Most claims management companies in Scotland currently enter agreements with their clients whereby they take a percentage of their clients' damages up to around 25% plus VAT.
The legislation introducing caps for personal injury claims will be based on the level of damages (and inclusive of VAT) as follows:
20% of the damages up to £100,000
10% of the damages over £100,000 and up to £500,000
2.5% of the damages over £500,000
Solicitors will now be allowed to charge clients a percentage of the recovered damages directly without having to route the payment through a captive CMC. However, the reality of the new cap for claimant solicitors is shown in the example below:
• £50,000 damages awarded
• Pre cap costs – 25% plus VAT = £15,000 Post cap costs – 20% = £10,000
• Effect - 33% reduction in the success fee
In addition claimant solicitors will be entitled to retain the recoverable costs, as is the case now.
To understand the implications it is important to take into account the spiralling levels of recoverable costs in low value Scottish claims and the implications of QOCS, which is likely to be introduced imminently.
Data submitted by the Forum of Scottish Claims Managers in their response to the Scottish Government Success Fee Consultation showed that:
• Data from over 7000 litigated cases that settled below £5,000 damages in the period to 2015 showed: average damages paid were £2,874.50 but average claimant costs paid were £3,858.64. (In other words, £1.34 costs paid for every £1 paid in damages.)
• After the opening of the All Scotland Personal Injury Court in 2015 that increased to £1.73 costs paid for every £1 paid in damages.
The new cap is therefore to be welcomed. However, the more aggressive claimant firms will be looking to make up any financial shortfall resulting from the caps. The introduction of QOCS in Scotland in the next few months will provide that opportunity.
Implications of QOCS
The introduction of QOCS in the next few months will inevitably encourage more injury litigation in Scotland. The claimant model is likely to change to take account of lower success fees and the opportunities QOCS presents. This may involve claims layering to increase the success fee element and undoubtedly more litigation in cases where previously the implications of an adverse costs award would have deterred cases without reasonable prospects on liability. The opportunities for fraud are obvious as is the incentive to farm claims.
While we encourage the regulation and reduction in the level of success fees, the concern is that disproportionate costs will continue to rise, as will litigation rates in Scotland. This pro-claimant regime will need close attention and specific strategies to disrupt the more aggressive claimant solicitors. Running alongside that will be the importance of a robust counter-fraud strategy across all lines.
How can we help?
DWF works with clients to tailor bespoke strategies to suit specific classes of business. We will be producing QOCS newsletters as the year progresses and running roadshows and information sessions throughout the UK. This is going to be a year of unparalleled change across Scotland and all of those dealing with Scottish injury claims need to be prepared.
If you wish any further advice, please contact a member of our Scottish Defendant Insurance Team.
Andrew Lothian, Head of General Insurance (Scotland) on 0131 474 2305
Jill Sinclair, Head of Counter Fraud (Scotland) on 0141 228 8196
Lynne Macfarlane, Director on 0141 228 8006
Caroline Coyle, Senior Associate and Professional Support Lawyer, Insurance on 0141 228 8132