Periodical Payments Guide

Transcription

1 Periodical Payments Guide

2 Introduction Periodical payment orders, or PPOs, are no longer a mode of settlement just in high value NHS clinical negligence claims. This form of award is invariably on the table in most catastrophic personal injury claims. Whilst PPOs may be a nuisance or a headache for some defendants, there is no doubt they can be good news for the victim. With PPOs gaining in popularity, this guide reviews the legal framework governing this form of award, sets out practical guidance for those wishing to adopt a portfolio approach to PPOs and provides an update on recent developments.

3 Contents This guide will focus on the following: Background 2 Current trends 3 Legal framework 4 Annual Survey of Hours and Earnings (ASHE) 7 Standardising the approach to PPOs: practical considerations 9 Calculating the annual increase 14 Recent developments 17 Conclusion 21 Kennedys is a trading name of Kennedys Law LLP. Kennedys Law LLP is a limited liability partnership registered in England and Wales (with registered number OC353214)

4 Background Damages for personal injury have traditionally taken the form of a lump sum award. Section 2(1) of the Damages Act 1996, as amended by s.100 Courts Act 2003, empowered the courts to make a periodical payment order (PPO) for damages for future pecuniary loss in personal injury cases. Section 2(1)(b) of the 1996 Act gives the courts a statutory obligation to consider making a PPO and may impose a PPO even if the parties do not consent. A PPO will include a retained lump sum to finance the purchase of capital assets and allow for any future contingencies and, usually annual, periodical payments to meet a claimant s annual costs. A PPO is flexible and can be paid immediately, the most common periodical payment providing the claimant an income throughout his lifetime, regardless of how long he survives. Periodical payments can also be deferred to begin after a given period. A contingent deferred PPO may also be agreed where the periodical payment will not become payable until an event occurs, for example, a claimant s care regime is no longer funded by his local authority. At that stage the periodical payment becomes payable and the sums to be paid annually are already identified and set out in the order. The majority of the maximum severity clinical negligence cases involving the NHS settle by way of PPO. These maximum severity cases usually involve brain injured children whose parents seek the comfort of annual periodical payments to fund their child s future care, particularly when they are no longer alive. It was accepted practice in NHS clinical negligence claims that all heads of loss are capitalised, with only care and case management paid by annual periodical payments. The capitalising of all heads of loss, save care and case management, allows claimants to purchase a new property and provides for future contingencies. Over the last 12 months we have seen regular requests by claimants for future loss of earnings to also be paid by periodical payments. During recent years we have seen greater interest by claimants in non-nhs catastrophic personal injury cases to seek PPOs. We anticipate claimants financial advisors are advising their clients to seek a PPO rather than a lump sum award, in particular following the Court of Appeal s landmark judgment in Thompstone v Tameside & Glossop Acute Services NHS Trust and RH v United Bristol Healthcare NHS Trust [2008]. Kennedys acted on behalf of the Defendant NHS Trust in RH. Defendants and their insurers need to now embrace this new regime to ensure they are one step ahead and can offer PPOs on their own terms having implemented systems to administer PPOs effectively. Failing to take proactive action now will lead to future administrative difficulties. 2

5 Current trends Important evidence in relation to the use of PPOs in personal injury cases is set out in the Periodical Payment Orders Study compiled by the International Underwriting Association and published in Details of 300 PPOs were obtained, of which 279 were motor cases and 21 were non-motor (i.e. employers liability and public liability). Key findings included the following: The significant increase in the number of PPOs coincided with the switch to linking periodical payments for care and case management from the Retail Price Index (RPI) to an earnings related index following the decision in Thompstone. The first two quarters of 2011 showed a very slightly reduced number of PPOs compared to the like quarters in 2010, which may have been due to settlements being delayed pending the outcome of the (currently ongoing) review by the Lord Chancellor of the 2.5 per cent discount rate (see page 20). The number of PPOs in the insurance field is dwarfed by the number that has been historically agreed by the NHS Litigation Authority (NHS LA), which manages NHS clinical negligence claims. However, the insurance industry as a whole is slowly catching up and one of the reasons for this is the use of PPOs by the Motor Insurance Bureau (MIB). The vast majority of PPOs relate to the costs of future care and case management. Contributors to the study indicated that, for claimants, periodical payments offer certainty, security, longevity, tax freedom and inflation proofing, all of which may be particularly attractive to the most vulnerable claimants. However, there is considered to be a lack of flexibility within the current framework, and periodical payments become more problematic where there is a substantial reduction for contributory negligence or a discount on liability. For compensators, advantages included cash flow, financial management and investment potential. However, there were also potential financial and practical disadvantages flowing from the continuing nature of periodical payments. The courts generally appear happy to accept the form of an award agreed by the parties. This situation is likely to continue unless more claimants start to seek lump sum awards against the wishes of compensators, for example due to a reduction in the discount rate. 3

6 Legal framework Civil Procedure Rules (CPR) Part 41.5(1) provides that each party may state in its statement of case whether it considers a PPO or a lump sum award more appropriate. CPR Part 41.5(2) and (3) grant the courts the power to order a party to set out its preference as to the structure of the award and provide details. CPR Part 41.7 provides the courts shall have regard to all the circumstances of the case when considering whether to make a PPO and, in particular, the form of award which best meets the claimant s needs. Practice Direction 41B sets out the factors to be considered: The scale of the annual payments, taking into account any deduction for contributory negligence. The reason for the claimant s preference for a periodical payment. The nature of any financial advice received by the claimant on the form of award. The defendant s preferred form of award and reason for that preference. Reasonably secure Section 2(3) Damages Act 1996 states the court may only make a PPO if it is satisfied the continuity of the periodical payment is reasonably secure. Bearing in mind periodical payments are likely to be paid for the duration of a claimant s lifetime, this is both an uncertain and potentially long period if the claim involves a young adult or child. A court must be satisfied a defendant can meet the terms of any PPO for the claimant s lifetime, regardless of how long that may be. In the recent economic climate, this may be of greater importance to any judge approving a PPO where the source of payments is not a government body. Section 2(4) provides the continuity of payments will be reasonably secure where: (a) It is protected by a ministerial guarantee under s.6 of the 1996 Act. This covers public sector bodies where a minister has specifically guaranteed those payments. It is our understanding that no such guarantees have been provided. (b) It is protected by a scheme under s.213 Financial Services and Markets Act This covers payments made by authorised insurers who are able to self fund and make payments direct to the claimant. It also includes payments made by a life insurer. The annuity may have been purchased by a defendant, defendant insurer or a defence organisation. 4

7 (c) The source of the payments is a government or health service body. This covers PPOs entered into by government or health service bodies. The Damages (Government & Health Service Bodies) Order 2005 lists the bodies which are designated as government and health services bodies for this purpose. Once designated, the need to satisfy the court on a case by case basis that the continuity of payments is reasonably secure is removed. Although NHS Trusts in England are not covered, the NHS LA is a designated health service body. In addition, claimants receiving periodical payments from the NHS LA have the added protection that s.70 National Health Service Act 2006 provides a statutory obligation on the Secretary of State for Health to ensure all the NHS LA s liabilities are appropriately dealt with in the event it ceases to exist. The real difference between defendants who self fund and those who purchase an annuity is that the self funded defendant will not know the potential loss until the claimant s death. The self-funded defendant is taking an educated and informed risk as to the claimant s life expectancy. Those defendants who are not deemed automatically reasonably secure will either need to prove they are reasonably secure or will need to purchase an annuity to meet the obligations of any PPO. A defendant who purchases an annuity has had his loss crystallise at the point of settlement. Having transferred the risk, the annuity insurer will usually charge a very significant premium for this privilege to the defendant. The cost of purchasing an annuity is likely to be significantly higher than the actual award on a traditional lump sum basis. An additional obstacle is that there are no current annuity products on the market which provide payments linked to an earnings based index, and certainly not to ASHE The annuities available are linked to the Retail Price Index (RPI) plus a fixed percentage, e.g. RPI plus 2 per cent. Insurers who are serious about offering periodical payments must self fund, as we anticipate the costs of purchasing an annuity will be prohibitive. We also consider claimants will wish to have any periodical payment linked to an earnings related index and not the RPI plus a certain percentage. 5

8 Variation The Damages (Variation of Periodical Payments) Order 2005 provides as follows: 2. If there is proved or admitted to be a chance that at some definite or indefinite time in the future the claimant will (a) as a result of the act or omission which gave rise to the cause of action, develop some serious disease or suffer some serious deterioration, or (b) enjoy some significant improvement in his physical or mental condition, where that condition had been adversely affected as a result of that act or omission, the court may, on the application of a party, with the agreement of all the parties, or of its own initiative, provide in an order for periodical payments that it may be varied. Section 7 of the Order states that a party may make only one application to vary a variable order in respect of each specified disease or type of deterioration or improvement. It can be seen from these provisions that the power to make variable orders is limited, in a similar way to the power to make orders for provisional damages. As far as we are aware, only a very limited number of PPOs have been agreed including provision for variation. Examples from our own cases include two claims, both involving minors with significant care needs. In each case the PPO provided that the Defendant could apply to vary the periodical payments in the event that the Claimant s condition improved such that his care needs reduced and he only needed a sleepin carer at night rather than a waking night carer. 6

9 Annual Survey of Hours and Earnings (ASHE) The Annual Survey of Hours and Earnings (ASHE) is published by the Office of National Statistics (ONS) and has replaced the New Earnings Survey. It is a snapshot of earnings of employees taken in one particular week each year in April within industries, occupations and regions. The survey is broken down into hundreds of standard occupational codes (SOCs). ASHE 6115 is the SOC which records wages paid to care assistants and home carers. In Thompstone the Court of Appeal accepted the appropriate index to use to calculate the annual increase of periodical payments for care and case management is ASHE 6115 and not the RPI. The Court of Appeal considered an index that tracked the earnings of carers was more appropriate than the RPI, which measures the change of prices of a basket of goods and services thought to be typical of the majority of households. It includes items such as food, drink, clothing, housing and transport. Although the ASHE survey is undertaken in April each year, the results are not published until November/December of the same year. Even this is a provisional figure, described as first release, and may be subject to amendment in 12 months time, when the following year s survey is published. A final hourly rate is published 18 to 20 months after the survey is undertaken, and is described as the revised hourly rate. This length of time is required to allow the ONS to maximise the accuracy of the data. The ASHE survey is split into percentiles. The percentiles represent the hourly rates paid at regular intervals, if those rates were placed in ascending order. Accordingly, if the sample of carers within ASHE 6115 who responded to the ASHE survey totalled 10,000, the ASHE (10) (i.e. 10th percentile) figure would be the wage paid to the 1,000th person from the bottom of the list, if placed in ascending order. Likewise, ASHE (80) (i.e. 80th percentile) would represent the wage paid to the 8,000th person from the bottom. For the purpose of PPOs, and in particular calculating the annual increase (see page 14), we are focussing on gross hourly pay, Table 26.5a of the ASHE 6115 data on the ONS website. Once you have linked to Table 26.5a, you need to ensure the tab at the bottom of the page refers to All employees (male, female, part time and full time employers). We set out below the historic and most up to date gross hourly rates for all percentiles of ASHE 6115 from 2004, including the first release and revised hourly rates. 7

10 Year Median Mean 10% 20% 25% 30% 40% 60% 70% 75% 80% 90% 2004 First Release Revised First Release Revised First Release Revised (2005 Method) 2006 Revised (2007 Method) First Release Revised First Release Revised First Release Revised First Release Revised First Release Revised First Release As you will see, there is a significant difference in the first release and revised hourly rates for This is explained on pages 17 to 18. In addition to care and case management, index linked to ASHE 6115, loss of earnings have started to emerge as another head of loss that is also paid by periodical payments. Loss of earnings are usually index linked to ASHE Median and, in particular, gross annual pay for all male or female full time employees using Table 1.7a. If parties wish to pay for therapies by way of periodical payments, these are usually index linked to the RPI. 8

11 Standardising the approach to PPOs: practical considerations Although not the named defendant, the insurer makes the periodical payment to the claimant. Accordingly, PPOs give claimants a direct right to enforce the terms of the order against the insurer. We set out below a number of issues insurers should consider in respect of PPOs. Standard model order Self funding insurers should consider how they wish to manage PPOs. We strongly advise a unified approach to ensure the administration of PPOs in the future is efficiently managed. We recommend that, for the purposes of consistency, defendants considering self funding PPOs should adopt a standard model order. Kennedys can assist any insurer seeking to create a standard order. We advise the adoption of the NHS model schedule to the PPO (the model schedule). The formulae have been road-tested by a statistician, accountant and financial adviser to ensure they are fit for purpose and have been judicially approved. The formulae have also been used by the NHS LA since 2008 to calculate the annual uplift of hundreds of claimants periodical payments, and again meet the desired objective. Departing from these judicially approved formulae is not advised without specialist financial and statistical advice. Calculation/payment date The parties must agree on the date for payment of the periodical payment. This could be monthly, quarterly or annually. The model schedule is based on the claimant receiving his periodical payment annually and in advance on 15 December of each year. Of course, insurers do not need to adopt the NHS practice of paying on this date. The 15 December date was chosen as this is four to six weeks after the ASHE data is published by the ONS and allows the NHS LA to undertake the calculations and arrange payment. In recent years the publication of the ASHE data has been delayed and in 2010 was published on 6 December Taking this into account, a payment date in January each year would be prudent. A claimant may be reluctant to agree to payment much later than January as they will be deprived of the benefits of indexation. Insurers considering self funding their periodical payments should consider at the outset when they would like the payments to be made. In particular, consider those managing the process in 10 years time, who may have a significant portfolio of periodical payments to administer. It will certainly be far easier from an administrative perspective if all calculations are undertaken at the 9

12 same time each year and payments made. Of course, the downside of one single payment date is this may have cash flow implications and this will also need to be taken into account. If, however, a date is agreed to calculate the uplift, there is no reason why the annual sum could not be paid quarterly over the 12 month period. This would reduce the impact on cash flow. Quarterly payments would not increase the administrative burden, as automatic BACs payments can be arranged. It is unlikely a claimant will agree to monthly payments, as it will limit his ability to manage his affairs. A calculation and/or payment date soon after the publication of the latest ASHE data is both logical and practical. It also ensures the claimant receives the benefit of the latest data as soon as it is available. Individual insurers have different objectives and priorities. For example, payments being made at the end or beginning of a particular financial year may be significant. This needs to be taken into account at a very early stage to ensure these objectives can be achieved. If timing of periodical payments is important, serious consideration should be given to PPOs now to facilitate consistency. Timing of first escalation If a self funding defendant has agreed it will adopt one date for payment of a periodical payment, it must then decide whether it will adopt a unified and consistent approach as to the timing of the first escalation. If the periodical payment relates to care and case management, the intended purpose of any annual increase is to allow the claimant to have sufficient funds year on year to purchase his care. Accordingly, if you are settling a claim in 2013 and the parties are relying on current care rates, in such circumstances, the annual increase to the periodical payment should not take place until the following year. To do otherwise would provide a windfall to the claimant if he gets the benefit of two increases in hourly rates in the same year. A defendant should always argue the first escalation should take place the year after settlement. This does not mean the claimant will not receive a periodical payment the first year. The claimant receives a periodical payment that is not index linked. This is, however, a matter of negotiation. Standard percentile The hourly rates reported within ASHE 6115 reflect different skills, responsibilities, types of care and terms and conditions of employment. This distribution of skills and qualifications in the care sector matches up, in broad terms, with the different levels of hourly earnings at the different 10

13 percentiles of the ASHE 6115 distribution. In any care package there are carers paid at different hourly rates. To calculate the annual increase of a periodical payment a percentile of ASHE 6115 needs to be adopted. It is not the hourly rate itself that is of significance. When the uplifting calculation is undertaken, it is the annual increase in the gross hourly rate of carers that is used and not the actual rate. There is no real bias to either party as to which percentile is chosen, save it is accepted economic theory that those on higher earnings have greater annual increases. Unless the care rates justify ASHE (90) we recommend this be avoided. ASHE (90) is at the end of the earnings distribution and considered to be susceptible to greater volatility. As there is limited bias to either party on choice of percentile of ASHE 6115, we advise adopting a standard percentile for all claims. This will assist when the uplifting process is undertaken. A practice is now emerging that most parties agree to ASHE (80). Pro-rata payment If a defendant decides to pay all PPOs from a particular date, claimants will usually seek a prorata periodical payment from the date of settlement to payment of the first periodical payment. So, by way of example, if a claim settles on 31 January, but the first periodical payment is not until 15 December, a claimant will usually seek a pro-rata periodical payment from 1 February to 14 December. This should be resisted. During negotiations, or within the terms of any Part 36 offer, it should be made clear to a claimant that the pro-rata periodical payment is included in the retained lump sum. This is now almost standard practice in NHS cases. Stepped payments In the majority of catastrophic personal injury cases, there is a single payment which is agreed and paid throughout the duration of a claimant s life. In birth injury/paediatric clinical negligence cases, a periodical payment can increase or decrease over the duration of a claimant s lifetime, depending on his needs. The schedule to the model order accommodates stepped payments so, for example, payments in a claim involving a child may increase at age 12 and post 19 years of age. It has been common practice with RPI-linked PPOs for stepped payments to be centred around a claimant s birthday. If an insurer has decided to adopt a particular payment date, 11

14 e.g. 15 December each year, all experts should assess the claimant s needs to and from the payment date, rather than focussing on a claimant s birthday. By way of illustration, a claimant s birthday is on 30 July, and on 30 July 2013 he reaches age 12, when his care regime increases from 50,000 to 100,000. If the insurer has chosen 15 December as the date of payment, should the increase take place on 15 December 2013 after the claimant s twelfth birthday, which would benefit the defendant; or should the increase take place on 15 December 2012, before the claimant s twelfth birthday, which would be more advantageous to the claimant? As the above example shows, if a particular payment date is chosen, the defendant s experts assessing a claimant s needs must report based on the claimant s needs up to and from the designated payment date. Adopting need based on birthday will certainly cause debate between the parties as to when the stepped payment should take place. Of course, if a birthday is close to a chosen payment date, this issue is less controversial. If the claimant is to receive a single annual payment throughout the duration of his life, and not stepped payments, the schedule to the model order for NHS cases will need to be amended, as this anticipates stepped payments. Proof of life The PPO should also state the claimant will provide written confirmation of proof of life to facilitate continuing payments. Proof of life should be provided by the claimant s deputy, if a professional deputy, or his general practitioner (GP). The PPO should require either the deputy or the GP to provide written confirmation at least 28 days before the selected payment date and should be based on them having seen the claimant recently. If proof of life is not provided payment should be suspended until provided. For further detail see the comments on Wallace v Follett on pages 19 to 20. Standard Part 36 offer If a unified approach is to be taken to the administration of PPOs, this needs to be clearly reflected in any standard Part 36 periodical payment offer. The Part 36 offer must state the following: i. Retained lump sum: to include all interim payments and recoverable benefits. 12

15 ii. Amount to be paid by periodical payment: annual sum to be paid. iii. Payment period: set out stepped payment dates, if appropriate, by dates and not birthdays. iv. Index: ASHE v. Percentile: ASHE (80), or other percentile to be offered if taking a standardised approach, but avoid ASHE (90). vi. Payment date: the date chosen for all periodical payments to be paid. vii. First escalation date: will the first payment also be index linked? Ideally this should be avoided. viii. Confirm whether a pro-rata periodical payment is payable or included in the retained lump sum. 13

16 Calculating the annual increase By way of example, a claim settles in July 2009 by way of annual periodical payments with annual payments of 100,000. The periodical payments are for care and case management only and the index is ASHE 6115 at the 80th percentile. The insurer adopts a payment date of 15 December each year. The parties agreed the first payment on 15 December 2009 would not be index linked. The settlement was based on 2009 hourly rates for carers, introduced in April To provide an annual uplift in December 2009 would be a windfall to the claimant. The first payment on 15 December 2009 would not be index linked. The first index linked payment would be made on 15 December The model schedule sets out the calculations to be undertaken to calculate the annual uplift of a claimant s periodical payment, as summarised below. First year of escalation When calculating the annual increase in the first year, the following formula, as set out at paragraph 3 of the model schedule, is used to calculate the annual increase: PP = C x NP A PP = the new amount payable by way of periodical payment each year. C = the original annual periodical payment. NP = the first release hourly gross rate published by the ONS for the relevant percentile in the year the escalation is being undertaken. A = the most recent revised hourly gross rate published by the ONS at the time the first escalation is being undertaken for the relevant percentile. This remains unchanged each year the calculation is undertaken, until reclassification or discontinuity. Relying on the ASHE data published in November 2010, the calculation is as follows: PP = 100,000 x = 100, Explanatory note is the ASHE (80) revised gross hourly rate for 2009 and published in 2010 ( A ) and remains unchanged from the first year of calculation. It is used for all calculations until reclassification or discontinuity. 14

17 10.44 is the ASHE (80) first release gross hourly rate for 2010 and published in 2010 ( NP ). Subsequent years of escalation The calculation for every year thereafter, until reclassification or change in methodology, is undertaken in accordance with the following formula, as set out at paragraph 4 of the model schedule: NP + (NF-OP) PP = C x A NF = OP = the revised hourly gross rate published by the ONS for the year prior to the calculation being undertaken for the relevant percentile. the first release hourly gross rate published by the ONS for the year prior to the calculation being undertaken for the relevant percentile. The purpose of this calculation is to take into account any differential between the first release and revised hourly rates of the previous year, represented by NF OP in the above formula. The calculation for the second year, until reclassification or discontinuity, using the example above will take place in December 2011 and using the ASHE data published in November 2011, based on ASHE (80), is as follows: PP = 100,000 x ( ) = 99, Explanatory note The above example intentionally uses ASHE 6115 data published before November 2012 to avoid the issues relating to a change in methodology is the ASHE (80) first release gross hourly rate for 2011 and published in 2011 ( NP ). This part of the formula calculates the annual increase of the annual periodical payment. The first is the ASHE (80) revised gross hourly rate for 2010 and published in 2011 ( NF ). The second is the first release ASHE (80) gross hourly rate for 2010 and published in 2010 ( OP ). This part of the formula calculates any differential between the first release and revised gross hourly rates. 15

18 The mistaken assumption has been that hourly care rates only rise and accordingly a claimant s index linked periodical payment for care and case management will increase annually. The ASHE 6115 data for 2011 illustrates that, in fact, care rates went down and this was reflected in claimants annual periodical payments. As can be seen in the above example, in December 2010 the claimant received an index linked payment of 100, and in December 2011 this reduced to 99,

19 Recent developments There have been a number of recent developments relating to periodical payments. Should PPOs be reclassified from ASHE 6115 to ASHE 6145 or ASHE 6146? The ONS periodically reclassifies occupations to ensure they accurately measure the workforce. It was our understanding, when the ONS was considering a reclassification of ASHE 6115, that it was to split those carers in a residential based environment from those providing home based care. This would have potentially provided greater accuracy to a claimant s care package. Instead, in 2010 the ONS split ASHE 6115 into ASHE 6145 care workers and home carers and ASHE 6146 senior care workers. ASHE 6115 was based on 831,000 jobs in 2011, with ASHE 6146 only having 28,000 jobs within its occupation classification. Accordingly, ASHE 6146 is not statistically reliable. Whilst ASHE 6145 is statistically robust, with almost 700,000 jobs within its classification, we query whether it is a better match to ASHE 6115, bearing in mind it does not include any senior carers. We do not consider that a claimant is likely to seek reclassification from ASHE 6115 to either ASHE 6145 (which excludes senior carers and is not, therefore, an accurate match to his care package) or to ASHE 6146 (which is statistically unreliable). We will have to wait and see what future changes are made to these standard occupational codes (SOCs), which could result in their use in future when index linking a claimant s annual payments for care and case management. Change in methodology In a test case, RH v University Hospitals Bristol NHS Foundation Trust [2013], Kennedys was instructed by the NHS LA to represent the Defendant NHS Trust. Compensators were unable to calculate the annual increase to a claimant s periodical payment due to a change in the methodology in undertaking ASHE After the reclassification referred to above, and bearing in mind the importance of ASHE 6115 to periodical payments and personal injury claims generally, the ONS agreed to continue publishing ASHE 6115 for the foreseeable future, notwithstanding this reclassification. ASHE 6115 data published in November 2011 was used to index link periodical payments made in December On 22 November 2012 the ONS published the revised ASHE 6115 data for 2011 and the first release ASHE 6115 data for This constituted a change in methodology as the 2011 first release data was weighted on SOC 2000 and the 2011 revised data on SOC The 17

20 two sets of data are not directly comparable and the 2011 first release and 2011 revised data showed significant discrepancies. Historically between 2006 and 2011 across all percentiles the highest variation in first release and revised gross hourly rates, both upwards and downwards, has been only two pence. The model schedule anticipated changes in methodology, and contained formulae to address this eventuality. The change in methodology provisions required AF, defined in the model schedule as the final published revised hourly gross wage rate for the relevant percentile of the previously applied SOC for all employees. This is the hourly gross wage rate for ASHE 6115 based on the SOC 2000 methodology. There was, however, a problem as AF was not available. The ONS had published the 2011 revised hourly rate of ASHE 6115, based on SOC 2010 methodology and not on SOC 2000 methodology. The ONS was unable to publish this data. A number of compensators make periodical payments in December each year. In December 2012 they were unable to calculate the annual increase to a claimant s periodical payment due to the missing data. In accordance with Paragraph 8 of Part 1 of the model schedule, many compensators paid claimants the sums paid the previous December. They confirmed a balancing payment would be made once the issue was resolved. The NHS LA had, as at December 2012, over 640 cases index linked to ASHE It selected RH v University Hospitals Bristol NHS Foundation Trust as a test case in order to obtain judicial approval for the proposed solution of replacing AF with OPF when applying the change in methodology formulae. OPF is defined in the model schedule as the final first release hourly gross wage rate for the relevant percentile of the previously applied SOC for all employees. Effectively, rather than applying AF (the revised gross hourly wage rate based on SOC 2000 methodology, which was not available) it was proposed that OPF (the first release gross hourly wage rate based on 2000 methodology) would be used to apply the change in methodology provisions in the model schedule. A hearing took place on 11 February 2013 and Mrs Justice Swift handed down her judgment on 1 March 2013 and took a pragmatic approach to the problem (paragraph references relate to the judgment). Swift J: Approved the solution of replacing AF with OPF when applying the change in methodology formulae (paragraph 28). Approved amendments to the model schedule in NHS cases to address this problem, should it reoccur (paragraph 28). 18

21 Strongly encouraged claimants and deputies to accept this solution, if the same issues have arisen in their cases, and adopt the amendments to the schedule (paragraph 33). Warned there could be cost consequences if claimants objected to the solution without good reason (paragraph 34). Confirmed the solution does not require court approval in cases involving protected parties for the purposes of CPR 21.10(1) or formal amendments to PPOs in cases not involving protected parties (paragraphs 31 and 32). Urged other non-nhs compensators to apply the same solution, if appropriate (paragraph 38). To date claimants have accepted the solution set out in the test case of RH and no cases have been individually listed to address this issue. Practical issues As PPOs provide a stream of annual payments for the duration of a claimant's life there is a continuing relationship between claimant and compensator. In his judgment in Wallace v Follett [2013], Lord Justice Leveson referred to Mr Justice MacKay's judgment in Long v Norwich Union Insurance Ltd [2009] in which he observed that, where settlements include PPOs, there is a balance of benefits and burdens for both sides. In Wallace the Claimant suffered catastrophic injuries in a road traffic accident. Liability was accepted subject to a discount of 30 per cent for contributory negligence. An agreement was subsequently reached on the payment of a lump sum and periodical payments. However, a dispute arose over two issues in relation to the terms of the PPO: Whether it was reasonable to permit the insurer to require the Claimant to undergo medical examinations to obtain an up-to-date life expectancy figure for the purpose of calculating reserves. In previous cases a provision had been inserted in the event that insurers wished to find an annuity provider. The consequences of the Claimant failing to provide written confirmation from his GP, prior to the commencement of each payment year, that he was still alive. At first instance His Honour Judge McKenna found in favour of the Claimant on these issues. The Defendant appealed to the Court of Appeal. Leveson LJ allowed the Defendant's appeal: 19

22 A medical examination should be allowed for the purpose of purchasing an annuity or to review reserves, but limited to once every seven years. An insurer is entitled to be reassured that a claimant receiving PPOs is alive as at the date on which a payment is to be made. There was no reason why written confirmation should not be made available on an annual basis. The task should be made as straightforward as possible and the insurer should provide a reminder of the obligation. There was no virtue in requiring the insurer to return to court before suspending payments. It is interesting that the Court of Appeal accepted that it was appropriate for it to resolve these discrete terms of PPOs where the parties had failed to reach agreement. Discount rate The Lord Chancellor is currently reviewing the discount rate used in personal injury claims. His second consultation, Damages Act 1976: the discount rate review of the legal framework closed on 7 May One of the two questions which formed part of the consultation was whether there was a case for encouraging the use of periodical payment orders instead of lump sum payments. It remains to be seen whether the Lord Chancellor will consider the availability of periodical payments should affect the level at which the discount rate is set. Periodical payments were not intended to have an impact on the quantification of damages but influence mode of payment of award only. A significant reduction in the discount rate may prompt claimants to prefer lump sum awards with defendants preferring periodical payments. We will have to wait and see whether there will be any change to the discount rate and to what extent this impacts on periodical payments. 20

23 Conclusion Periodical payments are certainly increasing in popularity amongst claimants, and not just in claims involving NHS defendants. Claimants are now seeking periodical payments in larger numbers in catastrophic personal injury claims. This renewed interest in PPOs by claimants should prompt insurers to consider adopting a consistent approach. Those insurers who have chosen to self fund periodical payments should proactively implement systems to create uniformity in the administration of PPOs. When considering periodical payments, bear in mind that by agreeing only 10 PPOs per annum, you could be administering in excess of a hundred PPOs in 10 years time. Therefore, dealing with a portfolio of PPOs should be at the forefront of one s mind when considering uniformity and consistency in the management of PPOs. Christopher Malla Partner Kennedys c.malla@kennedys-law.com 21

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