The Court of Appeal handed down judgment in Swift v Carpenter  EWCA Civ 1295 on October 9. The main outcome of the case is that insurers are expected to have to pay higher compensation to people injured in accidents, resulting in higher insurance premiums. The compensation will cover the cost of changes to accommodation required as a result of an accident.
The case concerned the calculation of compensation for accommodation needed to support someone with life-changing injuries. The issue before the court was how adequately to compensate the victim without providing a windfall for their estate. The Court of Appeal had to consider whether Roberts v Johnstone  QB 878 was binding or merely guidance. Roberts held that compensation should be calculated by multiplying the capital cost of accommodation by a discount rate and then applying a life multiplier. In recent years and with the application of the revised discount rate, compensation has been calculated at nil. This has left victims paying for the cost of accommodation from other heads of awards.
The Court of Appeal held that Roberts was not binding and that generally accommodation claims should be valued at the additional capital cost minus the value of the reversionary interest based on a discount rate of +5 per cent.
The facts of the case
The appellant was the victim of a road traffic accident. The appellant sustained serious injuries resulting in the amputation of her lower left leg. At trial, the judge made a lump sum order of £4,098,051. It was found that the additional capital cost of appropriate accommodation would be £900,000 more than the value of the victim’s current home. The judge found that she was bound by the approach set out in Roberts and could therefore not award an additional sum to cover accommodation. Permission to appeal was granted. The case considered the status of Roberts and the determination of what would be fair and reasonable compensation.
The issues on appeal were as follows: Was the court bound by Roberts? If yes, was the court prevented from revisiting it? If not, should the court revisit Roberts? If Roberts can be revisited then should the court award the full capital value of the incremental sum required or should the court award that sum reduced to reflect the value of a notional reversionary interest? If the latter, how should the court reach a conclusion as to the value of the reversionary interest?
The appellant argued that it was a fundamental principle that compensation for injury should be full and fair compensation. The injured party should be placed in a position as close as possible to that they would have been in absent the injury (see Longden v British Coal Corporation  AC 653 and Simon v Helmot  UKPC 5). The respondent argues that the court did not have authority to diverge from the decision in Roberts which had been treated as precedent for decades.
The judge accepted the appellant’s argument that it was not bound by Roberts on the basis that the reasoning in Roberts was a means to an end rather than a principle, or end in itself. Accordingly, Roberts applied as merely authoritative guidance given in the specific conditions prevailing at the time of the decision.
If Roberts was not binding, should the court change the approach taken to compensation? Expert evidence was heard from economists and actuaries. Irwin LJ stated that, in the context of modern property prices and a negative discount rate, the formula in Roberts no longer achieves fair and reasonable compensation for an injured claimant. It was accordingly not fair and reasonable to follow Roberts in determining compensation. There was furthermore no basis for requiring the claimant to invest other heads of award in the purchase of property. The approach in Roberts significantly constrains the capacity of the claimant to protect themselves from future contingencies.
Although Irwin LJ recognised the need to avoid a potential windfall to the claimant’s estate, this principle should not come before the need to provide fair and reasonable compensation. In recognising that there may be a windfall on the appellant’s death, the court had to consider whether it was possible to find a workable approach to establishing the value of that windfall. The court sought to establish the capital sum required to purchase the house needed by the appellant and then establish a practicable approach to the calculation of a sum to be deducted to represent the value of a reversionary interest in the windfall.
Irwin LJ decided that the fair and reasonable approach to valuation relied on too many fixed assumptions. The projections relied on an assumed future return from the assets involved (in this case, property). Irwin LJ determined that the correct way to calculate this future value was through a market approach to the value of a reversionary interest. A discount should be applied at 5 per cent to reflect the victim’s life expectancy.
Applying the new approach, Irwin overturned the award of the judge at first instance and awarded damages to the appellant of £801,913 which reflected the cost to acquire the accommodation minus a reversionary interest (calculated applying the discount) of £98,087.
This Court of Appeal decision is again merely guidance and may not apply in every circumstance. For people with short life expectancies, for example, the approach in Swift may not result in fair and reasonable compensation. The Court of Appeal was clear that the guidance may not have universal application but it did not consider those circumstances in which the decision might not apply. The case therefore has not necessarily brought greater clarity in respect of any universal approach to the calculation of accommodation awards. The decision inevitably will result in higher claims for the cost of accommodation with claimants seeking to recover as much of the cost of the full capital value as possible.
For insurers with liability for personal injuries, Swift is likely to mean much greater compensation payments to take account of the cost of accommodation. As a result, premiums are likely to go up to meet these costs.