Legal Alert: NS Court Confirms Auto Insurance Claims Discount Rate Is 3.5%
October 28, 2013
On October 22, 2013, the NS Supreme Court gave written reasons for its September 11th oral decision – the first to confirm the discount rate for calculating loss of future earnings and loss of future valuable services in automobile accident cases in NS. The Court’s decision that the discount rate is 3.5% significantly affects loss valuations in NS: since present valuations for future losses rise inversely to the discount rate, the difference in a calculation using a 3.5% and a 0.8% valuation can be substantial – particularly in cases where losses must be calculated for periods of time extending well into the future.
Before the Court’s decision in Gardner v. Crowell, lawyers and actuaries disagreed about the interpretation of the legislation and regulations establishing the applicable discount rate. Some calculated a discount rate based on the difference between the Government of Canada bond interest rate and the inflation rate under to Section 4(2) of the Automobile Insurance Tort Recovery Limitation Regulations; others used 3.5% based on Section 4(1) of the Regulations. Section 4 of the Regulations says:
Discount rate for calculating loss or damage from bodily injury or death
4(1) For the purpose of Section 113C, the discount rate for calculating loss or damage from bodily injury or death is 3.5%.
(2) Effective January 1, 2005, the discount rate for each calendar year may be based on the difference between the rate set for Government of Canada bonds and the consumer price index for the previous 12 months.
Section 113C of the Insurance Act sets the rate in the Regulations as the minimum auto loss discount rate.
In past, the rate based on Section 4(2) would have been 0.8%. However, in Gardner v. Crowell, the NS Court decided:
- Statutory Formula. The Act and the Regulation expressly set out a formula for the discount rate should the Governor in Council decide to set a new rate. The new rate would only be for a calendar year; if there were no new rate, the specified rate of 3.5% continues to apply. Since the Governor in Council has not yet set out a different rate, the rate is 3.5%.
- Fairness. It may seem unfair to calculate the value of plaintiffs’ future losses based on a discount rate that does not reflect current economic conditions. However, present valuations are intended to address losses occurring well into the future. With losses projected over a long time span, plaintiffs may actually be overcompensated. The Governor in Council’s discretion to reset rates for each calendar year allows it to consider economic factors in a manner consistent with the objective of limiting tort recovery in automobile accident cases.
Click here to read the NS Supreme Court’s decision in Gardner v. Crowell.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Insurance Defence Team to discuss this topic or any other legal issue.
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