Motor insurers were saved several million pounds a year this week after the Court of Appeal confirmed the interest multiplier for delayed personal injury settlements at 2%.
The test case of Lawrence versus Chief Constable of Staffordshire has cleared the confusion created two years ago, when the House of Lords ruled that th interest multiplier for calculating long-term damage awards should be calculated using index-linked securities. At the time, this was 3%.
It had left courts with the quandary of whether the rate used to calculate the interest payment for the delay in settling personal injury claims should also be 3%.
Tony Hannington, a partner at law firm Shakespeares, said: “The result confirmed that the rate of interest should remain at 2% and not be awarded at the 3% level, which had been considered by some courts the appropriate rate since the Court of Appeal decision in Wells versus Wells in 1998.
“At the time, Wells versus Wells was a landmark decision because the Court of Appeal established that the discount rate on multipliers for future losses should be based on the rate of index-linked securities and held this rate to be 3%.
He added: “Historically, the rate of interest on general damages has been 2%, as confirmed by the House of Lords in Wright versus Railways Board.
“Ever since Wells versus Wells, there has been confusion as to the rate of interest on general damages as claimants claimed 3% by virtue of this reasoning.”
However, the financial impact is limited because many insurers were still paying out at 2% rather than moving to 3%.
James Rakow, associate at actuaries Bacon and Woodrow, said the case would have added up to £10m at the most onto the motor insurers' claims bill if the court had ruled for 3%.