On 19th March, the Damages (Investment Returns and Periodical Payments) (Scotland) Bill was passed unanimously by MSPs. The Bill is still to receive Royal Assent and a date for its coming into force still to be fixed.
The aim of compensation is to put the injured party in the same position financially as they would have been had they not suffered the injury – that is for them to receive 100% compensation, but no more and no less than that. Review of the current system was necessary because of the possibility for over-compensation (as well as under-compensation).
The new legislation
The new legislation reforms the way the discount rate is calculated where the compensation includes an element for future loss, for example the costs of care in years to come. This rate is applied to an award to make adjustment for the fact that the payment is received before the loss occurs. The methodology for calculating the discount rate has changed. The rate will now be calculated based on the needs of the ‘hypothetical investor’ who takes a cautious approach to investing, but relies on their investment to meet all the losses and expenses expected to be covered by the compensation. Under the current system the rate was calculated with reference to a UK Government Bond. Responsibility for setting and reviewing the rate will also now lie with the UK Government Actuary Department. The rate will be reviewed every 5 years.
The legislation also provides that compensation can be paid in regular instalments rather than a lump sum. This is called a periodic payment order. The court will take into consideration the needs and wishes of the compensated party in deciding on whether a period payment order is appropriate. There is scope for the periodic payment order to be varied in the future.
Calculating compensation is by no means a straight-forward task. The new system is considered to be clearer, more certain and more transparent for both compensated parties and insurers and will meet the aim of 100% compensation in a higher number of cases.
For more information on how these changes might affect you, please contact Sarah Phillips.