Periodic Payment Orders — An end to uncertainty?

by Mary Hough July-17-2015

The government has now published the long awaited draft legislation intended to empower the courts to award Periodic Payments Orders (PPOs) instead of lump sums in catastrophic injury claims. The draft legislation, in the form of an amendment to the Civil Liability Act 1961, largely reflects the recommendations made by the Working Group on Medical Negligence and Periodic Payments (Working Group) in a report published in 2010.

This is a welcome development for the families of the catastrophically injured, particularly those whose claims for compensation have been adjourned to await the enactment of PPO legislation. Although at present the courts have no power to order PPOs, the concept of PPOs has been introduced in more than 20 catastrophic injury claims which have come before the High Court in recent years, mostly those of children injured at birth. In these cases the parties, with the approval of the court, have agreed a lump sum (usually for general damages, loss of earnings and items of past special damages) and also a sum of money to cover several years of future care and medical treatment. The claim is then adjourned for several years with the intention that a final Order may be made when the PPO legislation has been enacted. A sum is usually also agreed for aids and appliances and assistive technology for the injured party, either as part of the payment until the adjourned date or as part of the agreed lump sum.                       

Because as of yet the legislation has not been enacted, many of these cases have come before the High Court again, some on more than one occasion. In most of these cases the parties have agreed a further adjournment for several years to await the introduction of the legislation. In some cases, the parties, with the approval of the court, have agreed a further sum for the period of the adjournment on a similar basis to when the claim was first adjourned. In other cases the parties have agreed different terms for the further adjourned period. In some other cases the injured parties have exercised their entitlement to seek a lump sum.

For the past number of years both plaintiffs and defendants in cases of catastrophic injury have been in a zone of uncertainty between the PPOs which are not yet available to them and the much criticised traditional method of lump sum compensation payments. It has long been considered that the single lump sum award is inadequate and inappropriate in cases where an injured party has been catastrophically injured. It is almost impossible for a lump sum payment, however carefully calculated, to accurately compensate an injured party. In almost all cases the injured party will either be over compensated or under compensated.

Civil Liability (Amendment) Bill 2015

Under the recently published proposed legislation a PPO can only be made in cases where the injured party has been catastrophically injured which is defined by reference to the need for “life-long, permanent care and assistance”. The courts will have power to order a PPO where the parties consent. The courts may also order a PPO where the parties do not consent, but having heard their preference for the form of payment, the court determines that a PPO is in the best interests of the injured party.

What heads of claim can PPOs apply to?

In the draft legislation the heads of claim for which PPOs may be ordered are as follows:

1. Future medical treatment
2. Future care
3. The provision for assistive technology or other aids and appliances associated with such care or treatment.

A PPO may also include damages in respect of any future loss of earnings by the injured party but only where the parties consent to the inclusion of such damages.

How will PPOs work?

The following is an example of how a PPO might work in practice.

In the case of a catastrophically injured minor aged 10 years, instead of a single lump sum award of, for example €7 million, if such a case were the subject of a PPO, the award could look like this:

A lump sum payment of €1,455,000 for the following:

Also annual payments for future care, future medical treatment, assistive technology and aids and appliances.

• To age 18            €175,000 per annum (indexed)
• From age 18       €190,000 per annum (indexed)

The above figures do not necessarily make up an award of €7 million. Instead, what the PPO does is ensure that the injured party is accurately compensated for his needs as they arise during his lifetime. If the injured party survives beyond his expected life expectancy he will continue to be compensated throughout his lifetime. In such circumstances the ultimate size of the award may be considerably in excess of €7 million. On the other hand, if the injured party does not survive as long as expected, the compensation payments will end on his death.

Stepped payments

The proposed legislation allows for the court to make provision to increase or decrease the amount awarded by PPO on a specific date or dates consistent with expected changes in the injured party’s needs during his life. In the example above the annual payment increases when the injured party attains his 18^th birthday to coincide with his moving out of full time education. There is no upper limit on the number of such stepped payments but in making an order for a stepped payment the court must specify the reasons justifying the increase or decrease as well as the date on which it is to take effect and the amount of the increase or decrease at current value.

Security of and guarantees of future Periodic Payments

The court may not make a PPO unless it is satisfied that the continuity of payments under the Order is reasonably secure. Although receiving payments on a regular basis reduces several risks for injured parties such as inflation risk, investment risk and longevity risk, there is an inherent risk for the injured party where the payments into the future are being made by an insurance company. That risk is that the insurer could become insolvent. Adequate guarantees are needed to protect the injured party’s Periodic Payments award. It is proposed to address this by removing the restrictions on the amount of payments from the Insurance Compensation Fund where an insurance company which is the subject of a PPO goes into liquidation.

Index

One of the more vexed issues which the government has had to consider in the context of the PPO legislation is the appropriate index to be applied to PPOs. The indexation rate chosen is the annual rate of the Irish Harmonised Index of Consumer Prices (HICP) index as published by the Central Statistics Office. It is proposed that PPOs shall be subject to an annual revision to cater for changes in costs in accordance with the HICP.

The Minister for Justice and Equality, with agreement of the Minister for Finance, will have the power to make regulations to amend the indexation rate applicable following each review of the indexation rate. The first such review will be 5 years after the coming into operation of the Act. This aims to ensure that the indexation, used adequately, measures the changes in costs arising for injured parties having regard to the changes that have occurred in the index and in such costs over the 5 year period.

The index will be key to the success or failure of the PPO legislation. If the index is not acceptable to injured parties and to the courts PPOs are unlikely to be made as the court will only order a PPO where it has determined it to be in the best interests of the injured party. The HICP does not measure increases in the cost of medical appliances or care workers earnings which will form the major components of most PPOs. This is unlike the ASHE 6115 index used in the UK which is an annual earnings survey applicable to care assistants and home carers. There is no such equivalent index in Ireland. However, ministerial review every 5 years introduces a means by which the index may be reviewed and adjusted appropriately to ensure that the index keeps pace with changes in costs arising for injured parties.

Absence of variation order

Another significant difference between the proposed legislation and its UK equivalent (the Damages Act 1996, as amended) is the absence of any power for the Irish courts to make a variation order. In its report the Working Group recommended that provision be made for the variation of PPOs in certain limited circumstances. The Working Group recommended that variation should only be permitted where it has being determined that the injured party’s condition would seriously deteriorate or significantly improve and where the future contingency has been factored into the original PPO. However, no provision for a variation order has been included in the draft legislation.

Injuries Board

It is intended that the Personal Injuries Assessment Board (PIAB) Act 2003 would be amended to enable the Injuries Board to award damages in the form of Periodic Payments in respect of catastrophic injuries claims other than those arising from clinical negligence, subject to the provisions of the proposed legislation.

Conclusion

When she published the Bill last month Minister Fitzgerald said that she aims to have the legislation enacted before the end of this year. She said that the legislative proposals “aim to give much needed financial security to those who have been catastrophically injured and who require long-term care. They will benefit people injured through accidents or through medical negligence, many of them children. The person will have certainty that he or she will receive an index-linked annual payment to cover care and medical costs. This will remove the fear of running out of money, particularly if costs are higher than anticipated at the time of the award”.

There is no doubt that the enactment of the legislation will bring greater certainty to those plaintiffs and defendants in cases of catastrophic injury who have been in a zone of uncertainty in recent years. It is hoped that the enactment of the legislation will bring the about the greater certainty which the families of those who have been catastrophically injured have long awaited.

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About the Author

Mary Hough

Mary is a partner and Head of the Healthcare team at Hayes solicitors. She specialises in professional indemnity defence litigation and in particular dealing with high value clinical negligence claims. Mary has extensive experience in civil litigation, acting for insurance companies, indemnifiers and plaintiffs.