Compensation for Loss of a Chance
Most claims for damages are claims for damages or losses which have actually happened. For example, if a lorry mounted the pavement and smashed a garden wall, the claim would be for the cost of restoring the wall to its former condition. The law relating to compensation for losses in the UK is based on the principle of restoring the person who has suffered the wrong being restored to the position they would have been in had the wrong not happened. There is no concept of ‘punitive damages’ such as exists in the USA, where higher levels of compensation than are needed for mere restoration may be paid as a form of punishment in some cases.
However, there is another type of loss that can occur – where the loss is the loss of the chance of making a gain or avoiding a loss. This type of action normally arises when someone who owes a duty of care to someone else fails in that duty, resulting in the claimant losing the chance to make the gain. For example, in a case in which a firm failed to take action against insurers (who had denied liability for the insurance claim) on behalf of a client, so that the claim fell outside the time limit for bringing the claim and could not therefore be brought, the value of the claim against the firm was calculated as being based on the value of the claim and the likelihood (‘chance’) that it would have been successful.
The claim for the loss of a chance is based on the value of the gain that would have accrued or the loss avoided and the probability of the gain or loss arising. For example, where a gain of £300,000 would have accrued and the probability of the gain arising is assessed, by the court, at 25 per cent, the claim should be settled at £75,000. If a further event, with a probability of 50 per cent, had to occur for the gain to have arisen, the claim should settle at £37,500 (£300,000 x 50% x 25%).
Where, on the other hand, there are alternative outcomes (for example, where there is a 25 per cent probability of a £300,000 gain or a 75 per cent probability of a £100,000 gain), then the claim would be for the values of the respective losses of a chance added together. In this example, the claim should settle at £150,000 (£300,000 x 25% + £100,000 x 75%). In real life the gain would have been £300,000 or £100,000 and the settlement reflects the relative likelihood of each.
Where the loss of a chance represents the loss of a greater sum than was actually received, or suffering a greater loss than should have been suffered, it gets a little more complicated. In this case, the compensation is calculated based on the probability of the greater sum being received and the difference between the sum that was received and the the sum that should have been received. For example, where £300,000 would have been received with a 50 per cent probability, but £100,000 was actually received, the claim would be for £100,000 (50% x [£300,000 – £100,000]). […]