Will negative discount rate boost litigation in 2013?

The Ontario government is raising eyebrows with its newly published discount rate for trials starting in 2013 that for the first time puts it at a negative number.

For civil trials starting next year, the discount rate that accounts for the time value of money will be -0.5 per cent, a figure observers say provides an incentive for plaintiffs to bring their matters forward during that year.

According to Ian Wollach, a chartered accountant and partner at Rich Rotstein LLP, plaintiffs’ personal injury lawyers with trials scheduled for 2013 will love the change as it can increase the present-value calculations of future-care costs by up to seven per cent from 2012 amounts.

But as Thomson Rogers partner and Law Times columnist Darcy Merkur notes, insurers won’t be so happy with the new rates. The 2013 rate “serves to automatically increase their financial exposure in every case and does so by applying a negative discount rate that instinctively may not seem right,” he says.

Merkur gives the scenario of an award of $1,000 per year over the next 10 years. Given the negative rate, a court would award the claimant slightly more than $10,250 in today’s money, he says.

The government sets the discount rate for the calculation of awards for future pecuniary damages in accordance with the Rules of Civil Procedure. They’ve been decreasing in lockstep with the current low inflation and low interest rate environment. The rate for trials starting in 2012 is zero per cent.

Given those numbers, Merkur raises the scenario of insurers asking the court to diverge from the prescribed rate. He doubts judges will agree, however.

“But realistically, plaintiffs’ personal injury counsel are in a better position to call evidence that even the prescribed discount rate is inadequate to address inflation in the context of care costs,” he says.

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