MEAGRE returns on so-called “blue chip” investment products, including Irish bank shares, have decimated investments made on behalf of children catastrophically injured at birth, a legal expert has claimed.
In addition, “wildly over-optimistic” actuarial assessments of what the return on investment will be gives rise to serious under-compensation of victims, according to Michael Boylan, solicitor at Augustus Cullen Law.
Mr Boylan, an expert in medical negligence litigation specialising in birth injury claims, said he had personal knowledge of cases where portions of lump sum awards had been invested by the Wards of Court Office “in so called blue chip investments/equities including Irish bank shares” that were now “effectively worthless”.
Mr Boylan also said actuaries routinely assume that the investment returns on the lump sum “will exceed the rate of inflation by a further 3%” whereas in fact he had been advised “by numerous economists and actuaries” that the real rate of return on blue chip risk-free investments was in fact of the order of 1% above the rate of inflation.
Mr Boylan, who was addressing a Dublin conference on Catastrophic Births and Child Injuries organised by patient safety charity Action against Medical Accidents (AvMA), said a 10-year-old boy awarded future care costs of €100,000 per annum should be receiving a lump sum award of €5,270,000 “whereas in practice using the best discount rate currently on offer (2.5%), he would only receive €3,370,000”.
“In effect the court is saying that it is compensating him €100,000 per annum to purchase future care but is in fact only offering enough to purchase €64,000 per annum at risk free rates.”
Mr Boylan added it was “hardly appropriate to be telling a paraplegic, confined to a wheelchair, that they will have to tighten their belt in times of low yields and returns on the stock markets and wait for the return of the bull market”.
However while returns on investments made by the Wards of Court Office were down in 2007, 2008 and 2009, figures supplied by the Courts Service show positive returns for the new financial year to April 27 last.
Positive returns were generated on all five of its investment strategies including cash funds, the Bond Plus Fund (+2.33%), Balanced Fund (+4.20%) and the Growth Fund (+5.79%).
Mr Boylan spoke in favour of replacing lump sum awards with a system of periodic payments, index-linked to the rate of increase in the wages of carers, and underpinned by legislation.
This is in line with recommendations made in 1996 by the Law Reform Commission and by a High Court Working Group on Medical Negligence Litigation and Periodic Payments, who reported to government last November. Mr Boylan said currently, many cases are being adjourned for up to two years “to allow the necessary time to introduce the legislation”.
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