The recent Guernsey Court of Appeal decision in Helmot v Simon has caused unease within the UK insurance market. It has changed the way Personal Injury Awards are assessed in Guernsey and re-ignited calls for reform in the Courts of England & Wales.
An insurance institute seminar, to be held on 28th October, will address this topic and clarify the Channel Island position. The speaker, Lee Ingram ACII, is a solicitor of Voisin Law Firm and he will be explaining the precedent set and the repercussions this could have for the insurers in the future.
Helmot v Simon was heard in Guernsey on 14 September 2010. The Guernsey Court of Appeal awarded a victim of a road traffic accident compensation in the sum of £13.7 million. The award was the largest made by a British Isles Court.
The Guernsey Court’s decision has caused unease within insurers, not due to the level of the award, but the manner in which the Court calculated the award.
In personal injury cases, the victim is entitled to recover damages that will put him in a position, financially equivalent to that which he would have been in, had he not been injured. In Guernsey, damages can only be awarded as a lump sum, which is assessed at the time of the Court’s decision. The Court had no power to award periodic payments.
The Court’s assessment of the appropriate lump sum depends on, amongst other things, the development of the victim’s clinical condition and future care costs; the rate of inflation applicable to those care costs; any rate of return on the lump sum and payment of income tax. These assessments are inherently uncertain and once a lump sum has been awarded, there is no procedure to revise the award at a time in the future.
The key issue before the Court was its assessment of the appropriate discount rate (the assumed rate of return on an investment) on which it could base its award.
In England, the uncertainty of the rate of return on a lump sum has been largely removed by the Damages Act 1996. The Court held however, that it was not bound either by legislation, custom or practice to follow that rate of return and was free to set a rate appropriate to the economic conditions prevailing in the Island.
The Court applied two different discount rates to account for future earnings and non-earnings related losses. The effect of which increased the award by 39%.
Lee Ingram, Solicitor, Voisin law firm, says:
‘Given the Court’s findings, there is unease amongst insurers that the decision will lead to calls for the discount rate to be varied in England. This would lead to larger compensation payments and the need for insurers to revisit the premiums they require from certain policyholders. I will be discussing the implications in the Insurance Institute seminar and we expect a lively debate to follow. It’s important to have a forum such as this and a chance for the profession to discuss market changes when a new precedent is set.’
The seminar will begin at 13:15 on 28th October at The Victoria Club and is due to finish before 14:00. Members of the Chartered Insurance Institute can contact Tim Wiseman on Tel: 711666 or e-mail firstname.lastname@example.org