The Impact of the Amended Discount Rate in Personal Injury Claims

by Rachel Mills

The amended Discount Rate applied to future losses in personal injury claims changed on 20 March 2017. The rate was amended from 2.5% to minus 0.75%.  The effect of the change is that multipliers applied to future losses will increase significantly and a Claimant’s future losses will increase as a result.

Reports suggest that Insurers are petitioning the Government to reconsider the rate change and the way the rate is calculated. Insurers met with Chancellor of the Exchequer, Philip Hammond, to discuss the future, rather than the Lord Chancellor, Liz Truss, who brought into effect the new rate. As yet there has been no indication from the Government that the rate will be reviewed and/or changed at any point in the near future.

There have already been some interesting points arising since the new rate was introduced. This week the first settlement was reported which used the new Discount Rate to calculate damages. A 10 year old girl who developed cerebral palsy due to birth complications had her damages increased from around £3.8million to £9.3million. In LMS v East Lancashire Hospital NHS, the Court approved a settlement on the basis that the Claimant would recover 50% of the full value of her claim calculated at the new discount rate of minus 0.75%. This represents an increase in damages of around £5.5million.

Also this week in the case of Thompson v Reeve, the High Court allowed a Claimant to withdraw a Part 36 Offer made before the change in the Discount Rate and take advantage of the new Discount Rate. This was despite an “error of procedure” when the Claimant withdrew the offer. The Claimant was injured in a Road Traffic Accident in 2008 and received subsequent negligent treatment.  In August 2006 she made a Part 36 Offer to settle her claim for £340,000 applying the previous Discount Rate of 2.5%.

On 28 February 2017, the day after Lord Chancellor Truss published the intended changes to the Discount Rate, the Claimant’s Solicitor sent an email withdrawing the previous Part 36 Offer of August 2016. As the Defendants had not elected to accept service of documents by email, they claimed that service of the notice of withdrawal was invalid. The Defendants purported to accept the Part 36 Offer by facsimile on 2 March 2017.  The Claimant made an application to the Court to:

(i)  Withdraw the Part 36 Offer;

(ii) Declare that the Claimant’s offer was deemed to have been withdrawn on 28 February 2017, despite the procedural error.

The application was made under CPR Rule 3.10 which gives the Court general power to rectify an error of procedure where the error does not invalidate any step taken in proceedings. The Defendants disputed the application on the basis that Part 36 is a self-contained code which prevented the Court exercising discretion under CPR 3.10.

The Claimant conceded that service of the withdrawal notice was not “good service” but argued that CPR 3.10 could be applied so that notice of withdrawal could be treated as valid. Master Yoxall agreed that CPR 3.10 had a wide effect and could be used in this context and applied to CPR Part 36. He concluded that the Claimant had given notice in writing and it was not disputed that the notice was received by the Defendants. The method of service was defective but CPR 3.10 could be used to remedy the procedural defect.  The Master considered it appropriate to exercise discretion in this case and said “In my view it would not be just or consistent with the overriding objective that a technical breach of the rule should impede the proper assessment of damages in this case”. This shows willingness by the Court to allow a Claimant to take advantage of the new Discount Rate, despite a procedural breach.

Since the announcement to change the rate was made, several Insurers have warned of increased premiums and reported falling share prices. Direct Line have announced falling share prices and cut pre-tax surplus for 2016 by 38% from £570.3million to £353million. In the meantime, Claimant solicitors are reporting uncertainty for Claimants wanting to settle their claims and that Defendants are reluctant to negotiate and attend settlement meetings over concerns that the Discount Rate may change again in the future.

At this time, all reserves must be reviewed to reflect increased future losses as a result of the changes to the Discount Rate. Any Part 36 offers on a file should also be reviewed and Defendant’s may need to update offers to provide adequate cost protection.

We will continue to monitor the situation and report on any changes.

If you require further information or advice regarding the contents of this article please contact Rachel Mills whose details appear below.

This article is filed under:  Industry news, Press releases, Publications

About the contributor

  • Rachel Mills Partner

    Rachel has experience in all aspects of commercial litigation and dispute resolution involving contractual issues, insurance disputes and personal injury and fatality claims.

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