Lump sum payments under pressure... or are they?
Is Ireland operating an outdated, unjust and ineffective system of awarding lump sum damages to those who have suffered catastrophic injuries?
A recent €4m Irish High Court settlement for a woman injured in a traffic accident has been deferred after a judge complained again about delays in bringing in lifelong payments for such cases. Ms Justice Mary Irvine deferred, until later this month, her approval after saying a €4m settlement of this catastrophic personal injury claim might not be enough if she lived beyond the life expectancy estimated by doctors.
For centuries the courts in Ireland and the UK have been assessing damages on a one-off lump sum basis. However, whilst the lump sum award has great attraction and benefit in the great majority of cases, the lump sum approach has proved to be problematic in dealing with catastrophic injury cases. The problem is that assessing damages on a lump sum basis to assess future needs over a prolonged period of time has proved to be a wholly inaccurate exercise prone to serious error. If the claimant lives longer than the years projected by her own doctors, then she will run out of money. If there was an over-estimation of life expectancy, the family involved could have an unexpected windfall.
Actuaries routinely use a discount rate of 3% when calculating future loss. The disparity between the discount rate that should prevail under current economic conditions (1%) and that currently being applied by the actuaries routinely in personal injury actions gives rise to serious under-compensation.
In the UK, The Damages Act 1996 introduced the periodic payment orders (PPOs) but only by consent. This legislation was replaced by the Courts Act 2003 when courts were given the power to impose a periodic payment provided security of payment was enhanced with 100% protection from a guarantee from the State. However, the question of indexation still remains a major problem.
There is currently no corresponding legislation in Ireland despite strong support for the introduction of a period payment order regime. In February 2010 the President of the High Court, established a working group on Medical Negligence Litigation and Periodic Payment. This working group produced its report on periodic payments (Module 1) which was presented to the Government in November 2010 and recommended, among other things, that legislation should be enacted in Ireland to empower the courts - as an alternative to lump sum awards - to make consensual and non-consensual PPOs to compensate injured victims in cases of catastrophic injury.
In anticipation of the Government introducing such legislative changes, many catastrophic injury cases are being adjourned for periods of up to two years to allow the necessary time to introduce legislation. In the meantime, many of these cases are being dealt with by way of an interim award of damages - albeit only in cases where the State is the defendant so as to avoid the risk of default by a privately insured defendant due to insurer insolvency etc.
So two years later, why have the Working Group's recommendations not been acted upon and legislation introduced by the Irish Government?
There is an argument that such increased payments for long surviving plaintiffs would be offset by savings derived from plaintiffs who die prematurely shortly after the making of the PPO. However, and given the fact that the total sum likely to be paid out under a PPO to a long survivor is significantly in excess of the value of a lump sum award, perhaps the Irish Government realises that PPOs could in fact cost the State (as defendants) more than the current lump sum system and are therefore not willing to 'roll the dice'.
It goes without saying that if the report of the Working Group is acted upon it will significantly improve matters for the catastrophically injured plaintiff who will have a far better, more equitable and more accurate assessment of their financial needs to cover their life time care costs. It will however place all of the investment and life expectancy risks back on to the defendant and/or their insurers - which is where they should be - but this is also where the introduction of PPOs could run up against an 'economic' brick wall.
Given the ongoing crisis in the Eurozone and Ireland's own banking bailout debacle, is there really the want and desire within Government circles to make changes (at this time) to the status quo? Even if the Irish Government were to accept that in the short term, such legislation could improve the State's cash flow (in cases where the State is the defendant), this would only postpone the pain and leave the next generation of Irish tax payers having to foot the bill as the long term cost to the State could be much greater than the current lump sum system.
Doubtless insurers (and their reinsurers) will view recent developments with growing concern but they may also be breathing a sigh of relief that, until suitable legislation is introduced, nothing will change and the more 'insurer-friendly' lump sum payment system will remain the only game in town.