Lower discount rate in Ontario means adjourning trials into 2011 could cost insurers “several hundred thousand dollars”: lawyer

The reduction of Ontario’s discount rate for catastrophic injury trials could significantly increase the future care and future loss of income costs for insurers, warns Stephen R. Moore, a lawyer with Blaney McMurtry.
In the bulletin, Don’t Adjourn This Fall’s Large Trials: It Could Cost You Several Hundred Thousand Dollars, Moore explains that the discount rate – described as possibly the most important calculation of the cost of future losses – is a calculation of the difference between inflation and investment return. The lower the discount rate, the higher the award.
For trials commencing in 2010, the discount rates are 1.25% for the first 15 years and 2.5% after 15 years (the 2.5% rate never changes).
Ontario recently announced the discount rate for the first 15 years will drop to 0.5% for trials commencing in 2011.
In a hypothetical case, based on an $8-million award for future care of a catastrophically injured plaintiff with a 25-year life expectancy, the new discounted rate might increase the $8-million award by up to 8% (or $640,000).
The impact on future loss of income would be smaller, because the plaintiff’s working life expectancy is shorter than life expectancy.
“Given the impact of the new discount rate, it would be prudent to consider attempting to settle any case with significant future loss of income or future care claims [that] are scheduled to be tried next year,” he wrote.
“If that is not going to be possible, then you should make sure that you factor this change to the discount rate into your reserves.”
Moore added insurers should resist the temptation to adjourn a trial to 2011, unless the plaintiff agrees to use the 2010 discount rates or rates intermediate to the 2010 and 2011 rates.