Stewarts responded to the consultation by The Guernsey Policy and Resources Committee on ‘The Personal Injury Discount Rate and Other Related Matters’.
In an article originally published in New Law Journal (subscription required), Chris Deacon and Ronak Mahdavi Jovainy outline the proposals and their impact on personal injury claimants in Guernsey.
The Guernsey Policy and Resources Committee’s (“the Committee”) wide-ranging consultation related to:
- The personal injury discount rate
- Implementing periodical payment orders
- Recovering healthcare costs from claimants
- Implementing a cap on damages
The proposed reforms would leave serious injury victims whose claims are subject to Guernsey law under-compensated, eroding the fundamental common law principle of full compensation. Stewarts highlighted in its response that the proposed reforms would likely see a claimant’s damages run out during their lifetime. Claimants will no longer be able to cover the expenses associated with their complex injuries and would be forced to rely on the state for their ongoing needs.
The discount rate is a percentage discount applied to damages awards to reflect the interest claimants can expect to earn by investing damages, as well as the effects of tax, investment expenses and inflation on those returns.
At present, Guernsey does not have a statutory discount rate. In Helmot v Simon, the Privy Council agreed a discount rate of -1.5% should apply for earnings-related losses and 0.5% for all other heads of loss. Those rates were adopted based on the economic position at the time and the case’s individual circumstances. Without a statutory discount rate, claimants in Guernsey can argue for a bespoke discount rate that reflects the prevailing economic and individual circumstances, guided by expert economists and actuarial evidence on a case-by-case basis.
To bring about greater certainty when assessing future losses, the Committee proposes to implement the same discount rates as Jersey, where a split rate of 0.5% is adopted for losses up to 20 years post-injury and 1.8% from year 21 onwards. The Committee’s proposal appears to be based on little evidence as to the correct level or timing for any split in the rate to be applied.
Stewarts has continued to lobby on the discount rate in England and Wales, which was reduced to -0.25% in August 2019. Other UK jurisdictions also adopt a negative discount rate, which is set at -0.75% and -1.5% in Scotland and Northern Ireland, respectively.
Stewarts strongly advocates the House of Lords approach in Wells v Wells, where it was determined that the assumed investment risk profile of a claimant should be highly risk-averse or risk-free, which is in line with Stewarts’ experience of catastrophically injured clients. Whether a claimant decides to invest their damages is their own choice. If the investment does well, they may out-perform the discount rate, enhancing their financial position. Conversely, if a claimant achieves poor returns or suffers losses, it would result in performance below the discount rate, increasing the risk of compensation running out during a claimant’s lifetime. Neither will ever be certain. The proposed reforms are constructed in such a way that claimants will be forced to take investment risks that could leave them in a worse position financially. Furthermore, these investments would be subject to expenses and charges, meaning any return will be much lower than anticipated by the Committee’s proposed discount rates. Meanwhile, the insurer responsible for meeting the claimant’s compensation saves money.
When comparing the proposed discount rate in Guernsey to the rates in other UK jurisdictions, it is clear the suggested rates of 0.5% and 1.8% are too high. They would not meet the full compensation principle, which aims to return the victim in monetary terms, as far as possible, to their pre-accident position.
Recovery of healthcare costs
The Committee sought views on whether a mechanism similar to the Compensation Recovery Unit in the UK should be introduced in Guernsey. Stewarts supports introducing a system whereby healthcare, social care and benefits funded by the States of Guernsey can be recovered from the responsible party in a claim. However, in our view, recovery of these costs should not go beyond the point of settlement or damages being awarded; only past healthcare costs and state benefits paid out should be recoverable. Stewarts also argued that, similar to the UK, recoverable costs should not go beyond five years post-accident, given that most personal injury claims would have been resolved by then in any event.
Periodical payment orders
A periodical payment order (“PPO”) is where the future damages for certain heads of loss, typically care and case management but sometimes also loss of earnings, are paid to the claimant at an agreed annual rate and on an annual basis. A PPO can be index-linked, and generally, ASHE 6115 indexation is applied to PPOs for care and case management and other earnings-related indices for other earnings-related losses. Indexation is required so the amount the claimant receives annually increases with inflation, ensuring sufficient funds are available for their annual needs.
There is currently no provision for PPOs in Guernsey. However, the consultation sought views on implementing a PPO scheme, how PPOs should be indexed and whether there should be a rebuttable presumption that PPOs will be used in all cases involving claims for future financial loss.
With the cost of care rising significantly, it is unlikely that an injured person, or their family, will have the necessary funds to pay for the level of care needed, which can be hundreds of thousands of pounds each year. Catastrophic injury claimants are particularly vulnerable to this risk when subject to an unrealistic discount rate, such as that proposed in Guernsey. However, if a claimant is awarded a PPO, the likelihood of funds running out during their lifetime is reduced, particularly where the PPO is index-linked.
In our response, Stewarts advocated for the availability of PPOs, particularly where it is in the claimant’s best interests to receive any future losses by way of annual payments. However, a rebuttable presumption would remove the flexibility to explore whether settlement on a lump sum or a periodical payment basis is in the claimant’s best interests.
Instead, we suggested a more balanced approach with a statutory requirement for parties to have fully considered PPOs on a case-by-case basis. Stewarts expressed that the power to set the indexation should lie with the court on the facts and evidence of each case to avoid the inflexibility of an index being set across the board, which may not sufficiently cater for all heads of loss.
Cap on damages
The Committee sought views on introducing a cap on the amount of damages that can be awarded. This proposal aims to balance prospective claimants’ interests with those of the public, since the cost of large personal injury awards is typically covered by the insurance premiums paid by consumers and businesses. The consultation suggested that the current system may cause an insurance crisis as the rising cost of personal injury damages awards would result in increased insurance premiums.
The Committee pointed to the introduction of caps in damages in certain states of Australia to support its position. However, Stewarts highlighted that greater weight has been placed on the insurance industry’s interests than those of innocent injury victims. These victims would be unable to meet their future medical, therapy and care costs if their claims were subject to an arbitrary cap on damages.
It is unclear, as little evidence is provided in the consultation, how introducing a cap on damages will directly impact insurance premiums payable by consumers.
In a letter to the Committee, the family of a Stewarts client from Guernsey commented that a cap on damages would significantly impact their seriously injured son: “…a small rise in insurance premiums to meet damages awards for innocent serious injury victims…is a small price to pay to know that there is a means of financial support available…should a loved one have the misfortune of suffering a life-changing injury due to someone else’s negligence.”
Our client’s family urged the Committee to consider the reality of their son’s situation. With the worry and uncertainty of his future on their minds, they asked the Committee to provide them with “comfort and reassurance that he will receive full compensation from the insurer of the individual that has irreversibly changed his life”.
Stewarts emphasised that a cap on damages would breach the principle of full compensation since damages are awarded to put the injured person back into the financial position they would have been in ‘but for’ the accident/injury. A cap on damages in Guernsey, where there are very few catastrophic injury claims, would be disproportionate.
It remains unclear to what extent the proposals set out in the consultation will become law in Guernsey. Nor is it known when we will see any of the reforms in practice, given that two years passed between May 2020 when the Damages (Assumed Rate of Return and Related Matters) (Enabling Provisions) (Guernsey and Alderney) Law was registered as primary legislation (allowing the Committee to implement such reforms), and May 2022 when it became an Ordinance of the States prompting the consultation.
What is certain, however, is that if the proposals are adopted in their current form, those who suffer catastrophic injury will likely be under-compensated under Guernsey law. They will be forced to fall back on the state to meet their lifelong needs, calling into question the overall financial benefit the reforms are intended to achieve.