Following the decision of the Royal Court of Guernsey in Helmot v Simon (14th January 2010) to reduce the discount rate on lump sum damages for future losses to 1 per cent, we ask Dr Victoria Wass, expert witness on the indexation of care costs in the Thompstone appeal cases, for her views.  

Why Guernsey?Any challenge to the 2.5 per cent discount rate in the calculation of a lump sum award in England and Wales was effectively ruled out in the cases of Warriner v Warriner [2002] and Cooke v Bristol United Health Care Trust [2004]. However, the Royal Court of Guernsey decided that it was not bound by the 2.5 per cent discount rate because Guernsey had not legislated along the lines of the Damages Act and so it was able to hear the arguments for and against a reduction. I quote from the judgment at para. 186.The discount rate of 2.5% set by the Lord Chancellor has not, as a matter of law, been adopted by legislation or by custom and practice in Guernsey. It is therefore for the court to set an appropriate rate taking into account the evidence and submissions of the parties. Incidentally, it is for this reason also that the claimant could not receive his damages in the form of a periodical payment.   How did the court approach the task of reviewing the discount rate?Their starting point was the 100 per cent compensation principle (see para187) which is also the starting point under English law.  The courts considered the 2.5 per cent discount rate and examined whether or not, on the 100 per cent principle, it should be amended for Guernsey (see para. 188). Given lack of compulsion, the 100 per cent starting point and the agreement between all the experts that 2.5 per cent would probably leave the claimant under-compensated (para.169), it was inevitable that the court would make a reduction from 2.5 per cent.  How did the court approach the task of recalculating the discount rate? The court adopted the same form of calculation as was undertaken by the House of Lords in 1998 and the by the Lord Chancellor in 2001. The discount rate is calculated as the annual average yield on ILGS over the preceding three years on the assumption that RPI inflation was 3 per cent in each year. It is widely recognised that yields on ILGS have declined since the discount rate was set in 2001. Experts for the plaintiff calculated that a Guernsey resident investing in ILGS in 2001 would have earned a yield of 2.18 per cent pa net of Guernsey tax. At the time of trial the same calculation produced a net annual yield of 1.13 per cent. The difference, entirely due to falling yields on ILGS, is 1.05 percentage points (see para. 194). There is a further difference to consider. Guernsey RPI inflation is generally higher than UK RPI inflation. The plaintiff’s experts calculated the difference at an average of 0.5 per cent pa. This was not challenged by the defendant’s expert (see para. 193).  The court determined the discount rate in this case as follows:

  It is recognised that UK earnings-based losses and expenditures increase faster than do prices-based ones and, in a periodical payment form of award, claimants are compensated accordingly. How did the court approach compensation for earnings-based losses in this case? For me this is the more interesting issue. In England and Wales the Lord Chancellor sets a single discount rate for all heads of damages and any consideration of different rates for different heads, or a lower single rate to account for real earnings growth under some heads, was ruled out in the cases of Cooke and Warriner (see above). We have already seen that the Royal Court of Guernsey is not similarly bound. However, although over three quarters of the plaintiff’s future losses were earnings-based in this case, the court did not in fact consider whether or not it ought to and, if so, how to include the differential between earnings inflation and prices inflation when determining the discount rate. The discount rate was calculated only in relation to the UK RPI, the Guernsey RPI, Guernsey tax rates and the yield on ILGS over the period 2007-2009. The reason that real earnings growth was not considered is a simple one. There was and is no suitable measure for the wage inflation for carers, or even for general wage inflation. The States of Guernsey Government does not collect data and/or does not publish statistics on the earnings of its citizens and, without a suitable measure, the court decided that it was unable to answer either question.    What implications, if any, does this have for the discount rate in English law? The evidence in relation to the setting of the discount rate has now been scutinised in a court of law, albeit one which lies outside the jurisdiction of English Law, and on the same basis as has previously been undertaken for the UK (in 1998 and 2001). The judgment appears to be one which is well-founded on the evidence presented to the court. The evidence concerned the relevance of declining yields on ILGS and wage inflation in excess of price inflation to the setting of the discount rate which, if allowed, would have been the same as would have been heard in an English court. The experts are probably the same ones who would have given evidence in an English Court. A vast array of earnings statistics are available for the UK, including ones that have been approved by the courts for use in the indexation of periodical payments orders. It is difficult to see how, if an English court had addressed the calculation of the discount rate, it would not have reached a similar conclusion in relation to declining yields on ILGS and, given the availability of suitable earnings data, may well have been prepared to consider a further reduction for earnings-based losses and expenditures.The evidence presented in Guernsey that the discount rate is excessively low in relation to the rate of return that a claimant can expect to achieve on a very low risk investment net of inflation, taxation and the costs of investment advice has been well known to the legal profession, to the insurance industry and to the Lord Chancellor for a long time now. It is not clear quite what is required to trigger a change in the discount rate. However, we are not long into a new Government and it may yet be that it is a new Lord Chancellor. If a conservative Lord Chancellor can, on the basis of science, propose the early-release of prisoners as a means of reducing overcrowding in HMS Prison service then he can surely make an evidence-based decision on the discount rate in the calculation of damages for personal injury. July 20^th 2010 

Good news for claimants.  Proposals originally published by the Law commission in 1999 are finally becoming law once the appropriate statutory instrument is laid before Parliament.  Amongst other things in the new Third Parties (Rights Against Insurers) Bill will enable claims to be made against dissolved companies directly without having to go through the time-consuming and expensive rigmarole of resurrecting and restoring the company to the Companies Register before court proceedings can be issued.

The Ministry of Justice has announced that it has no intention of reversing the house of Lords decision in Rothwell v Chemical and Insulating Co Ltd.  In that case the House of Lords denied the long-standing right to compensation of those suffering from pleural plaque on what many regard as questionable legal grounds.  In Scotland the decision was promptly reversed.  After 18 months deliberation The Ministry of Justice propose what can only be seen as a political compromise whereby those whose claims were lodged but not resolved by the date of the House of Lords decision in October 2007 will receive a fixed payment of £5,000, whereas those whose claims were lodged after that date will receive nothing.  This proposal can be best described as arbitrary.  The ultimate beneficiaries will only be the insurance companies.

There is better news from the Ministry of Justice with the proposed creation of the Employers Liability Tracing Office, the purpose of which will be to help people place insurers where negligent employer has gone out of business.  I hope that the role of the office will extend to tracing insurers in relation to all the long tail industrial disease and not just those related to asbestos.  It also is hoped that it will be properly funded and will actually be of benefit rather than a bureaucratic hindrance.  It should as a initial step require insurance to register employers liability insurance details on a central database and have as a long-term objective the recording of all historical policies for at least the last 30 years.

A Department of Work and P{ensions consultation has already begun work on the creation of employers liability insurance
to act as a fund of last resort and sufferers of asbestos related disease were unable to trace insurance records needed to claim compensation.  It is not clear to me why the fund would be limited to meeting claims for asbestos related disease only.  There are numerous other conditions in relation to which  insurers fail to meet their liabilities as a result of their own poor record-keeping.  It is suggested that it would be wrong to require insurance to contribute towards the fund of last resort because the burden would fall upon today’s more responsible employers.  However the failure here lies not with the historic employers, most of whom had insurance, but would the insurer’s own poor record-keeping from which they now benefit every time a claimant with a good claim is denied compensation because the employer has gone and the insurer fails to come forward in spite of being circulated by the ABI because they simply cannot find the policy.  In any other context it would be regarded as a national disgrace.

It is also good news that are likely to be increased up front payments from mesothelioma and sufferers and their dependants.
The proposal to simplify the bringing of claims against insurers of companies which no longer exist in the be third parties (writes against insurers) Bill now before Parliament will also be of great assistance to sufferers of longtail diseases and their lawyers.

The Government was questioned twice in as many days last week about whether pleural plaques will be considered a disease worthy of compensation, with Gordon Brown quizzed about progress on a decision during Prime Minister’s Questions yesterday (6 January).

It has been 27 months since pleural plaques victims were denied compensation by the House of Lords and the PM was asked what is being done to address the issue. Mr Brown said he was to meet with MPs following recent discussions with legal advisers.

On Tuesday, Justice Secretary Jack Straw described pleural plaques as a “difficult issue” which involves “potential expenditure by a number of departments” when asked during Justice Questions what advice he had given the Prime Minister. Why it should be difficult here but not in Scotland is not clear.

The Association of British Insurers, some of whose members do themselves charge solicitors fees for sending them cases, claim that the level of costs in personal injury claims is out of all proportion partly because the payment of referral fees is pushing up those costs. Referral fees are once again the whipping boy.

I have always understood referral fees can never be claimed back as a cost from the guilty party’s insurer or the client and are an expense which the solicitor must bear.

There is apparently a gap of between 25% and 35% between the hourly rates charged by a claimant and insurance companay solicitors in favour of the claimant solicitor. A major reason for this is that the insurers control the level of fees which can be charged by their solicitors.  I dont think any claimant would want their solicitors fees controlled by their insurance opponents!

In the days of legal aid in personal injury cases one was paid for one’s work as a claimant solicitor whether or not the claim succeeded. Those days are long gone and I find myself doing a very substantial amount of work for which I am never paid in cases which do not suceed but where clients are seeking advice entirly appropriately about prospects of success. In sharp contrast a solicitor acting for an insurance company can reasonably be expected to be paid for all the work he or she does.

In my view the insurance industry needs to acknowledge that it now bears the cost of failed cases as well as successful cases in that they are, through the success fees charged by solicitors in successful cases, being obliged through public policy to go some way towards meeting the cost of unsuccessful cases. Claimant solicitors charge more because the risk they face of not being paid is so much greater.  They should also acknowledge the benefit they recieve from claimant solicitors sifting out claims which are unlikely to succeed particularly in the context of occupational illness claims prior to any claim being made.

The defendant solicitors win on the swings because they can expect to be paid for all or most of their work, whereas claimant solicitors win on the roundabout because they get higher fees for those cases which are successful.  One cannot consider costs in isolation. 

In my view Insurers need to look closely at whether by being more active themselves in tackling claims, and also by improving the training of their staff they can cut out the inevitable costs created by delay and inefficiency in their offices.

It has been said the best form of disinfectant is sunlight.

It is good news that the BBC Money Box programme has recently run a piece on insurers’ practice of third party capture.

This involves the insurer of the guilty party making speedy (unrequested) contact with the injured victim of the accident, and trying to settle their claim as soon as possible and ideally, without having independent legal advice.

The Association of British Insurers seek to justify this by arguing that it avoids the injured person having to incur legal costs and going through the courts, which is of course in the insurers interest, although not by any means necessarily in the injured persons interest.

There clearly must be a conflict of interest for the insurer in seeking to assist both parties. Just as a solicitor’s primary duty is to his or her client, the insurers owe their duty to their shareholders

It must be right that the victim of the accident should be independently advised notwithstanding whether any offer of settlement is fair. This is a simple matter for natural justice.

It is to be hoped that the Financial Services Authority will look more closely at this practice which is apparently increasing and is intending to report its findings later in the year.

A recent house of Lords judgment confirmed an old legal maxim. 

Mr Gray was a passenger in the Ladbrook Road Train Crash in October 1999. Although not badly hurt physically he subsequently developed severe post traumatic stress disorder and depression.

In August 2001 he was involved in an altercation and, as a result of his psychological condition, he stabbed the other person to death.

Everyone agreed that he would probably never have acted in this way but for the psychological injury he suffered from as a result of the crash.. Therefore, it was argued that Mr Gray’s actions were a consequence of the negligence of Thames Trains.

He claimed for loss of earnings as part of his claim against Thames Trains. It included an element for future loss of earnings.

The Court of Appeal agreed this was fair.

Thames Trains appealed to the Law Lords who ruled that his claim for future loss of earnings failed because  of the legal maxim ex turpi causa which means that one cannot base a claim upon your own unlawful actions.

The Government has announced week that osteoarthritis of the knee in coal miners is to be added to the Industrial Injuries Disability Benefit Scheme. This means that any miner who worked underground for more than ten years prior to 1986 and has developed osteoarthritis will be entitled to claim the benefit. It will come into effect on 13 July 2009.

Four insurance companies, AXA, Norwich Union, Royal and Sun Alliance and Zurich asked the Scottish Court of Session to stop the Scottish Government bringing into force new laws which would reverse the House of Lords decision that pleural plaque is not a condition for which compensation can be recovered. This legislation has restored the right of individuals to claim from former employers and their insurers, compensation for asbestos related lung plaques.
There are ongoing legal proceedings by way of Judicial Review in Scotland in a further attempt by them to try and put an end to the new right to claim on the grounds the change in the law breaches their human right to a fair trial under Article 6 of the European Convention on Human Rights, contravenes their economic rights and is irrational in the face of the common law. They also argue that it will cost the taxpayer and employers too much.

Prior to the House of Lords decision in 2007 those suffering the physical insult and mental distress caused by asbestos plaque on their lungs had, in the view of the Courts, suffered recognisable harm often as a result of negligence by employers and had the right to modest compensation. It is a matter of opinion whether this is an injury or not but if there is it ought to result in compensation if that injury was caused by another’s negligence. It is difficult to see why taking a rational contrary view (which the Courts previously supported) can be considered irrational or in breach of human rights.

The case will be heard at the end of May.

In England and Wales, although a consultation paper in relation to whether the right to claim compensation for pleural plaque should be restored was published at the end of October 2008, still no response has been received from the Ministry of Justice. However, The Lord Chancellor has indicated that he hopes to publish a response at the end of July.

However, Andrew Dismore MP has taken the initiative in the House of Commons and introduced a Damages (asbestos - related conditions) Bill which was debated at the end of April. The Bill would overturn the House of Lords ruling. It is very heartening that The Bill was agreed by all MP’s who were present at the debate so that it can now go to the Committee Stage for detailed examination. However, The Bill could be stopped by the Government at a later stage. It still has a long way to go before becoming law.

It is good news that the Damages (Asbestos - Related Conditions) (Scotland) Bill made its way through the Scottish Parliament restoring the right of those suffering from asbestos related pleural plaque to pursue claims for compensation, assuming they have been negligently exposed to asbestos.

The Bill had strong support, being approved by a majority of 98 to 16.

It is hoped that the Act will receive Royal Assent at the beginning of April. Apparently there is a prospect that insurers may seek to challenge the right of the Scottish Assembly to pass this law and also argue that it breaches their human rights.

The consultation process is ongoing in England and Wales.

On the other hand, it is unfortunate that the Employer’s Liability Insurance Bureau Bill has been derailed. Opposition MPs objected to the Bill and its second reading was postponed until June.

The Bill is designed to introduce a fund to meet claims for compensation by injured workers where no financially viable employer exists and the relevant insurer cannot be traced.

It is to be hoped that this excellent Bill receives support in future.