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The change of the discount rate and the impact on brain and spinal injury cases

Suzanne White discusses the impact of the discount rate on brain and spinal injury cases

Posted on 26 July 2017

What is the discount rate?

The discount rate is a tool utilised by the courts to calculate future losses in personal injury and fatal accident cases. It is designed to reflect the likely level of interest that an award would earn if invested.
Claimants’ solicitors believe that the discount rate has been grossly unfair to injured claimants for some time, as interest rates have declined sharply since the 2.5% rate was introduced over 15 years ago. A discount rate at 2.5% assumes that there is a far greater return on claimants’ damages than there has been in reality. The problem has been that there is a risk that many injured claimants will run out of compensation far earlier than expected.
On 27th February 2017, after much campaigning by claimant solicitors, a change to the discount rate was announced. The change was far greater than many expected, to negative 0.75 %.

What impact has this had on personal injury claims?
As a result of the new discount rate the value of many injured claimants’ compensation has increased overnight, which has not been welcomed by the insurance industry. However, it is not all good news for claimants.
Accommodation claims
In high value claims where there has been a catastrophic brain or spinal injury, and where the claimant requires alternative accommodation because of their injury, the new discount rate causes some problems. Since the decision in Roberts and Johnstone [1989], the cost of future accommodation in these claims has been calculated on the basis that compensation is provided for the loss of the use of capital required by the purchase of a more expensive property. However, with a negative discount rate in force this calculation does not stack up and would actually result in claimants owing defendants money, which cannot be right.

What other options are available to claimants then? It has been suggested that the following approaches could be taken:

  • Claimants could claim the cost of renting the more expensive property (although this can quite often work out more expensive than a one-off purchase of the property);
  • Claimants could claim to cover the additional cost of the mortgage (although there would be uncertainty as to the lenders’ interest rates etc.);
  • Claimants could claim the additional cost of the property (with a charge over the property to return to the Defendant’s possession on death).

In my view, none of the above provide a satisfactory alternative to claimants. Lawyers trying to settle cases at this time are having to be innovative and be case specific when negotiating settlements.
Recent experiences of cases I have settled have put some aspects of future losses on hold to see if the discount rate will be adjusted. For example on one of my cases, where my client  has  permanent and severely debilitating brain damage as a result of negligent medical care after birth, we successfully settled my client’s case on a lump sum and annual payment basis . Whilst the change to the Lord Chancellor’s discount rate had been announced, negotiations in my case were concluded before the change came into effect. However, the Defendant was prepared to negotiate settlement on a standard NHSLA adjournment order, allowing my client the right to top up their damages to which the new discount rate would apply.
This adjournment applied for three months, and as there has been no change to the new discount rate in this time my client received a substantial top up of their damages to take into account the new discount rate of -0.75%.
However, it seems that the discount rate is to be considered again by the Government.