General liability

In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for general liability.

Key developments in 2020

Last year we commented on the implementation of the negative discount rate for calculating lump sums awarded for future financial loss. Although lower discount rates usually increase awards for future loss, this year, in Swift v Carpenter [2020] EWCA Civ 1295 the Court of Appeal addressed the unanticipated consequence of a negative discount rate on claims for higher accommodation expense.

Mrs Swift owned a house valued at £1,450,000. She needed a new house, valued at £2,350,000, to accommodate her injuries, and claimed the additional £900,000. In 1989 the Court of Appeal approved a formula for calculating this kind of award, by applying the discount rate (at that time 2.5%) to the additional sum needed, and then multiplied the result by the Claimant's life expectancy. On this basis Mrs Swift would have been awarded £623,700. Using the same formula with the current negative discount rate of -0.25% meant that Mrs Swift was £116,887 better off and so the trial judge awarded nothing.

The Court of Appeal decided on 9 October 2020 that the calculation that had been used for the past 31 years was not fair in times of low or negative discount rates. It decided that the appropriate approach was to calculate the value of the reversionary interest of the difference in the value of each property at an interest rate of 5% per year over the remainder of the Claimant's anticipated life, using the Ogden table 28 multipliers for pecuniary loss for a defined term, and to deduct that sum from the additional sum needed to buy the new house.  

This approach gives rise to significant under-compensation when the Claimant has a short life expectancy. Litigants and the courts are likely to adapt their approach to accommodate each individual case. 

Underwriters and claim handlers need to remain mindful of the particular circumstances of each claim as it progresses.            

What to look out for in 2021

We anticipate the implementation of Part 1 of the Civil Liability Act 2018 and associated Regulations which introduce a new claims procedure for relatively minor whiplash injuries sustained by occupants of cars in road traffic accidents. The Regulations will introduce a tariff of compensation awards for whiplash injuries. The proposed tariff of awards is relatively low when compared to those currently awarded by the courts. The Act prohibits settlement of whiplash claims without a medical report.

Because the Act does not apply if there is additional injury not affecting soft tissue in the neck, back or shoulder, it is likely that those bringing claims will also allege injury to other parts of the body.

A likely related development is the proposed expansion of the small injury claims procedure from £1,000 to encompass claims with a value up to £5,000. This will mean that the overwhelming majority of claims for whiplash, as well as many injuries arising from accidents at work, will fall within the small injury claims procedure, which in turn is likely to lead to a significant increase in whiplash and other injury claims being made without legal representation. A new on-line claims portal is being introduced to cater for this.

Insurers will likely receive significantly more claims by litigants in person and will need to be prepared for this. 

A review of the Court's guideline hourly rates for solicitors is under way and is currently at the consultation stage. Because the current guideline rates have been in place since 2010, the new guidelines might contain significant increases.  

Authored by Jonathan Drake.

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