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The indexation of periodical payments of damages in tort: the future assured?

Published online by Cambridge University Press:  02 January 2018

Richard Lewis
Richard Lewis*
Affiliation:
Cardiff University
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Abstract

This paper examines the new statutory regime for paying damages for personal injury by means of periodical payments instead of a lump sum. How are such payments to increase in future to take account of rising care costs, especially when these usually form the largest part of a major award? The answer to this question is crucial in determining the extent that the new form of payment will be used. How periodical payments are to be indexed is also a key factor in calculating the total cost of compensation and, in particular, in assessing the liabilities of the National Health Service. The issue gave rise to litigation which was voted by personal injury practitioners as the most important of the year. Here, that litigation and the statutory reforms which gave rise to it are set in their wider academic contexts.

Type
Research Article
Information
Legal Studies , Volume 30 , Issue 3 , September 2010 , pp. 391 - 407
Copyright
Copyright © Society of Legal Scholars 2010

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References

1. Introduction to De Wilde, R et al Facts and Figures (London: Sweet & Maxwell, 13th edn, 20082009).Google Scholar

2. [2008] EWCA Civ 5, [2008] 2 All ER 537.

3. Post Magazine estimated what the cost would be for insurers who had many claims stayed awaiting the decision: ‘Industry faces two billion pounds bill after appeal defeat’Post Magazine 3 August 2006 at 32.

4. Personal Injury Awards, available at http://www.personalinjuryawards.co.uk/winners.html.

5. There has been no case note or article in any of the 33 law journals which influence the assessment of academic research as listed by Campbell, K et al Ranking of Uk law journals’ (2006) 33(3) J Law and Society 335 CrossRefGoogle Scholar. In contrast, in March 2010, Westlaw noted that there were 51 articles citing the case in the practitioner publications it indexed.

6. Lord Blackburn in Livingstone v Rawyards Coal Co (1879–80) LR 5 App Cas 25 at 39, reiterated by Lord Hope of Craighead in Wells v Wells[1999] 1 AC 345 at 390.

7. Forecasting how long a seriously injured person will live is notoriously difficult and actuaries have accepted that estimating what they term an ‘impaired life’ is much more an art rather than a science. Lewis, R Structured Settlements: The Law and Practice (London: Sweet & Maxwell, 1993)Google Scholarch 11.

8. Ibid, ch 4. The early history is traced in R Lewis ‘Structured settlements: an emergent study’ (1994) 13 Civil J Q 18. See more generally Goldrein, I and De Haas, M (eds) Structured Settlements: A Practical Guide (London: Butterworths, 2nd edn, 1997)Google Scholar, and for more recent analysis Bevan, N, Huckle, T and Ellis, S Future Loss in Practice: Periodical Payments and Lump Sums (London: Butterworths, 2007).Google Scholar

9. A Carus, R Cropper and V Wass illustrate the improbability of living to average life expectancy by giving the example of a 40-year-old woman who, according to the data, can be expected to live another 47 years. However, the probability that she will die at the exact age of 87 is only 3%. See ‘Periodic payments awards and the transfer of risk’ in RJ Thornton and J Ward (eds) Personal Injury and Wrongful Death Damages Calculations: A Trans-Atlantic Dialogue (2009) 91 Contemporary Studies in Economic and Financial Analysis 159.

10. See the Income Tax (Trading and Other Income) Act 2005 s 731, which replaced s 329A of the Taxes Act 1988.

11. Social Security Amendment (Personal Injury Payments) Regulations 2002, SI 2002/2442.

12. The index measures on a monthly basis the average cost of living by using the prices of a basket of goods and services selected to represent typical expenditure of consumers. The basket is revised each year to reflect changing trends in such expenditure. Although it was replaced in 1998 by the consumer price index as a key indicator of inflation, the government continues to use it for the indexation of index-linked gilts.

13. R Lewis ‘The merits of a structured settlement’ (1993) 13 Oxford Journal of Legal Studies 530, Structured Settlements: Report of the Master of the Rolls' Working Party (2002; chairman B Langstaff) paras 6–20 and B Langstaff ‘Structured settlements: past, present and future’[2003] J Personal Injury Law 237.

14. See, eg, ‘Father used half of son's £400,000 payout’The Times 9 March 2000.

15. R Lewis ‘The politics and economics of tort law: judicially imposed periodical payments of damages’ (2006) 69 Modern Law Rev 418.

16. ‘…lawyers and litigants are innately conservative, were wholly familiar with lump sum compensation and instinctively distrustful – and probably unfamiliar with – newfangled devices such as structures’: W Norris QC Structured Settlements: Past and Future Developments paper delivered to the Legal Wales Conference (September 2003).

17. Lewis, R A lawyer's duty to consider a structured settlement’ (1993) 9(3) Professional Negligence 126 Google Scholar. See similarly the warning given to today's lawyers by N Bevan ‘Future proof’ (2008) 158 New LJ 116: ‘Those who continue to turn a blind eye or otherwise fail to advise their clients on periodical payments expose themselves to a very real risk of facing a professional negligence claim in years to come, as and when the money runs out’.

18. Eg, in 2001–2002 the NHS paid over 500 claims in excess of £100,000 and yet less than 10% involved a structured settlement according to the Lord Chancellor's Department, Courts Bill: Regulatory Impact Assessment (November 2002) table 1. For cases involving clinical negligence and dealt with by the Court of Protection in 2004–2005 the take up was slightly higher, amounting to just over 26% of the total according to a personal communication to the author from Denzil Lush, Master of the Court of Protection. Overall about 1500 structures were put in place for all types of injury between 1988 and 2006.

19. The need for the consent of both parties was affirmed as early as Burke v Tower Hamlets (1989) The Times August 10, [1989] CLY 1201. The point was reinforced by R v Liverpool Health Authority et al, ex p Hopley[2002] All ER 459 discussed in R Lewis ‘Clinical negligence and the NHS refusal to structure settlements with profit’ (2003) 19 Professional Negligence 297.

20. Wells v Wells[1999] AC 345 at 384.

21. The Clinical Disputes Forum Discussion Paper Lump Sum Damages and Periodical Payments (2000) and the report summarising the responses (April 2002). An important contribution was made by the Master of the Rolls Working Party Structured Settlements (2002), as discussed by its chairman Brian Langstaff in ‘Structured settlements: past, present and future’, above n 13.

22. Lord Chancellor's Department The Discount Rate and Alternatives to Lump Sum Payments (Consultation Paper 3/00, March 2000), Lord Chancellor's Department Damages for Future Loss (Consultation Paper CP 01/02, March 2002) and its Analyses of the Responses (CP(R)01/02, November 2002). The Department also published in November 2002 the Courts Bill: Regulatory Impact Assessment on that aspect of the legislation which dealt with the power to order periodical payments.

23. Courts Act 2003 ss 100 and 101 amending the Damages Act 1996 and coming into force in April 2005.

24. C Ettinger ‘Compensating future loss’ (2005) 155 New LJ 525. See similarly the London International Insurance and Reinsurance Market Association Third UK Bodily Injury Awards Study (London: International Underwriting Association of London, 2003)Google Scholar 83 describing the Courts Act 2003 as producing ‘the most fundamental change in 150 years in the quantification of bodily injury claims involving continuing losses’.

25. For example, it was estimated that, on average, 83% of a claim exceeding £250,000 against the NHS comprised future loss. Lord Chancellor's Department Courts Bill: Regulatory Impact Assessment (November 2002) table 3. Future loss in other than clinical negligence cases is less prominent as revealed by table 8 of the same Assessment in which the Association of British Insurers estimated that it constituted only 46% of the value of claims between £100,000 and £250,000.

26. The preponderance of small claims in the system is reflected in the fact that non-pecuniary loss accounts for about two thirds of the overall damages bill and past financial loss for about a further quarter. See the Report of the Royal Commission on Civil Liability and Compensation for Personal Injury Cmnd 7054, 1978, chairman Lord Pearson (the Pearson report) vol 2, para 107.

27. Lord Chancellor's Department, above n 25, table 1.

28. R Lewis, R McNabb and V Wass ‘Court awards of damages for loss of future earnings: an empirical study and an alternative method of calculation’ (2002) 29 J of Law & Society 406 and [2002] J of Personal Injury Law 151 and, by the same authors, ‘Loss of earnings following personal injury: do the courts adequately compensate injured parties?’ (2003) 113 Economic Journal 568.

29. Government Actuary's Department Actuarial Tables For Use in Personal Injury and Fatal Accident Cases (London: The Stationery Office, 6th edn, 2007).Google Scholar

30. See the comments of the former Government Chief Actuary, Chris Daykin, From Lump Sums to Periodical Payments and Beyond paper presented to a conference at the Institute of Actuaries (March 2005), and by the same author, ‘Fair compensation needs actuaries’[2009] J Personal Injury Law 48. As noted in an introduction to the Government Actuary's Department Actuarial Tables For Use in Personal Injury and Fatal Accident Cases (London: The Stationery Office, 5th edn, 2004)Google Scholar para 15, the set discount rate has never been within 0.5% of the correct rate of return. The effect of this is illustrated in the introduction to R de Wilde et al, above n 1. To achieve full compensation a discount rate of at most 1% and not 2.5% should be applied. This would substantially increase lump sum payments. For example, for a 10 year old with normal life expectancy requiring modest care costs of £10,000 a year, the lump sum needed would increase from £337,000 to £527,000. In effect, the lower lump sum presently awarded will fund payments of only £6400 a year instead of the £10,000 actually required. Similar calculations are made by N Martin ‘Periodical payments’ (2009) 106 (24) Law Soc Gazette 22 and E Tomlinson ‘Budgeting on a lump sum settlement’[2009] J Personal Injury Law 164.

31. Thompstone, above n 2, at [107].

32. Government Actuary's Department, above n 30, The Ogden Tables, Appendix A, para 12: ‘Real earnings growth…has averaged 1.5 to 2 per cent a year more than growth in the RPI’. Although there have been years, such as 1995 and 2007, when the rise in prices exceeded that in earnings, the evidence presented in Thompstone was that between 1998 and 2005 earnings outpaced the RPI by 1.73% a year, and the earnings of care workers in particular outpaced the RPI by 2.84% a year.

33. As illustrated in R Hogg ‘Will periodical payments provide adequately for the costs of care?’[2004] J Personal Injury Law 209. Contrast W Norris ‘Periodical payments: indexation, variation, protection and practice’[2005] J Personal Injury Law 59 with a reply by R de Wilde ‘A reply to Mr William Norris QC on the question of indexation’[2005] J Personal Injury Law 147.

34. [2006] EWHC 2833 (Admin), [2007] LS Law Medical 303, applied in Thorp v Hunt[2007] CLY 3081. In part, the decision was based on the prospect of the lump sum attracting high investment returns. It was particularly unfortunate that shortly thereafter the stock market lost a third of its value.

35. As also illustrated by R Hogg, above n 33, at 213.

36. Peters v East Midlands Strategic Health Authority[2009] EWCA Civ 145, [2009] 3 WLR 737.

37. See also Cane, P Atiyah's Accidents, Compensation and the Law (London: Butterworths, 7th edn, 2006)CrossRefGoogle Scholar 160 where the problem is illustrated by reference to a leading Australian case.

38. Beattie v Secretary of State for Social Security[2001] EWCA Civ 419, [2001] L Rep Med 297 noted in (2002) 9 J Social Security Law 43.

39. Lush, D Damages for personal injury: why some claimants prefer a lump sum to periodical payments’ (2005) 1(2) London Law Rev 187 at 192 Google Scholar. In addition, the contingency fund that was set up was exceptionally low and has now been exhausted.

40. (1990) The Times September 27. Its history is discussed in Lewis, above n 8 and by Goldrein, I, De Haas, M and Frenkel, J Personal Injury Major Claims Handling: Cost Effective Case Management (London: LexisNexis, 2000)Google Scholar para 17.168. For an updated account see R Lewis ‘Tort law in practice: appearance and reality in reforming periodical payments of damages’ in Neyers, JW et al (eds) Emerging Issues in Tort Law (Oxford: Hart Publishing, 2007) pp 488 Google Scholar et seq.

41. S Ashcroft ‘From Kelly to Courts Act – the development of periodical payments’[2009] J Personal Injury Law 191.

42. Damages Act 1996, s 2(8) and (9) as amended by the Courts Act 2003, s 100.

43. HL Deb, vol 648, cols 536–537, 19 May 2003.

44. Paragraph 354.

45. [2006] EWCA Civ 1103, [2007] 1 WLR 482. Similarly, claimants succeeded in the other first instance cases of Sarwar v Ali[2007] EWHC 1255 (QB), [2007] LS Law Medical 375, Corbett v South Yorkshire Strategic Health Authority[2007] LS Law Medical 430 and RH v United Bristol Healthcare NHS Trust[2007] EWHC 1441 (QB), [2007] LS Law Medical 535, these last two cases forming part of the conjoined appeals in Thompstone.

46. P Havers Periodical Payments paper presented at the Future Loss in Practice conference (London Stock Exchange, 24 April 2008). He also commented that ‘the whole exercise had, from the Appellants' point of view, got off to a very unfortunate (and some would say misguided) start in…Flora’. As a result, in Thompstone, counsel ‘had to argue the issues of law effectively with one arm tied behind our backs’.

47. For criticism, see above n 30.

48. [2003] EWCA Civ 1370, [2004] 1 WLR 251.

49. Swift J in Thompstone v Tameside and Glossop Acute Services NHS Trust[2006] EWHC 2904 (QB), [2007] LS Law Medical 71 at [71].

50. Dingwall, R. et al Medical Negligence: A Review and a Bibliography (Oxford: Centre for Socio-Legal Studies, 1991) p 55 Google Scholar.

51. Thompstone, above n 2, at [47].

52. V Wass ‘The indexation of future care costs’[2007] J Personal Injury Law 247.

53. In A v Powys Local Health Board[2007] EWHC 2996.

54. The suggestion came from R Hogg, above n 33, and from the Association of Personal Injury Lawyers Periodical Payments: An Assessment of Concerns and Solutions (March 2004). Although Hogg presented the idea in evidence, it was not considered or tested in Cooke v United Bristol Healthcare Trust[2003] EWCA Civ 1370, [2004] 1 WLR 251.

55. These include a pay cost index and a health services cost index. Curtis, L Unit Costs of Health and Social Care 2008 (Canterbury: University of Kent, 2009)Google Scholar, available at http://www.pssru.ac.uk/uc/uc.htm.

56. Swift J in Thompstone, above n 49, at [77]; cf Nicholas Bevan who describes Wass as the ‘doyenne of labour economists’ in ‘Future Proof’ (2008) 158 New LJ 1168.

57. Thompstone, above n 2, at [75].

58. Ibid, at [112].

59. The NHS alone had 104 cases awaiting the Court of Appeal decision. The schedule was approved by Mackay J in RH v United Bristol Healthcare Trust, above n 45, and was modified by Holland J in Thompstone v Tameside Hospital NHS Foundation Trust[2008] EWHC 2948, [2009] PIQR P9.

60. Brooke LJ in Flora, above n 45, at [33].

61. Cane, P Atiyah's Accidents, Compensation and the Law (London: Butterworths, 6th edn, 1999) p 133 Google Scholar (the analysis is omitted from the current edition).

62. For examples of its effect see R Lewis et al, above n 9.

63. R Lewis ‘Health authorities and the payment of damages by means of a pension’ (1993) Modern Law Rev 844.

64. NHS Litigation Authority Report and Accounts 2009 (London: NHSLA, 2009).

65. Ibid.

66. [2008] Health Service J (23 December).

67. This goes against the recent trend of decreasing numbers of claims. See generally Lewis, R A Morris and K Oliphant ‘Tort personal injury claims statistics: is there a compensation culture in the United Kingdom?’ (2006) 14(2) Torts LJ 158 Google Scholar. The Chief Executive of the NHS Litigation Authority has acknowledged that the Authority's figures ‘give the lie to any suggestion of a burgeoning compensation culture; it really just isn't happening in the NHS’: S Walker ‘Have we won?’ (2008) 78 Medico-Legal J 3 at 6.

68. See the Pearson Report, above n 26, p 44 and table 107.

69. R Lewis ‘The politics and economics of tort law: judicially imposed periodical payments of damages’ (2006) 69 Modern Law Rev 418 at 424 et seq.

70. This was the case where the claimant's dependence upon alcohol was in issue in Preston v City Electrical Factors Ltd[2009] EWHC 2907 (QB).

71. Rowe v Dolman[2008] EWCA Civ 1040, (2008) 152(30) SJLB 31.

72. Eeles v Cobham Hire Services Ltd[2009] EWCA Civ 204, [2010] 1 WLR 409, Johnson v Compton-Cooke[2009] EWHC 2582.

73. In Okeowo v Norton, a case settled out of court in 2008 and noted by A Plears in (2008) 158 New LJ 1247, the liability insurer was a Lloyd's syndicate and thus was not ‘reasonably secure’ within the meaning of the Damages Act 1996, s 2(4)(b). However, the claimant accepted an annuity, bought from a secure life office, even though it was linked only to the RPI because it was also accompanied by £1 million lump sum to compensate for the lack of earnings indexation.