Compensation – The new regime
Successful litigation concludes with an award of damages to the injured party. The award is calculated by reference to 3 distinct segments.
- General damages for pain and suffering
- Reimbursement of financial expenses incurred to date
- A sum designed to allow the injured party to meet future expenses
General damages have always been assessed by reference to other comparable cases. The largest awards in this category are likely to be in the region of £220-225K for people with the most serious injuries.
The degree to which past expenses are recovered will depend on the accuracy/completeness of records that are kept. These will include not only out of pocket expenses but also reimbursement of additional family care.
The largest and most contentious issue is and always has been the award for future expenses. This will incorporate cost of care, equipment, therapy, accommodation as well as Court of Protection fees, additional holiday costs and other less “obvious” expenses.
The majority of future loss awards were calculated by using a complicated formula which looked at the annual cost of care etc and multiplied that sum by a figure (the multiplier) which was based upon the life expectancy of the claimant. The award once agreed upon or ordered by the Court was final. The one thing that was certain, was that the award would be unjust for someone – the claimant dying ahead of their life expectancy producing a windfall to the claimant’s family, a claimant living beyond his life expectancy likely to see his award exhausted while his needs were still there to be met.
For a number of years this uncertainty has been capable of being avoided by use of a structured settlement. This allows a % of the future loss award to be paid by way of an annual payment rising in line with RPI and paid free of tax. However, such a settlement could never be imposed and was only available when both sides wished to adopt that settlement option. For a variety of reasons it was rarely the case that both sides to a settlement wanted to go down that route and therefore relatively few structured settlements were entered into.
Since 1/4/05 consensual structured settlements have been replaced by periodical payments. On that date the provision of the Courts Act 2003 relating to payment of damages for future pecuniary loss came into force. The Court now has the power to order those losses to be paid periodically, whether wholly or in part, if that approach is found to be in the best interests of the claimant.
The benefits include tax free status, preferential disregards in respect of State Benefits, statutory protection of continuity of payment and linkage to a defined index (eg. RPI).
There is also now no lower limit to the value of a claim where periodical payments may be appropriate. Under the previous regime the lower limit was £500K.
For claims issued post 1 April 2005, periodical payments can be varied to reflect any significant alteration in the claimant’s condition. The potential for a significant alteration will need to be foreseeable and in fact this provision is likely to be used very lightly.
Perhaps the biggest hurdle to periodical payments producing a just award to fully meet the “injured party’s needs” is the linkage of the annual increase to the correct index. Almost inevitably the largest part of a future claim will relate to future care. The cost of care rises at a higher rate than RPI (which does not reflect wage inflation) which means that an award for care linked to RPI is almost certainly going to produce a shortfall over a period of time.
Defendants have, so far, set their faces against any other linkage but a challenge is currently being mounted and should be determined by the end of the year. If successful this could remove one of the last impediments to achieving a truly just award.
In conclusion, it is likely that this new provision will see more awards being resolved by way of periodical payments. This is particularly the case with clinical negligence cases where the NHS self fund the awards. Where the paying party need to go to the insurance market to purchase the settlement, the lack of financial institution providing such a product is likely to restrict its use for a further period of time.
