The Court of Appeal decision will heap more pressure on insurance companies and could add tens of millions of pounds to payouts every year © Chris Ratcliffe/Bloomberg

Insurers are facing another big increase to compensation bills after the Court of Appeal ruled that they will have to pay out more to people who need to change their accommodation because of an accident.

The decision will heap more pressure on insurance companies, which are already dealing with wide-ranging changes to the way that compensation payments for accidents are set. Local authorities, which deal with claims against highways authorities, are also likely to be hit.

Lawyers said the latest decision would add tens of millions of pounds to payouts every year and could lead to increased premiums for customers.

The Court of Appeal on Friday ruled that Charlotte Swift, who lost a leg in a car accident seven years ago, could claim £800,000 to cover the cost of moving to a larger house which was better suited to her needs. Previous court rulings, based on an earlier system for calculating the cost of accommodation changes, had left her with no money at all to fund the move.

The court’s decision has set a precedent for the way these damages are calculated.

Grant Incles, a partner at law firm Leigh Day who represented Ms Swift, said: “This was an overwhelming triumph for somebody who deserved nothing less after everything she has been through. The decision itself is the best and most thorough examination of a problem that has vexed legal practitioners for decades.”

Philip D’Netto, a member of the Forum of Insurance Lawyers, said he was “disappointed” with the court’s decision. “We feel that it over compensates claimants in many ways . . . the court have arrived at a formula that appears simple but does not reflect the true loss to the claimant.”

The ruling is another blow to the insurance industry, which is once again facing big changes to the way that it calculates compensation for people who have been seriously injured in accidents.

Last year the government changed the calculation rate used to set compensation more broadly, known as the Ogden rate. The change left insurers paying out much more than they were expecting.

Meanwhile, a planned new system for smaller injury claims, designed to reduce the size of whiplash payments, has been delayed until April next year. The system was originally due to come into force this year.

The appeal court ruling adds to what has already been a difficult year for the insurance industry. Eight insurers have been embroiled in a High Court case against the regulator, the Financial Conduct Authority, over the amount they should be paying out to companies which have faced business interruption from Covid-19.

And the FCA has also said that it will introduce new rules to ban the so-called loyalty penalty — the practice of charging new car and home insurance customers much less than existing ones.

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