Knauer (Widower and Administrator of the Estate of Sally Ann Knauer) v Ministry of Justice
24 February 2016
Judgment was handed down yesterday by the Supreme Court in Knauer v Ministry of Justice (2016) UKSC. In departing from the decision in Cookson v Knowles (1978) HL, the Supreme Court held that it is appropriate for the multiplier for future losses of a deceased’s dependent to run from the date of trial and not from the date of death. The Supreme Court acknowledged the importance of precedent set by earlier decisions, but confirmed its view that the litigation landscape has been transformed since the time of that decision, most notably by the advent of the Ogden Tables since 1984, and the seminal House of Lords judgment in Wells v Wells (1998) which confirmed the use of the Tables to be the mandatory starting point. This decision therefore represents a rare, but justified instance of the Supreme Court overturning a previous decision of its own, or its predecessor the House of Lords. The impact of this upon the insurance litigation industry will be higher awards of damages for claimants seeking compensation for loss of financial and services dependency in fatal claims.
In Cookson it was held that a personal injury claim could be distinguished from dependency claims arising out of a fatal accident by the fact that the claimant is of course alive at trial. In fatal accident claims there is uncertainty around anything that may have happened to the deceased between death and trial. Due to this ‘uncertainty’, it was felt appropriate for the multiplier to run from the date of death.
However in Knauer the Supreme Court confirmed its agreement with the Law Commission’s view (expressed in its 1999 report on Claims for Wrongful Death) that the Ogden Tables were formulated to deal with post-trial losses only. Whilst the actuarial process allowed for the multiplier for post-trial losses to be discounted to reflect accelerated receipt of the damages by the claimant, it was wrong to discount losses incurred in the period between death and trial (past loss) for this reason because the dependent claimant had not benefited from accelerated receipt.
Therefore to include past and future loss in the same calculation and then discount the total for accelerated receipt was flawed, and resulted in under compensation. Accordingly, the correct approach for calculating dependency is for past loss to be separated from the future loss calculation entirely. The Supreme Court did acknowledge that past losses should be subject to a discount to reflect the risk that, had there been no tort, the deceased might have died anyway or the support provided to the dependent might have stopped or reduced between the actual date of death and the date of trial. The Supreme Court held that the suggested discounting method set out within the Ogden Tables, based upon the Law Commission ‘s recommended approach, was "perfectly sensible".
- The dependant is female, aged 38 at trial, three years after the date of the accident which killed her husband then aged 37. She was financially dependent.
- The deceased had A Levels, was in employment and in good health with no disability. His wife was also in good health.
- The court allows a multiplicand of £30,000 up to the deceased’s retirement age of 65 with no financial dependency post 65.
The Cookson approach:
- The deceased would have provided financial dependency to his wife from the date of his death aged 37 to his 65th birthday.
- The appropriate Table is 9. Using the 2.5 per cent column, the multiplier at age 37 is 19.64. The reduction factor for contingencies other than mortality (Table A) for an employed male aged 37 with A Levels and who is not disabled is 0.9. The net multiplier is therefore 19.64 x 0.9 = 17.68.
- Past Loss to trial: 3 x £30,000 = £90,000 plus interest of £675 (0.25%pa) = £90,675
- Future Loss: 17.68 less the period to trial of 3 years gives a multiplier of 14.68 x £30,000 = £440,400
- £90,675 + £440,400 = £531,075
The correct approach under Knauer:
- The dependent will recover £30,000 per annum for the 3 years.
- There is a no discount in this example under Table E to reflect the risk of death prior to trial due to the age at death being 37 and the period between death and trial 3 years (Table E states the appropriate discount factor is 1 i.e. no discount) Past loss is therefore £30,000 x 3 = £90,000
- Interest of 0.25%pa is allowed on past loss, giving an additional £675. Total past loss is therefore £90,675
- At the date of trial the deceased would have been aged 40. The 0% column of Table 9 gives a term certain of 24.13. When the period 24.13 is interpolated into the 2.5% rate of return column in Table 28 the multiplier is 18.18.
- The reduction factor for contingencies other than mortality (Table A) for an employed male aged 40 with A Levels and who is not disabled is 0.88. The net multiplier is therefore 18.18 x 0.88 = 16.00.
- There is a very modest discount in this example under Table F of to reflect the risk of death between the age of 37 and trial in any event (Table F states the appropriate discount factor for a man aged 40 is 0.99)16 x 0.99 = 15.84.
- 15.84 x £30,000 = £475,200
- £90,675 + £475,200 = £565,875
The primary reason behind this decision appears to be notion that it is wrong for past losses to be discounted to reflect accelerated receipt. Whilst a mischievous defendant might contend that the reality of modern litigation is that substantial early interim payments are released, and the claimant often will therefore benefit from accelerated receipt, the Supreme Court decision in Knauer is binding on all lower courts, and insurers would be well advised to reset reserves in fatal claims in accordance with the methodology under Knauer. The primary area for investigation for defendants will continue to be the expected period of dependency, often through commissioning life expectation evidence upon the deceased and/ or the dependent.
The Supreme Court’s affirmation that the Ogden Tables approach to discounting the multiplier to reflect the ‘but for the accident’ risk of death in any event is ‘perfectly sensible’, suggests this methodology is now the starting point. However, defendants may argue that following Lord Lloyd of Berwick’s comment in Wells v Wells "I do not suggest that a Judge should be a slave to the tables", means that each case should be dealt with on its own merits, taking into account the health and circumstances of each dependent and the deceased. Defendants may argue this decision mandates them to seek disclosure of medical records, to enable an informed assessment of the level of risk of health deterioration or death occurring between death and trial.
The principles governing dependency claims derive from the Fatal Accidents Act 1976, and the Supreme Court accepted the argument that there were two elements of that statutory approach which resulted in over-compensation of claimants. These are the disregarding of any remarriage or indeed prospects of remarriage of a widow, and also of any benefits accruing as a result of the death. The Law Commission have already recommended that those aspects be modified by further legislation, and the Supreme Court’s apparent recognition of the strength of that argument may focus future attention on potential reform in this area. Any such statutory reform would create a fairer compensatory system and would mirror that same principled approach taken in Knauer as well as balancing out the effects of yesterday’s judgment.