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ANNEX B: AMENDMENT TO SECTION 1(2) OF THE DAMAGES (SCOTLAND) ACT 1976 -PARTIAL REGULATORY IMPACT ASSESSMENT

TITLE OF PROPOSAL

1. Proposal to amend section 1(2) of the Damages (Scotland) Act 1976 (the 1976 Act) to enable damages for grief and suffering to be claimed by the immediate family in any case where a person has sustained a personal injury which consists of asbestos-related mesothelioma, which makes their date of death earlier than it would have been had they not sustained the injury, and they subsequently die of that injury. The proposal is the subject of this regulatory impact assessment because of its potential implications for employers and the insurance industry. The assessment is 'partial' until consultation has been carried out, and will then be published again, in final form, taking account of comments received during consultation.

PURPOSE AND INTENDED EFFECT

Background

2. Mesothelioma is a cancer of the cells that make up the lining around the outside of the lungs and inside of the ribs, or around the abdominal organs. It rarely develops in people who have never been exposed to asbestos. Mesothelioma does not usually develop until 20 - 40 years after exposure to asbestos. There is no cure for the asbestos-related disease of mesothelioma and once diagnosed, sufferers survive on average some 14 months. In the great majority of cases, the disease is associated with occupations where there was a greater likelihood of asbestos exposure, such as shipbuilding and construction. There are strong geographical concentrations around shipbuilding areas, centres of railway engineering, and asbestos plants.

3. Under the Damages (Scotland) Act 1976 where a person dies as a result of personal injury their relatives may be entitled to claim damages for patrimonial loss and/or non-patrimonial loss. Patrimonial damages are awarded for loss of financial support, while non-patrimonial damages are awarded in respect of:

• distress because of the suffering of the injured person before death;
• grief and sorrow at the death of injured person; and
• loss of deceased's society and guidance.

4. Only those relatives who are members of the deceased's immediate family can claim damages for non-patrimonial loss under section 1(4) of the 1976 Act. Section 35 of the Family Law (Scotland) Act 2006 (the 2006 Act) redefined which relatives of a deceased person should be entitled to sue for non-patrimonial loss under the 1976 Act. The table at Appendix A shows entitlement to claim non-patrimonial loss before and after commencement on 4 May 2006 of section 35 of the 2006 Act. It will be evident from the table that certain classes of relative (relatives by affinity) have lost their entitlement to claim, whilst others have newly acquired a right to claim. We cannot demonstrate the effect of these changes as there have been no cases so far before the Scottish courts involving immediate family who, prior to the 2006 Act, were unable to make a claim. However it seems reasonable to assume that the net effect of the changes introduced by the 2006 Act on levels of compensation paid to relatives for non-patrimonial loss will be neutral; and this RIA proceeds on that assumption.

5. Changes to the 1976 Act, through the Damages (Scotland) Act 1993 (the 1993 Act), allowed the executor to claim the sufferer's solatium (pain and suffering; expectation of loss of life) to the date of death after his or her death. Previously the claim for solatium died with the sufferer. The 1993 Act also amended section 1(4) of the 1976 Act to replace the previous loss of society award with 3 heads of claim (past and future) as set out in paragraph 3. These changes were designed to correct a previous wrong that awards to relatives were too low. Following these changes, the level of non-patrimonial loss payments has increased (see paragraph 8). Broadly speaking, payments under all other heads of claim are similar whether settlement is before or after the death of the sufferer. The section 1(4) damages constitute an additional amount paid to the immediate family only if the sufferer does not settle their claim prior to death.

6. The courts have recently substantially increased the amount of damages which they are prepared to award the relatives under section 1(4) of the 1976 Act. In 1992, the amounts awarded to a widow ranged from £5,500 to £12,500 and to a child from £600 to £10,500. However, recent awards of section 1(4) damages have increased from £20,000 to £28,000 to a widow and £5000 to £10,000 for an adult child and £3,000 to £10,000 for an elderly parent losing an adult son.

7. Under section 1(2) of the 1976 Act, relatives' claims for compensation for non-patrimonial loss are extinguished if the sufferer settles their own claim before death, even though the relatives' claims are for their own loss and suffering. If the sufferer does not settle their claim, the relatives (plus executor) can make claims and the total amount paid to the family can be substantially more than if the sufferer settles the claim before death. This poses a dilemma for mesothelioma sufferers in particular, who face certain but not immediate death. Some are choosing not to settle their claims in order not to deprive their families of the additional sums and are therefore foregoing the comforts which compensation might provide before they die.

Objective

8. We propose to amend the 1976 Act to lift the restriction in section 1(2) of the Damages (Scotland) Act 1976 to allow the immediate family of the sufferer to claim damages for loss and suffering under section 1(4) of the 1976 Act (as amended by the 1993 and 2006 Acts) in any case where a person has sustained a personal injury consisting of asbestos-related mesothelioma, which makes their date of death earlier than it would have been had they not sustained the injury, and they subsequently die of that injury. The restriction would continue to apply to all other personal injury cases. We also propose that Scottish Ministers should have the power to extend the new provision to apply to other diseases or personal injuries if experience shows this to be necessary. These provisions will apply to all cases where the death of the mesothelioma sufferer occurs after the date on which the legislative provisions are brought into force. They will not affect cases settled before that date. Ministers propose that cases in progress (but not settled) at the date of commencement will be subject to this change.

Rationale for government intervention

9. It is unacceptable that mesothelioma sufferers and their families should be faced with a choice between claiming compensation while the victim is alive or waiting until the victim dies so that the family is not disadvantaged.. There is no way other agencies can address the problem because of the express provision in the current law for the relatives' claim to be extinguished if the mesothelioma sufferer settles before death.

CONSULTATION

Within government

10. The Scottish Executive Justice Department, which has policy responsibility for the law of damages, has consulted with the Scottish Law Commission and with the Enterprise, Transport and Lifelong Learning Department which has responsibility for business liaison including liaison with the financial services industry. [N ote: to be expanded following consultation]

Public consultation

11. A consultation paper issued on 7 July set out in detail the nature of the asbestos-related illness mesothelioma, the existing law, the problem with the existing law and the proposed solution. [ Note: to be expanded following consultation]

OPTIONS

Sectors & Groups affected

12. As indicated earlier, mesothelioma is strongly associated with occupational exposure to asbestos within the construction, steel and shipbuilding industries. Some of the victims have been employed at some point in their lives in one of the former nationalised industries. Detailed information on the distribution of cases, by size of firm and by geographical area, is sought through this RIA [ Note: to be expanded following consultation] On the basis of information available at present, there is nothing to suggest that other groups, such as groups of individuals or charities, are affected by this proposal.

13. The options are essentially to make this change to the law in relation to relatives' damages claims or not to make it.

Opton 1: Do nothing

This would mean making no change to the law and leaving mesothelioma sufferers and their families in the predicament described earlier. The costs arising from this option are twofold. There is first of all the cost in human terms arising from the dilemma created by the operation of the current rule, and the distress to victims and families in having to reach a view about when and on what basis to enter claims. Secondly, there is the cost to families in terms of benefits foregone if victims do settle in life. The sums foregone are not trivial: they could make a substantial difference to the lives of immediate family who have lost a loved one. The benefits of this option are nil.

Option 2: Proceed with proposal

The Executive considers the rule contained in the current legislation unduly harsh in its consequences for mesothelioma sufferers and their families. It believes that legislation is needed to address this problem.

Costs and benefits

14. The benefit of the amendment described in paragraph 8 will be that people dying from mesothelioma and their families will no longer face the dilemma described in paragraph 5. Sufferers will be able to derive what comfort they can from compensation payments and families will not be denied compensation for their own grief and suffering after the person dies. Executive Ministers place a high value on securing these benefits for the families of sufferers.

15. The amendment will have implications for the insurance industry and some UK Government Departments who have responsibility for liabilities in relation to cases arising from exposure to asbestos during the claimants' employment in former nationalised industries. It will extend their liability, in mesothelioma cases, to a sufferer's immediate family even when the sufferer has settled their own claim while still alive.

16. The effect of the amendment will be that the amount of damages payable by defenders will increase. The prospect of defenders facing claims by relatives after the discharge of liability to the mesothelioma sufferer might have the effect of raising insurance premiums for policies covering liability for personal injury and death. However, currently, in the region of 80% of claimants already decide to wait and let their relatives pursue their claim after death and around one quarter of the remaining 20% who go ahead with their claim die before settlement. Additional costs should therefore only be incurred in relation to around 15% of claims. In other words, new costs arising from claims newly facilitated by the proposed change in legislation will only arise in some 15% of cases settled annually - which currently total around 100.

17. Latest available figures show that there were 197 cases of mesothelioma diagnosed in Scotland in 2003 and that in 2004 there were 161 deaths. Mortality rates are currently 4.8 per 100,000 in men and 0.4 per 100,000 in women. These rates are expected to increase over the next few years and it is predicted that they will peak some time between 2011 and 2015. Following this, indications are that the mortality rate will then decline.

18. In 2005 around 100 mesothelioma cases were settled. Of these, 85% included payments in respect of relatives' claims. The typical award to relatives was £72,500. Based on these figures the increased amount of damages payable per year is likely to be in the region of £1,087,500 (15 x £72,000) increasing each year until the anticipated peak between 2011 and 2015, as described in the accompanying consultation paper. The increased costs are likely to be split with around 85% of the cost falling to the insurance industry and around 15% to the state ( i.e. the Government as the bearer of liabilities associated with former nationalised industries) ¹.

19. Where employers are insured, the impact of such additional claims will be felt on premiums. (The additional claims by victims' families will have no impact on any other employer costs nor will they give rise to any requirement for action on the part of employers.) In terms of overall insurance business covering liability for personal injury the sums projected to arise from additional claims are unlikely to be substantial but would benefit from more precise estimation through this consultation. Responses to this paper will help to estimate the likely effect of these increased costs on employers' liability insurance premiums. [Note: to be completed after consultation]

20. Compulsory employers' liability insurance was introduced in 1972. Where claims pre-date that the impact of additional claims will fall on solvent employers. Again, responses to this paper will help to estimate the likely effect of these increased costs on solvent employers.

SMALL FIRMS IMPACT TEST

21. As far as we have been able to ascertain, the majority of mesothelioma cases arise mainly from employment in heavy industries (many now in decline or closed down) such as steelworks and shipbuilding. We have no reason to believe that the proposal will impact disproportionately on small firms - quite the reverse given the sectors most associated with the disease and the size of firms typically operating in those sectors. We have no evidence of any link between size of firm and the decisions reached by victims and their families about the timing of their claims; and we have no reason to suppose that the immediate family of victims who worked (for some or all of their working lives) in small firms will be any more likely to avail themselves of the proposed relaxation of the rules on relatives' claims than other families. As with their larger counterparts, small firms - to the small extent that they may be exposed to additional claims from relatives as a result of the proposed change - will experience the impact through insurance premiums. At the projected additional caseload of 15 extra claims set out in paragraphs 16 & 18 above, that impact is unlikely to be substantial. Full details could only be extracted from individual cases.

"TEST RUN" OF BUSINESS FORMS

No business forms will be involved in the implementation of the proposed legislation.

COMPETITION ASSESSMENT

22. It is not expected that the Bill proposals would have any impact on competition in the insurance industry. Employers' liability insurance has been compulsory since 1972 therefore there is already an element of competition in relation to employers seeking the best deal available. Insurance companies already operate in an environment where there are differences in the law of damages north and south of the border.

ENFORCEMENT, SANCTIONS AND MONITORING

23. The new arrangements would be delivered through the courts (where parties are unable to reach an earlier and negotiated settlement), which will assess claims brought by eligible relatives under the rules as revised. There is no question of sanctions, since what is proposed are new entitlements, not duties. The Executive will review the impact of this legislation after 2 years. It will be important to discover if our projections as to the likely increase in number and value of claims are well founded; and to investigate whether the change in the rules surrounding relatives' claims has had any unexpected results.

Justice Department: Civil Law Division

Appendix A

List of relatives and their respective entitlement to sue for non-patrimonial loss under the Damages (Scotland) Act 1976 for deaths occurring pre and post Commencement of Section 35 of the Family Law (Scotland) Act 2006.

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