Kennedys warns of risk of claims inflation from Civil Litigation Act

Changes to the way claims for personal injury are handled by the courts could significantly increase the bill for Scottish insurers and policyholders, legal firm Kennedys has warned.

The global firm, which acts for insurers, claims that the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act, which received Royal Assent on 5 June, with work now going on to prepare for bringing it into force, will make it a good deal more expensive to defend litigation in Scotland.

One reason is because the Act makes success fee agreements, where the solicitor takes a portion of a successful claim in return for the risk of not being paid at all had the case failed – are made contractual and legally enforceable, with a cap to be decided, but likely to be around 25%.

Another is that the Act introduces qualified one-way costs shifting (QOCS), which will protect a pursuer from having to pay the defender’s legal expenses if they lose their case, except in exceptional circumstances.

Rory Jackson, lead liability partner for Kennedys in Scotland, commented: "The cap for success fee agreements is likely to move quickly from being a ceiling to the standard figure charged, and as a result claims for compensation will increase in a bid to make up for what the pursuer is losing. This might take the form of claims for multiple injuries or increased damages as attempts are made to game the system.

"The problem with QOCS is that most pursuers will be able to carry on with litigation as they want without fear of having to pay the other side. This will both encourage weaker claims, and make it harder to settle cases before they reach court – this in turn will increase the cost of settlement and the overall cost of litigation by stretching out cases unnecessarily."

Fellow Edinburgh partner Peter Demick, who was part of a Forum of Insurance Lawyers committee that gave evidence to the Scottish Government on the reforms, says that similar changes made in England & Wales also came with fixed legal expenses, which levelled up the playing field.

"It is good news that the Act strengthens the position of auditors of court, who decide what expenses should be paid. That will drive some consistency, but avoiding a fixed-cost regime is perhaps a missed opportunity", he observed.

He added that much of the detail of the reforms is now being filled in by the Scottish Civil Justice Council, and called on it to bear these risks in mind. "In formulating the rules of court to implement the reforms, we hope the council looks at ways of mitigating the danger of claims inflation."