Ensuring Sufficient Money for the Catastrophically Injured

By Jane Couch

I write having watched the 10 o’clock news on 27th February 2017. The report concerned a decision by the Lord Chancellor to lower the “Discount Rate”, used to calculate lump sum pay-outs in personal injury / medical negligence cases to minus .75 percent, from 2.5%. This was a good decision by the Lord Chancellor and a positive development for the catastrophically injured.

Sadly, there was no real explanation of the “Discount Rate” change but we were told that Insurers were going to have to put road insurance premiums up by perhaps as much as £75 per road user. We are told that compensation for the long-term injured would cost the NHS billions.  There was no real explanation as to why these substantial costs would arise, why the insurance premiums would increase other than a hint that the Lord Chancellor had lost all sense and reason.

Those who have been unfortunate enough to suffer a catastrophic injury (the Claimant) through no fault of their own since 2001 have had their lump sum award reduced by 2.5% based on the average yield on index-linked gilts. If there was not a discount off their lump sum the yield on this sum would be considered a windfall.  However, since 2001 the real yields on index-linked gilts has fallen to the extent that the Lord Chancellor set the “Discount Rate” at -0.75%.

In simplistic terms, since 2001 a Claimant has had their compensation calculated on the basis that if the compensation was invested they would see a return of 2.5% thus their compensation was reduced by this percentage to take into account the anticipated growth. The reality, however, is that with low-interest rates and ongoing inflation lump sums awarded are losing value year on year and as a consequence are proving insufficient to cover for instance lifetime care requirements.  In theory, when an injured person dies they should have a penny left of their compensation having used the sum recovered to pay for their care, accommodation and equipment.  In light of the low-interest rates and inflation, Claimants have been forced to decide whether to risk running out of money or risk investing their money in for instance stocks and shares, the risk, of course, being that stocks can fall as well as rise.  The current legal framework makes clear that Claimants should be treated as risk-averse investors, they are not usually experienced in the investment of large sums of money.

The Lord Chancellor has recognised this difficulty and believes it can be overcome by reducing the “Discount Rate” from 2.5% to -0.75%. Clearly, this is beneficial to the Claimant but will cost the person who negligently caused the injury through their insurer or if employed by the NHS, the NHS more money.

I suspect the insurance industry will use this as a reason to inflate premiums, to cover the adjustment in compensation. However ask yourself, if as a driver a moment’s lack of concentration meant you injured someone so badly that they were unable to work and needed extensive care, would you want your insurer to compensate the person you injured to ensure there was enough money to look after them for life or would you sleep knowing that in their latter years there was a risk they would run out?

The NHS is under constant financial pressure but should that burden fall on the person who has been injured through no fault of their own? Should they receive an inadequate sum leaving them with a financial worry of how they will cope in addition to having to live with their actual injury and the impact that it inevitably has on their loved ones or should this burden be shared amongst the tax payers who fund the NHS?  I believe the burden should be upon the taxpayer.

If we think of compensation in another way. If your house burnt down and your insurance company offered you enough money to rebuild your house less the roof would you think that a fair deal?  I think not.  Yet in that situation, you may be able to work slightly longer hours to cover the financial cost of covering the roof.  If you suffered a catastrophic injury in all probability you would be unable to work to earn the money required to contribute to the care so desperately need.

It should also be remembered that the “Discount Rate” is used when awarding compensation for future financial losses in the form of a lump sum. There is the ability for the negligent party to pay a sum each year to the injured person by way of periodic payments.  Such periodic payments are often used to cover the annual cost of care and case management.  When the Claimant dies so does the need to pay this annual payment.  A lump sum would still be required to cover other needs such as suitable accommodation, adaptation to the home, specialist equipment, ongoing medical treatment, perhaps prosthetic limbs, the needs obviously depending on the injury sustained.  Providing compensation as a lump sum with periodic payments would avoid any argument that the injured person, or more likely their family, receive a windfall if they die shortly after a lump sum has been awarded.  Insurers do not particularly like offering periodic payments as it means they have a liability to the injured person for the rest of their life and they are unable to conclude a matter and close their file.  Each year they have to set aside a sum to meet such periodic payments.

I have been assisting those who have suffered catastrophic injury for the last 20 plus years. I cannot think of one client who would not happily forgo compensation to be able to turn back the clock.

Jane Couch is a Partner at WBW Solicitors. She is a member of the AVMA Referral Panel and the Law Society Clinical Negligence Panel.  She can be contacted on 01626 202404.