Knauer: is it the winter of our discontent?
Disease Aware 8
On 24 February 2016 the Supreme Court corrected an anomaly which claimants argued under compensated them in fatal claims based on dependency.
Their concern came from the practice of taking a multiplier from the date of death rather than date of trial. Multipliers discount claims on the basis that the claimant can invest compensation and secure a return on the investment in future years.
However until the compensation is paid, it cannot be invested. Compensation can be paid years after the death. The claimant in Knauer argued that this caused under compensation. Mr Knauer’s wife died of mesothelioma at the age of 46. Applying a multiplier at date of death, he said, resulted in a shortfall of £52,808. The Supreme Court agreed. Multipliers will now be based on the date of trial, with loss until trial recoverable in full.
Dependency claims use the Ogden life tables as a starting point. The deceased’s notional life expectancy is then discounted for any co-morbidities. Alternatively an increase can be applied for healthy living, such as being a non smoker, fit, with a good BMI. In some cases a ‘life expectancy’ expert applies the deceased’s health history to studies on life expectancy - especially Brackenbridge, an exhaustive guide on co-morbidities and life expectancy.
How does this fit in with the post Knauer regime?
The Supreme Court approved the ‘Actuarially Recommended Approach’ suggested by the Ogden Working Party.
This calculation is simplified to enable judges and practitioners to more easily apply this formula to claims.
The New Regime
Step One - The Pre Trial Loss
i) Calculate the loss during the period between the date of death and Trial.
ii) Apply Table E, which applies a discount for the risk the deceased would have died in any event.
Step Two - The Multiplier
This is taken on the basis of the deceased’s life expectancy at the date of Trial. This figure is taken from Ogden Tables 1 and 2.
Step Three - Post Trial Loss
The loss is then discounted by Table F. This takes into account the possibility that the deceased may have died before the Trial.
Simple? Here is an example. Tables E and F are included for reference.
The claimant is Mrs Smith. She is aged 65 at the time of the Trial. Mr Smith died of nasal cancer at the age of 65. The claim takes three years to progress to Trial when he would have been 68. Mrs Smith has always been in good health and they had been happily married for 40 years.
Both received pensions at the time of death. The annual dependency (multiplicand) is £20,000.
3 years x £20,000 x 0.98 (Table E) = £58,800
The deceased’s life expectancy at Trial (Table 1- 68 at 0%) is 18.93
The widow’s life expectancy at Trial (Table 2- 65 at 0%) is 23.98
The lower life expectancy is used.
The resulting period of 18.93 is used as a ‘term certain’ and applied to Ogden Table 28 with 2.5% discount = 15.83.
15.83 x £20,000 x 0.96 (Table F) = £303,936.
Table E (extract) - Pre Trial loss for likelihood the deceased would have dead prior to Trial
Table F (extract) - Pre Trial loss for likelihood the deceased would have died prior to Trial
This is a straight forward model. It works on the basis of adopting ‘the average’ life expectancies. How can expert evidence affect the calculation?
The same calculation will be the starting point, but expert evidence can displace some of its assumptions. The Ogden tables are standard life tables. The court should not ignore expert evidence and rigidly apply the tables.
In Knauer itself the Supreme Court gave an example where at the time of death the victim might have a life threatening illness without hope of any treatment which would affect the multiplier. However, if a successful course of treatment had been discovered by the time of the Trial this should be factored into the equation. The courts will not turn a blind eye to the facts.
Using the same example, a report suggests that the deceased had a reduced life expectancy of 10 years as a consequence of being morbidly obese, with uncontrolled hypertension, Type 2 diabetes and had suffered a stroke and heart attack three years ago.
The conventional approach is to take the known life expectancy as a ‘term certain’ as per Ogden Table: 28 and apply a 2.5% discount.
What of other claimants who have suffered life-limiting injuries due to causes other than mesothelioma?
Pre Trial Loss
This remains unchanged.
The deceased’s life expectancy at Trial is 18.93. This should be reduced by 10 years = 8.93. The widow’s life expectancy is 23.98 and can be ignored, as again the lower life expectancy is used. Table 28 multiplier with a 2.5% discount for 8.93 years by interpolation is: 8.01.
8.01 x £20,000 x 0.96 (Table F) = £153,792.
This part of the calculation can also be challenged if the evidence suggests an increased risk of death before trial. There should however be no ‘double discount’. Until now, experts have commented on life expectancy ‘but for’ the death of the deceased. That is fine for multipliers from the date of death.
However, where the calculation is from the date of Trial, evidence may be required more often to consider the likelihood of death ‘but for’ the negligent death i.e. to replace Tables E and F. Some claims will become more expensive for insurers post Knauer. There will still be a key role for expert evidence in mitigating this.