Gill Russell judgment may add €100m to State claims bill

A court judgment setting a new precedent for how serious personal injury claims are paid threatens to impose heavy additional costs on the State and put upward pressure on insurance premiums.

The State Claims Agency estimates the cash cost of meeting negligence claims involving serious injury would rise by €100 million per annum as a result of the new formula for assessing claims payments included in the High Court judgment.

The new method of assessing how much should be paid to successful claimants arises from the judgment delivered in the case of a severely disabled boy, Gill Russell, who suffered brain damage at birth in a Cork hospital. He was awarded €13.5 million on Thursday towards care for the rest of his life.

Delivering his judgment, Mr Justice Kevin Cross said that, in setting the level of the award, he would assume a rate of return from investing the money of 1 per cent per annum. This is well below the 3 per cent rate traditionally used in Irish courts.

Lower discount

Applying this generally would significantly increase the cost of meeting claims, as a much lower discount on the initial payment would be applied to allow for future investment returns.

Ciaran Breen, director of the State Claims Agency, said the decision would be appealed, with the agency to decide on the grounds of this appeal with its legal advisers.

The agency manages claims for the HSE – the defendant in this case – and other State bodies.

Mr Breen estimated that applying the 1 per cent rate instead of the traditional 3 per cent would increase the cash cost of meeting claims made on the State by about €100 million per annum, or €1 billion over the next decade.

The decision also has major implications for insurance companies who sell policies that include cover for serious injury, such as motor policies and public and employer liability policies.

Insurers are studying the judgment, but sources say it could lead to a sharp increase in their cost of claims and, potentially, in the premiums charged to customers.

Historic lows

The Russell case saw detailed argument on the rate or return available to investors at the moment, with both sides relying on the evidence of a number of economic and investment experts. The key issue was that the yield on relatively low-risk investments, such as government bonds, are now at historic lows, with many offering little or no real return.

The defendant argued that, by investing in relatively higher risk areas, such as equities, the traditional 3 per cent return was still achievable. However, the plaintiff’s case was that the court had to take cognisance of the low return now available on safe investments and in particular index-linked government bonds from larger economies, currently offering no interest rate return to investors.

Public policy

The judgment put a heavy emphasis on this, with Mr Justice Cross saying the fact the State was the defendant could not be taken into account in setting the level of the award. “Arguments on public policy, such as this are, in my view, more suited to the lounge bars of golf clubs that to the courts of law,” he said.

The case was adjourned two years ago with an interim payout of €1.4 million in anticipation of legislation emerging on how phased payments could be made in such cases, but this has not yet happened.

Liability had already been admitted.