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ABI loses High Court challenge to delay discount rate review

The Association of British Insurers has lost in its final attempt to delay a government review of the discount rate

Posted on 27 January 2017

The Association of British Insurers (ABI) has lost its final attempt to delay the government’s decision on the review of the discount rate which is used to calculate the amount that should be deducted from a Claimant’s lump sum compensation award, based on the assumption that they will invest the lump sum and receive income from the investment return.

The challenge came following the Lord Chancellor’s announcement in December 2016 that a review of the rate would be completed by 31 January 2017. This has now been postponed to an unconfirmed date in February.

In making the announcement, the Lord Chancellor commented that any change could have “profound financial consequences”.

The rate, which currently stands at 2.5%, has not changed since being set by the then Lord Chancellor, Lord Irvine of Lairg, in 2001.

The Association of Personal Injury Lawyers (APIL) has been campaigning for several years to reduce the discount rate on the basis that it no longer reflects the return which a Claimant would receive by investing their lump sum award. 

In 2001, the discount rate was based upon yields generated by index-linked government stock (ILGS), calculated at 2.5%. However, since that decision was made, gilt yields have severely declined. Calculations by APIL put the correct rate at between 0.5% and 1.0% per cent, based on gilt markets as of 31 October 2016.

The ABI applied to the High Court for an injunction to prevent the Ministry of Justice from deciding on the discount rate by the end of January 2017, arguing that it had a legitimate expectation to consider the consultation responses and make further representations before a final decision is made. 

The ABI also argued that it was unlawful for the Lord Chancellor not to make provisions preventing the discount rate from applying retrospectively to existing proceedings.

Sitting in the High Court, Mr Justice Baker ruled against ABI, finding that the challenge was premature and not arguable. 

Neil Sugarman, president of APIL, welcomed the court’s ruling, commenting “For far too long, people with life-long and life-altering injuries have faced running out of compensation, or had to risk their compensation on uncertain investments to try to make up the shortfall because insurers do not have to pay the full amount needed.” 

The ABI is planning to appeal the decision. In the meantime, Claimant Solicitors await the Lord Chancellor’s announcement in February 2017, hoping that the discount rate will finally be reduced and Claimants will stop being unfairly penalised.

Emmalene Bushnell, partner in law firm Leigh Day’s clinical negligence team, said: “We are pleased that the announcement of the Lord Chancellor's review on the discount rate will go ahead soon.

“It has been over 15 years since the last review. During this time changes to the economy and the lowering of interest rates has seen Claimants with life long injuries face the risk of their compensation running out and not meeting all of their future needs.

“It is hoped that the discount rate will be reduced to fully compensate and protect those Claimants who suffer injury.”

This article was written by Charlotte Pettman, paralegal in the Clinical Negligence Department.