Defence following the deaths of a number of MoD
personnel on board a Nimrod aircraft on duty in Afghanistan. In
these cases1 the parents of the deceased personnel, who were aged
between 21 and 28, were awarded between £90,000 and £100,000. A 29
year old sister of a 21 year old deceased was awarded £60,000. It
was initially hoped that these cases were capable of being
distinguished on the basis that the juries were influenced by the
circumstances of the loss however this has proved not to be the
case in two subsequent cases2.
In the Thompson case both parents of a 26 year old deceased
killed in an accident were awarded £90,000 by a Jury and in the
Hamilton case the 17 year old daughter of her 50 year old mother
was awarded £120,000 whilst the 67 year old husband was awarded the
lesser sum of £80,000.
Hitherto it had been anticipated that the surviving spouse would
have been likely to be awarded around £35,000 to £40,000 for loss
of society, whilst a son in his 20's would receive about £25,000
from a judge. These jury cases appear to significantly increase the
value of loss of society claims in Scotland. In one case involving
the death of a 16 year old leaving two parents, four grandparents
and two siblings we have seen a valuation of £455,000 in respect of
the loss of society claims only. These sums are far removed from
the bereavement award offered in England.
Whilst not every case is suitable for being tried by a Jury in
Scotland, cases where liability is not in dispute and most cases
arising out of road accidents are suitable. A defender requires to
show "special cause" to have a case removed from a Jury. It remains
Simpson & Marwick's invariable practice to speak to case
handlers if a Jury is being sought in any case we are handling.
This will often be at short notice due to the intimation
requirements of motions for Jury Trials.
Following upon these five Jury cases we have not seen any
decisions from Judges. In Girvan v Inverness Farmers'
Dairy3 an appeal was taken against a Jury award of £120,000 in
respect of an injury to the pursuer where a judicial award would
have been £25,000 - £30,000. The House of Lords indicated that it
could not be said that no other Jury would have awarded this higher
sum for solatium and they therefore declined to interfere with the
award. This seems to suggest that Judges will have to follow the
movements of Jury awards.
Our view is that the recent loss of society Jury awards will
undoubtedly have an impact on judicial awards and in respect of the
parents of a son or daughter in their 20s we believe that Judges
could easily award £60,000 - £75,000, and possibly more given the
number and consistency of the decisions. The rather more difficult
factor to take account of is in the Hamilton case where the
husband's award is one third less than that of the daughter. This
case is under appeal, however looking at the MoD cases had any of
the deceased left a spouse we anticipate that a Jury would have
awarded at least £120,000 to a similarly aged spouse suggesting a
possible Judge award of £80,000 - £100,000.
In these circumstances we consider that for reserve purposes it
is appropriate for insurers to revisit their estimating guidelines
when dealing with fatal claims arising from Scotland. It should
also be recognised that the increasing disparity between English
and Scottish awards of damages has reached the stage whereby
English Solicitors being aware of the disparity may have a positive
obligation to consider on behalf of their clients whether they
could secure jurisdiction in Scotland. This could clearly lead to
forum shopping.
2. Damages (Scotland) Bill
This Bill has been passed by the Scottish Parliament and
currently awaits the Royal Assent. That may be forthcoming within
the next few weeks however when and how the Act is to be brought
into effect remains less clear. There are suggestions that
different parts of the Act may be brought into effect at different
times by Order of the Scottish Ministers. It seems likely that when
introduced it will apply to all actions raised after the relevant
date. We are aware of at least one large firm of solicitors who are
not raising any new proceedings in fatal cases unless a triennium
intervenes.
There are three main issues which arise from this Act.
• Loss of Support - Living Expenses
There have been major changes to the statutory provisions on
which Loss of Support is calculated. The approach to calculating
the Living Expenses attributable to the deceased has changed. This
has now been set at a fixed 25%. This figure is calculated only on
the deceased's income, not as before on the joint income (see
example).
Previously it was necessary to exercise discretion over the
appropriate percentage taking account of the age of the deceased,
and the age and number of his immediate family dependents. Now the
only exception to the rigid rule is where the "result" of the
calculation is "manifestly and materially unfair"4. It will be for
the Court to determine what a manifestly and materially unfair
result is. The advantage is felt to lie with older couples where
the living expenses are closer to being equal. This will often be
relevant where one partner has contracted an asbestos related
disease. Conventionally where one of an older couple dies the
percentage of living expenses is significantly higher and sometimes
40% or more. On the other hand there could be a situation of a
large young family where the breadwinner might attribute less than
25% to his personal living expenses. It will favour older and
younger couples without dependent children and conceivably work
against younger couples with large families.
• Deduction of the Spouse's Income
Readers will be aware that hitherto to calculate the Loss of
Support Claim the income of both spouses is totalled, the
proportion appropriate to cover the living expenses of the deceased
are then deducted, and the surviving spouse's income is deducted
from the balance. By Section 7 of the Bill the practice of
deducting the surviving spouse's income is removed. This can in
certain cases have a material impact on the value of the case. The
effect is that the surviving spouse is paid Loss of Support on the
basis of a multiplicand which by virtue of this provision is now
increased significantly. Thus, by the traditional approach, if the
deceased and the surviving spouse were each paid £25,000 net, the
income would be totalled and 25% deducted (£37,500). The widow's
income (£25,000) is then deducted leaving a multiplicand of
£12,500.
The new approach merely deducts 25% (£17,500) from the
deceased's income and the balance of £18,750 becomes the
multiplicand. No account is taken of the widow's income having
contributed to the family income from which the deceased may have
been in part supported. This is likely to materially increase the
value of the Loss of Support claim particularly where the widow was
well paid. Increases in the value of claims, could, in some cases,
amount to in excess of £300,000.
Example
Husband and Wife each earning
£25,000 net
Traditional approach:
Joint income £ 50,000
Less 25% -17,500
Less widow's income -25,000
Multiplicand £ 12,500
New approach:
Deceased's income £ 25,000
Less 25% - 6,250
Multiplicand £ 18,750
• Date from which Multipliers are to Run
Hitherto multipliers have run from the date of the death, with
the period since the death being deducted, strictly subject to an
Ogden Table F factor. The Bill amends this to require the
multiplier to run from the date of the award of damages and hence
to apply only in respect of future loss. This will cause some
increase in loss of support claims.
* * *
Simpson & Marwick contributed to a considerable degree to
the debate and evidence taken by the Scottish Parliament. Our
attempt to oppose this legislation on behalf of the Insurance
Industry met with some success. We retained a Parliamentary
Adviser, we gave evidence to the Justice Committee, we met with the
Minister responsible for the Bill, the Justice Minister and at
least one other Justice Committee MSP all in an effort to oppose
certain of these changes. Our attempts have undoubtedly contributed
to the consideration of the Bill by MSPs in the Parliament. We
believe that the exception to the standard 25% deduction figure
where this would produce "a manifestly and materially unfair
result" is based on our efforts.
3. Ogden 7 and 8
The Ogden Working Party is due to meet shortly to discuss the
first draft of Ogden 7. This will undoubtedly update the
multiplying factors based upon the increase in Life Expectancy as
noted in the Office of National Statistics population projections.
A first draft of the tables based on mortality from the 2008
population projections has been prepared. The Ogden 7 Tables are
due to be published in July, subject to the printers'
requirements.
As new projections will be available in autumn 2011 it is
possible that publication of the tables will be delayed until those
are published. It is anticipated that the tables will have new
retirement ages reflecting the changes in pension age. The 50 and
55 year tables may go to be replaced with a 67 or 68 year
table.
The Pecuniary Loss figure when measured at birth for males in
the UK is likely to rise from the Ogden 6 Table 1 figure of 35.15
at a 2.5% discount rate to around 80 if a nil discount rate is
applied.
Ogden 8 will seek to re-address perceived flaws in the
accommodation costs case of Roberts v Johnson5. Other
changes are promised but remain unclear at present. No publication
date has been suggested.
• The Discount Rate
Although not strictly within the remit of the Ogden Working
Party, the Lord Chancellor (and thereafter the Scottish Ministers)
will be publishing the results of their investigation into the
possibility of a new Discount Rate. It seems clear that there will
be a change. We have heard several figures suggested, ranging from
-1 to +1.5. Consideration has also been given to applying different
discount rates to different parts of a claim. Because wage
inflation is higher than Retail and Consumer price inflation it may
be that a negative discount rate could be applied to loss of
earnings and care claims where wage costs are dominant whereas a
higher discount rate could apply to property damage, aids and
equipment claims. This is probably a matter for a court to
determine in due course.
Reserves
"May you live in interesting times" was said to be the curse of
Confucius. There is no doubt that those involved from an insurance
perspective in fatal and injury claims in Scotland are going
through interesting times. There is significant potential for
change for the worse in respect of each of the areas outlined
above. Having served the insurance industry for many years Simpson
& Marwick highlight that insurers might wish to consider
whether to revise their reserves in respect of appropriate cases.
We will be happy to advise further on an individual basis about
these changes and at your instructions to revise our estimating
subject to your requirements.
If you have any further questions about this matter please
contact Gordon Keyden, Douglas Russell, David Tait or your normal
contact.
1. Young v Advocate General, Dicketts v Advocate General and
Swarbrick v Advocate General
2. Dennis Thompson v Dennis Thompson Builders Ltd; Hamilton v
Ferguson Transport
3. 1998 SC(HL)1
4. Section 1(6A)
5. 1989 QB878