The Court of Appeal has rejected a Law Commission proposal to double payments for pain and suffering damages which would have cost the insurance industry £2bn retrospectively and £1bn a year in future.

Instead, the Court ruled in eight test cases not to increase damages for under £10,000 while introducing a sliding scale increase for claims above that figure.

It starts at 1% for a claim costing £10,001 and rises to a maximum 33% for the highest level £150,000 claim.

Insurers now face a retrospective bill of between £100m and £200m, and £40m to £80m a year in the future because the vast bulk of pain and suffering awards are under £10,000, says the ABI.

The biggest winners in the decision are motor insurers who otherwise would have been forced to massively hike premiums in a bid to keep pace with new claims inflation.

The Association of British Insurers said that the Law Society's recommendations would have resulted in motor insurance premiums rising by 10% and employers' liability cover by 20%-30%.

ABI director general Mary Francis said it was fair for society to judge what levels of compensation for accident victims are fair, but added that society has to be prepared to meet the costs.

"The Court of Appeal has taken account of this in its judgement, and decided that damages should be larger for the most serious cases, where advances in medical science have led to longer life expectancies," she said.

The Court of Appeal is now looking for the Judicial Studies Board to prepare a new edition of their guidelines. It believes the courts should use the Retail Price Index to find the appropriate level of award for assessing general damages. This means there is the prospect of some minor variation in assessing these general damages in the short term.

The Law Commission had recommended that there should be an increase of at least 50% but not more than a 100% for damages more than £3,000. It suggested there should be a smaller tapered uplift from £2,000 to £3,000.

Laura Wilkin, partner at law firm Weightmans, said the decision will not alter how courts approach settling damages.

"Insurers will be heartened by what appears to be a conservative approach by the Court of Appeal," she said. "This judgement will not radically change how the courts approach the issue of settling damages.

"It seems that the Law Commission attached too much importance to the survey it commissioned, which was flawed in terms of the questions asked and data collected. Thankfully, insurers' representations have not gone unheard," she added.

General Damages Ready Reckoner
(Provided by Kennedy's Law Firm)
Old Award Sliding
New Award Increase
£10,000 0.00% Unchanged Nil
£18,750 2.08% 19,140 £390
£27,500 4.16% 28,644 £1,144
£36,250 6.25% £38,516 £2,266
£45,000 8.33% £48,748 £3,748
£53,750 10.41% £59,345 £5,595
£62,500 12.50% £70,312 £7,812
£71,250 14.58% £81,638 £10,388
£80,000 16.66% £93,328 £13,328
£88,750 18.75% £105,391 £16,641
£97,500 20.83% £117,809 £20,309
£106,250 22.91% £130,592 £24,342
£115,000 25.00% £143,750 £28,750
£123,750 27.08% £157,261 £33,511
£132,500 29.16% £171,137 £38,637
£141,250 31.25% £185,391 £44,141
£150,000 33.33% £199,995 £49,995
The above table strictly applies the 33.33% increase between £10,000 and £150,000 awards. It is only intended as a guideline and indeed the Court of Appeal in the eight test cases exercised its discretion referring to an increase in bands.