Court of Appeal ruling could have insurers revisiting their reserving for personal injury claims

On 9 October, the Court of Appeal issued its ruling on the Swift v Carpenter case, revoking previous case law to allow injured claimants to recover the cost of housing that best accommodates their disabilities.

Although this decision may have rectified a “clear injustice for many disabled claimants”, insurers will now have to put their hands deeper into their pockets to settle these types of personal injury claims - Daniel Frieze, head of personal injury at St John’s Buildings barristers chambers, for example, said that insurers will now be “revisiting their reserves”.

No recovery

The Swift v Carpenter case centres around Charlotte Swift, who was 39 when she was injured in a serious crash on the M5 motorway in 2013, when she was travelling as a passenger. Her injuries included a below knee amputation on her left leg and significant injury to her right leg. She brought a claim for damages against the driver, who admitted liability, and she was awarded more than £3.8m in compensation in 2018. This amount was to cover the cost of prosthetic limbs, care and equipment, such as a wheelchair, however the calculations did not factor in additional costs around attaining suitable housing to meet her new lifestyle needs.

According to specialist medical negligence, personal injury and mental capacity law firm Enable Law, the decision to limit payments for housing costs arises from a ruling in 1989 from the Roberts v Johnstone case. This did not allow disabled claimants to recover the costs for a larger or more accessible home because “to do so would do more than simply meet their needs because, when they died, the extra would form part of their estate, creating an asset that would outlive its owner”.

Instead, the court “ruled that claimants could recover the interest on a loan to fund the extra purchase costs. The value of that interest was calculated by reference to the ‘discount rate’, a formula which made assumptions about the rates of return on investments”.

Enable Law, however, identified several problems with this approach. It said: “First, if the formula did not reflect realistic investment rates – and for many years, it did not – claimants would recover too little. Secondly, although the award would be higher if they were expected to live a long time, it would be much lower if their life expectancy was shortened. Thirdly, should the ‘discount rate’ become a negative figure, they would recover nothing at all.”

The firm added, therefore, that “claimants have been unable to recover even the cost of borrowing to buy a property” since March 2017, when the discount rate first moved to -0.75%. In August 2019, the discount rate improved to -0.25%, however remained a negative number.

Ruling results

In Swift v Carpenter however, the Court of Appeal concluded that “the Roberts v Johnstone formula no longer achieved fair and reasonable compensation”.

Enable Law explained: “It ruled that claimants should be allowed to recover a sum to meet part of the cost of the housing they need. That part is the extra cost of buying a suitable property but reduced to reflect the value of a ‘reversionary interest’. A reversionary interest is where someone owns a property, but another person has the right to live in it for their lifetime. The value of the interest will be greater where the occupier has a short life expectancy and lower when a long one.

“Claimants will still need to use part of the damages intended for other purposes to fund their accommodation, but they will at least have some damages to put towards it. People with short life expectancies will still struggle to fund their housing costs. That will, in particular, affect elderly people and those with medical conditions likely to shorten their lives.”

Paul Sankey, clinical negligence partner at Enable Law, welcomed the ruling because of the extra financial support it will provide claimants.

He added: “The legal situation and formula used to calculate accommodation costs, have both, until now, created clear injustice for many disabled claimants. We welcome this Court of Appeal ruling, which goes a long way to reversing 31 years of injustice.

“Claimants will still need to use part of the damages intended for other purposes to fund their accommodation, but they will at least have more financial support than before.

“I have known disabled people have to crawl upstairs on all fours because the court wouldn’t allow them the cost of a bungalow. It is heart-breaking to tell people who have been made disabled through catastrophic accidents that the courts recognise their loss but can’t do anything about it.

“Disabled people have often been forced to struggle and make do, or to deprive themselves of care or equipment in order to pay for their housing.”

Insurance implications

Although on the face of it, the ruling would appear to be a step in the right direction, there will be financial implications for insurers dealing with life-changing personal injury claims.

Sankey continued: “Whilst the decision is good for claimants, there will be a cost to the insurance industry who will have to meet increased awards of damages in the highest value cases.”

This view is shared by Frieze. “Insurers have been the greatest benefactors from uncertainty in recent years and they may now consider the pendulum has swung too far the other way,” he added. “It is likely they will be revisiting their reserves and considering their next steps. It will be interesting to see whether an appeal is now taken to the Supreme Court by the defendant.”

Philip D’Netto, partner at Plexus Law and member of the Forum of Insurance Lawyers (FOIL), on the other hand, said he was “disappointed” by the ruling.

He explained: “The Forum of Insurance Lawyers [is] disappointed with [the] decision; we feel that it overcompensates claimants in many ways. The decision fails to take into consideration the appreciation of property value. The Court [has] arrived at a formula that appears simple, but does not reflect the true loss to the claimant.”