New PI Discount Rate ‘Very Close’ to Being Legally Unacceptable, Former Minister of State for Justice Surmises

In edition 297 of BC Disease News (here), we reported that the Association of British Insurers (ABI) had shelved plans to commence judicial review proceedings against the Government, on the basis that the new personal injury discount rate (PIDR) in England and Wales had been ‘miscalculated’ by the former Lord Chancellor and Secretary of State for Justice, David Gauke.

At the time, Director of General Insurance Policy, James Dalton, explained that after ‘careful’ consideration:

‘... we were mindful of the uncertainty and delay that would have been created in individual personal injury cases as a result and so decided not to proceed’.

Speaking at an ABI-hosted event on civil justice reform this week, however, Lord Faulks QC[i] may just have made the insurance industry regret not following through with its original intentions.[ii]

The Conservative peer, who served as Minister of State for Justice, from January 2014 to July 2016, opined that Mr. Gauke had strayed ‘very, very close ... to the margin of what was legally acceptable’ when ‘overly cautiously’ exercising his discretion, especially as Martin Clarke, the Government Actuary, built ‘margins for sensitivity’ into his own Advice supplied to the former MP:

‘The Lord Chancellor went right to the bottom of the permissible margins ...

Surely the correct approach would be to try and strike a balance between over- and under-compensation. It seemed to me that he built prudence upon prudence upon prudence in coming to the view that he did.

Of course, everybody is quite reasonably and appropriately anxious that the claimant is appropriately compensated, but the consequences of what I would suggest is almost certainly – not inevitably – over-compensation is of course a very big bill for the NHS and for insurers, with consequent knock-on effects on premiums, which is not in anybody’s interests’.

Although the Civil Liability Act 2018, which establishes the framework for setting the PIDR in future, confers ‘a considerable degree of discretion’ to acting Lord Chancellors, did Mr. Gauke still manage to go beyond this ambit?

Though the decision to set the PIDR at (-)0.25% will no longer need to stand up to legal challenge, Lord Faulks QC questioned whether judges could be persuaded to compel claimants to take periodical payments, having accepted that claimants may be over-compensated by lump sum settlements.

Unconvinced by this strategy, Carolyn Mackenzie, Director of Complex Claims at RSA, disclosed that courts rarely impose periodical payment orders (PPOs) when financial and legal advice point towards lump sum payments.

 

[i] ‘Lord Faulks QC’ (GOV.UK) <https://www.gov.uk/government/people/lord-faulks> accessed 31 January 2020.

[ii] Neil Rose, ‘Faulks: Discount rate change was overly cautious’ (31 January 2020 Litigation Futures) <https://www.litigationfutures.com/news/faulks-discount-rate-change-was-overly-cautious> accessed 31 January 2020.