Irish Law Reform Commission Papers and Reports

THE LAW REFORM COMMISSION

AN COIMISIUN UM ATHCHOIRIU AN DLI (LRC 54–1996)

 

REPORT

ON

PERSONAL INJURIES:

PERIODIC PAYMENTS AND STRUCTURED SETTLEMENTS

 

IRELAND

The Law Reform Commission Ardilaun Centre, 111 St Stephen's Green, Dublin 2

 

 

© Copyright The Law Reform Commission 1996

First Published December 1996

ISSN 1393–3132

 

 

THE LAW REFORM COMMISSION

The Law Reform Commission was established by section 3 of the Law Reform Commission Act, 1975 on 20th October, 1975. It is an independent body consisting of a President and four other members appointed by the Government.

The Commissioners at present are:

The Hon. Anthony J. Hederman, former Judge of the Supreme Court, President; John F. Buckley, Esq., Judge of the Circuit Court;

William R. Duncan, Esq., M.A., F.T.C.D., Barrister-at-Law, Professor of Law and Jurisprudence, University of Dublin, Trinity College;

Ms. Maureen Gaffney, B.A., M.A. (Univ. of Chicago), Senior Lecturer in Psychology, University of Dublin, Trinity College;

Simon P. O'Leary, Esq., B.A., Barrister-at-Law.

John Quirke is Secretary to the Commission.

The Commission's programme of law reform, prepared in consultation with the Attorney General, was approved by the Government and copies were laid before both Houses of the Oireachtas on 4th January, 1977. The Commission has formulated and submitted to the Taoiseach or the Attorney General fifty three Reports containing proposals for the reform of the law. It has also published eleven Working Papers, ten Consultation Papers and Annual Reports. Details will be found on pp.178–183

The post of Research Counsellor to the Commission is vacant at present.

Ms. Deirdre Mulligan, LL.B., LL.M. (Edinburgh), Attorney-at-Law (State of New York), Ms. Lia O'Hegarty, B.C.L., LL.M. (Michigan), LL.M. (Harvard), Barrister-at-Law and Ms. Roisin Pillay, LL.B., LL.M (Cantab.) are Research Assistants.

Further information from:

The Secretary,

The Law Reform Commission,

Ardilaun Centre,

111 St. Stephen's Green,

Dublin 2.

Telephone: 671 5699.

Fax No: 671 5316

 

 

This Report was submitted on 16 December 1996 to the Attorney General, Mr Dermot Gleeson, S.C., under section 4(2)(c) of the Law Reform Commission Act, 1975. It embodies the result of an examination of and research into the law of Personal Injuries, Periodic Payments and Structured Settlements which was carried out by the Commission at the request of former Attorney General, Mr John Rogers, S.C. together with proposals for reform which the Commission were requested to formulate.

While these proposals are being considered in the relevant Government Departments the Attorney General has requested the Commission to make them available to the public, in the form of this Report, so as to enable informed comments or suggestions to be made to the said relevant Government Departments by persons or bodies with special knowledge of the subject.

 

 

CONTENTS PAGES   CHAPTER 1: INTRODUCTION 1–3   The Reference 1   Approach Underlying This Report 1   SECTION I: IRELAND     CHAPTER 2: PERSONAL INJURIES ACTIONS 4–20   The Action for Damages 4   Action In Tort 6   Assessment Of Compensation 7   Income Tax 12   The Appropriate Rate 13   Exception 14   Contract 18   Provisional and Interim Awards of Damages 20   CHAPTER 3: FATAL ACCIDENT ACTION 21–33   Introduction 21   The Wrongful Death Action 21   Parties Entitled To Avail Of The Remedy 22   The Basis Of Liability Under Part IV Of The 1961 Act 22   Recovery By Dependants For Pecuniary Loss 23   What Is The Basis Of Assessment Of Dependency? 24   The Calculation Of Future Losses 26   Period of loss 26   The discount rate 27   Allowance for taxation of interest from investment fund 27   Allowance for impact of inflation 28   The Survival Action 29   The Nature Of Damages Recoverable 30   The Relationship Between Survival Actions And Wrongful Death Actions 31   THIS IS AN ORIGINAL PAGE-BREAK: PAGE NUMBER=vii   CONTENTS PAGES   CHAPTER 4: EXISTING PROPOSALS FOR REFORM 34 – 39   The O'Connor Report, 1972 34   The MacLiam Report, 1982 36   The Barrington Report, 1983 38   SECTION II: THE UNITED KINGDOM     CHAPTER 5: PERSONAL INJURIES ACTIONS 40 – 45   The Calculation Of The Award 40   The Payment Of The Award 43   CHAPTER 6: FATAL ACCIDENT ACTIONS 46 – 49   Introduction 46   The Survival Action 46   The Wrongful Death Action 46   (i) Who can claim? 47   (ii) How are damages assessed? 47   CHAPTER 7: STRUCTURED SETTLEMENTS AND OTHER REFORMS 50 – 70   Introduction 50   (i) The proposals of the Law Commission 50   (a) The 1973 Report 50   (b) The 1994 Report 52   (ii) The proposals of the Pearson Commission 53   Interim Awards 57   (a) Interim payments 57   (b) The split trial 57   Provisional Damages 57   Structured Settlements 61   (i) Mutual insurers 68   (ii) Medical negligence cases 69   THIS IS AN ORIGINAL PAGE-BREAK: PAGE NUMBER=viii   CONTENTS PAGES   SECTION III: THE UNITED STATES OF AMERICA     CHAPTER 8: PERSONAL INJURIES ACTIONS 71 – 79   The Calculation Of The Award 71   Inflation 72   Taxation 76   Miscellaneous Other Factors 78   Conclusion 79   CHAPTER 9: FATAL ACCIDENT ACTIONS 80 – 82   The Wrongful Death Action 81   Survival Actions 82   CHAPTER 10: STRUCTURED SETTLEMENTS AND OTHER REFORMS 83 – 90   Structured Settlements 83   Periodic Payments 85   Constitutionality Of Legislation Providing For Periodic Payments 87   SECTION IV: CANADA     CHAPTER 11: THE PERSONAL INJURIES ACTION 91 – 97   (i) Taxation 94   (ii) Inflation and interest 95   CHAPTER 12: FATAL ACCIDENT ACTIONS 98–102   The Survival Action 98   The Fatal Accident Action 100   THIS IS AN ORIGINAL PAGE-BREAK: PAGE NUMBER=x   CONTENTS PAGES   CHAPTER 13: STRUCTURED SETTLEMENTS AND OTHER REFORMS 103–110   Structured Settlements 103   Ontario 105   Manitoba 106   British Columbia 109   SECTION V: OTHER COMPARATIVE ASPECTS     CHAPTER 14: AUSTRALIA 111–117   Western Australia 111   South Australia 112   Victoria 114   Tasmania 114   Australian Federal System 116   CHAPTER 15: NEW ZEALAND 118–120   Basis Of Entitlement 118   Administration Of The Scheme 119   Financing Of The Scheme 120   Conclusions 120   SECTION VI: CONCLUSIONS     CHAPTER 16: CONCLUSIONS AND RECOMMENDATIONS 121–144   Problems With The Lump Sum System 122   The Options For Reform And Recommendations 126   (i) Reviewable periodic payments 126   (ii) Interim awards and provisional damages 128   The Commission's Approach 137   CHAPTER 17: SUMMARY OF RECOMMENDATIONS 145–146   THIS IS AN ORIGINAL PAGE-BREAK: PAGE NUMBER=x   CONTENTS PAGES   APPENDICES 147–175   APPENDIX 1: Law Commission Draft Bill 147–151   APPENDIX 2: Model Agreement for a Structured Settlement 152   APPENDIX 3: Rules of the Supreme Court of England and Wales 153–156   APPENDIX 4: Florida Statutes 1991 157–160   APPENDIX 5: New York Civil Practise Law and Rules 1992 161–163   APPENDIX 6: Californian Code of Civil Procedure 164–166   APPENDIX 7: Suggested Forms (California) 167   APPENDIX 8: Courts of Justice Act (Ontario) 168   APPENDIX 9: Periodic Payment of Damages Act (Manitoba) 169   APPENDIX 10: Report of the Justice Reform Committee of British Columbia, 1988 173   APPENDIX 11: List of Persons who furnished written submissions and List of Persons who attended the Commission's Seminar 174   LIST OF COMMISSION PUBLICATIONS 176–181   THIS IS AN ORIGINAL PAGE-BREAK: PAGE NUMBER=xi

CHAPTER 1: INTRODUCTION

The Reference

1.1

Pursuant to section 4(2)(c) of the Law Reform Commission Act, 1975, the then Attorney General, Mr. John Rogers, S.C., referred a number of topics to the Commission, with the request that the Commission formulate proposals for their reform. One of these topics was the law relating to compensation for personal injuries. The Commission was asked to examine two aspects of this topic. The first was the application of the Statute of Limitations to cases of latent personal injuries. This was addressed in the Commission's Report on The Statute of Limitations: Claims in respect of Latent Personal Injuries (LRC 21). The second aspect related to periodic payments and provisional awards of damages. This was first addressed in a Discussion Paper which the Commission circulated to persons and groups with a particular interest in the subject in August 1993. Having received the observations of these persons and groups the Commission held a meeting on the 9th December 1994 attended by experts in legal, insurance and administrative aspects of the topic. This Report contains our final recommendations.

The Commission is very grateful to those who furnished written submissions or attended the Commission's Seminar. It is particularly grateful to those who did both. Lists of those experts are to be found in Appendix II.

Approach Underlying This Report

1.2

This Report does not deal with the basis of liability in tort and the various rules of negligence but rather concerns itself with the way the tort system pays damages, irrespective of how that liability arises, and explores a number of different approaches that can be adopted in altering the common law practice of paying the plaintiff his or her damages in a once-off lump sum.

1.3

The practice of paying damages over a period of time has arisen, in the United States and in the United Kingdom, out of a method of settling cases which has made use of a special arrangement made with the revenue authorities. Legislation has been enacted which enables the courts to take a more active role in awarding structured settlements by putting these informal arrangements into statutory form.

 

 

1.4

It is necessary to include in this Report a brief discussion of how the courts calculate aspects of an award of damages for personal injuries, for two reasons.

1.5

Firstly, the Irish courts have adopted a different method of calculating damages awards for personal injuries, particularly with regard to that element of the award which represents future losses, from their English counterparts. In the context of introducing periodic payments it is the element of the award dealing with future losses that is relevant, since at the date of the trial the plaintiff is more likely to want to receive damages for pre-trial losses in a lump sum.¹ This approach is also more consistent with the aim of damages which is to put the plaintiff in the position he or she would have been in had the accident not occurred.

1.6

Secondly, if the courts are given a formal, statutory power to award structured settlements in certain circumstances, then the way in which they calculate certain aspects of the award could be determined by features of the legislation itself, e.g. provisions for inflation-proofing.

1.7

The principles and approach adopted by the Irish courts at present are very much conditioned by the fact that the plaintiff is only going to receive one lump sum payment. Consequently future losses must be reduced to present value by taking a complex variety of factors into account.² If provision is to be made for the awarding of a part of a personal injuries award in the form of a structured settlement then the extent to which this award is inflation-proofed and tax free may affect the way the courts will calculate that part of the award in the first place.

1.8

The arguments in favour of structured settlements³ can apply equally in fatal accident cases. In these cases, where the injured party dies, the nature of the future pecuniary loss to the estate or the dependents is often one of a periodic nature, i.e. the deceased's loss of future earnings. By the same token, similar policy objectives may ensure that the surviving dependants can avail of a guaranteed flow of periodic income such as is provided for by structured settlements. Consequently this Report also includes an outline of the provisions governing fatal accident cases.

1 It is worth noting that some States in America permit the court to structure any element of the damages award.   2 Including actuarial evidence and estimates as to future taxation and inflation.   3 Such as providing a guaranteed flow of inflation-proofed income for the lifetime of the plaintiff or the period of disability. These are discussed later in the Report.

 

 

1.9

We also propose to examine reforms that have been introduced in various other jurisdictions in this regard. This examination will focus on the way damages are paid in the common law personal injuries action.

 

 

SECTION I: IRELAND

CHAPTER 2: PERSONAL INJURIES ACTIONS

The Action For Damages

2.1

In many cases of accidental personal injury or death,¹ monetary compensation can be obtained if the injured party or estate can successfully bring a court action against a defendant who is either insured or who has the resources to be able to pay the compensation.²

2.2

An action can be brought in tort or contract or both depending on the circumstances of the accident. The vast majority of claims are made in tort. There is no reason, however, why an individual may not sue for damages for personal injuries suffered as a result of a breach of contract,³ although the extent of damages allowed will often be more limited.

2.3

An award of damages can only be made in the form of a lump sum.⁴ This contrasts with the payments made under the social welfare system for

1 Actions arising out of fatal accidents are dealt with in Chapter 3.   2 The Motor Insurance Bureau of Ireland has a scheme in place where awards of damages made against an uninsured driver will be paid. This is funded out of the premiums paid by insured drivers.   3 Summers v Salford Corporation [1943] AC 283.   4 Fitter v Veal (1701) 12 Mod Rep 542. See White, Irish Law of Damages for Personal Injuries and Death, (Dublin, 1989), at pp3–6.

 

 

workplace injuries⁵ and the various statutorily based compensation schemes for work or road accidents that exist in other countries, where some element of the compensation award is paid periodically. The fact that awards for damages for personal injury are made only in the form of a lump sum means that an assessment as to all losses both past and future, must be made at the trial. The plaintiff cannot recommence proceedings if his or her condition deteriorates or something occurs which was unforeseen at the time of the trial and yet drastically alters the position of the plaintiff. This is because the plaintiff's cause of action is merged in the initial judgment and therefore extinguished by it.

2.4

The purpose of the award of damages is to compensate the plaintiff for loss and injury suffered as a result of the negligent conduct of the defendant. Aggravated or exemplary damages may also be awarded in specific cases.⁶ However, the primary purpose of any award is to compensate the injured plaintiff.

2.5

While the injured party may have incurred many clearly ascertainable financial losses such as medical expenses and loss of earnings, calculating monetary compensation for the loss of a limb or mental impairment is less easy and involves the court in trying to estimate what monetary compensation is fair in all the circumstances of the case. Needless to say, that will frequently be decided by reference to previous, similar cases.

2.6

It should be stressed that the calculation of damages depends on the

5 The Department of Social Welfare is responsible for administering the occupational injuries benefits scheme. This scheme allows certain insured workers to claim a range of benefits if they are injured at work or they contract a disease from work. The scheme has its statutory basis in Chapter 5 of the Social Welfare (Consolidation) Act, 1993. Since 1990 the scheme has been funded from the general Social Insurance Fund and employers pay a certain percentage of their PRSI bill to cover payments from this scheme. Prior to this there was a separate levy paid by employers into an Occupational Injuries Fund for the purpose of financing benefits under the scheme. This latter scheme was set up by the Social Welfare (Occupational Injuries) Act, 1966, which replaced the Workmen's Compensation Acts 1934-59. This previous system was based on the direct liability of the employer for whom insurance against suit for injuries at work was optional. In introducing the 1966 Act the Minister for Social Welfare, Kevin Boland, stated in the Dáil (Dáil Reports 23 Nov, 1965, Cols 114–116)“Compensation for employment injury will henceforth be a social service rather than an obligation on an individual employer ... the present system allows too much scope for contention between the workman and the employer or his insurance company and rests in the last resort on the threat or practice of litigation. This tends to retard the workman's recovery and to prejudice good relations between him and his employer .... A system under which compensation would be payable as a social service with the employer not involved in the claim is obviously more desirable.” Consequently the underlying ethos behind Occupational Injuries benefits since 1966 has been one akin to that underpinning the more developed no-fault statutory schemes in other countries. The 1966 Act did not, however, replace the tort action, although damages would be reduced by any collateral benefits received under the statutory scheme. As a result, due to the relatively low funding of the statutory scheme, many tort actions for injuries at work are still brought.   6 Generally where the plaintiff's sense of injury resulting from the tort is justifiably heightened by the manner in which or the motive for which the defendant acted. See McMahon and Binchy, Irish Law of Tort, 2nd Ed, (Dublin, 1990), pp771–778. McIntyre v. Lewis [1991] I.R., 121, Conway v. Irish Teachers Organisation [1991] 2 I.R. 305.

 

 

plaintiff's condition and is independent of the basis of his or her claim. The emphasis is on the plaintiff's condition without regard to whether the injuries resulted from a car crash or a defective product.

2.7

Initially it is proposed to outline briefly the various circumstances in which a personal injuries or fatal accident action can be brought. Then it is proposed to examine in greater detail the method by which the compensation award is calculated, with particular reference to that part of the award which is for future losses.

Action In Tort

2.8

The law of torts operates to compensate an injured party for the losses suffered as a result of the wrongful conduct of another. In general the success of a claim depends on proving that damage was suffered and that this was caused by the tortious conduct of the defendant.

2.9

The tort that is most frequently met in the Irish Courts is that of negligence.

2.10

There is no all-encompassing test for establishing negligence, but in general, a plaintiff is required to prove that the defendant was in breach of a duty of care imposed on him or her by the law. Fault will be attributed where there has been a failure to take reasonable care in circumstances where the injuries were reasonably foreseeable. Lord Atkin, in Donoghue v Stevenson,⁷ stated the test thus:

2.11

The courts have applied this broad test to widely differing factual circumstances, including road accidents, medical treatment, accidents in the workplace, schools and on private premises.⁸

2.12

As well as negligence, a plaintiff may obtain compensation in tort for breach of statutory duty. Perhaps the most important context in which this operates in practice is in relation to accidents in factories, mines, quarries and other places of employment. Liability in this type of case is sometimes not

7 [1932] AC 562, at 580.   8 See our Report on Occupiers Liability (LRC 46– 1994) and the Occupiers Liability Bill, 1994.

 

 

dependent on proof of carelessness by the defendant: a defendant entirely innocent of any fault may nonetheless be held strictly liable for the breach of the statutory provision if the court interprets it as encompassing a remedy in tort.⁹

2.13

Two other recent examples of strict liability without fault arise under the Control of Dogs Act 1986 and the Liability for Defective Products Act 1991.

2.14

As can be seen, there are a number of different tests for deciding liability in cases of personal injury and the principles governing liability are still evolving as the courts seek to come to grips with the sometimes arbitrary results a strict application of the common law fault rules produces.¹⁰

Assessment Of Compensation

2.15

Once liability is established, the amount of compensation then depends on the various criteria applied by the courts in awarding damages. Perhaps the most important factor in determining the amount of compensation is the purpose of the award.

2.16

The purpose of an award of damages is to try to restore the plaintiff to the position he or she would have been in before the accident. Since a monetary award cannot restore a plaintiff to his or her prior position where severe personal injuries have been sustained, the courts will try to award compensation that is “fair” in the circumstances of the case, usually by reference to the awards given in previous, similar cases.

2.17

Dr John White in his book, The Irish Law of Damages¹¹, says about awards in personal injuries cases:

9 See, for example O'Sullivan v. Dwyer [1971] I.R. 275, Duly v. Avonmore Creameries [1984] I.R. 131.   10 Critiques of the tort system in this respect can be found in a number of sources: Atiyah, Accidents Compensation and the Law, 4th Ed (1987); Calabresi, The Costs of Accidents, (1970); Stapleton, Disease and the Compensation Debate (Oxford, 1986); Harris and Others, Compensation and Support for Illness and Injury, (Oxford, 1984); Allen, Bourn and Holyoak (eds), Accident Compensation After Pearson (London, 1979); and speaking extra judicially Brian Walsh, foreword to McMahon & Binchy, Irish Law of Torts, 1st ed (Dublin, 1981), and Niall McCarthy, foreword to JPM White, Irish Law of Damages for Personal Injuries and Death, (Dublin, 1989).   11 Irish Law of Damages for Personal Injuries and Death, JPM White, (Dublin, 1989).

 

 

2.18

The fixing of damages in proceedings in respect of personal injuries and wrongful death actions is now done in the High Court by the judge. The Courts Act, 1988, abolished juries in these actions in the High Court.

2.19

In rare cases aggravated or exemplary damages may be awarded in personal injuries cases, as for example where the plaintiff is the victim of a battery committed by the defendant, in particularly flagrant circumstances.

2.20

Compensatory damages are assessed under certain headings. The two most commonly referred to are general damages and special damages. Special damages usually refer to expenses incurred as a result of the tort up to the date of the trial. General damages cover the estimated cost of future medical and related expenses, as well as pain and suffering, prior to and subsequent to the making of the award and loss of amenities.

2.21

White characterises the assessment of damages by the courts by reference to the pecuniary and non-pecuniary losses of the plaintiff:

2.22

In assessing prospective pecuniary losses, the court will attempt to award a lump sum amount that at the date of the trial represents the future loss of income or expenses incurred as a result of the tort. As Hamilton J stated in Cooke v Walsh¹⁴:

12 Ibid, at p3.   13 White, op cit, at p107.   14 [1983] ILRM 429.

 

 

2.23

However, it may be said that there are no clear guidelines consistently adopted by the courts and quite often the methodology adopted by the courts in arriving at an award will differ from case to case.¹⁵

2.24

For example, the courts have changed their view several times on the subject of whether or not the final award of damages should be the total of all the composite figures for the various types of damages or whether the final figure should reflect the case as a whole and not be rigidly restricted by the amounts for each separate heading of damages.

2.25

McMahon and Binchy in discussing this problem identify a number of changes in the courts approach in this regard.¹⁶ In the 1950s the courts seemed to favour the overall assessment approach. O'Dalaigh J in McMorrow v Knott¹⁷ stated:

2.26

However, in the 1960s the view seemed to change to one more in favour of a separation of the total award of damages into its constituent heads. Kingsmill Moore J in Sexton v O'Keefe¹⁸ stated:

15 McMahon & Binchy, op cit, pp783–811.   16 Ibid, at p784.   17 Unreported, Supreme Court, 21 December 1959, at p4.   18 [1966] IR 204, at 210.

 

 

2.27

The judge then added:

2.28

The preference for the awarding of damages on the basis of totalling the amounts under the various headings of damages seems to have made the task of analysing a jury's decision easier for the appeal court. However, in the early 1980s in the case of Reddy v Bates,²⁰ the Supreme Court by a two to one majority, endorsed the approach of calculating the award by looking at the overall circumstances of the case. Griffin J stated:

2.29

As McMahon & Binchy point out, this “appears to defy the mathematical principle that the whole is neither greater nor smaller than the sum of its parts”.²² However, it is interesting to note that the court felt that a valid consideration to be taken into account in determining the size of the award is the amount the award might yield if carefully and prudently invested. According to Griffin J in Reddy v Bates“the income which that capital sum would generate with reasonably careful and prudent investment is a factor which the jury, and this court on appeal, should take into consideration in arriving at a conclusion in this behalf”.²³

2.30

This is arguably a very uncertain factor to be introducing into the calculation of a compensation award. McCarthy J in Reddy v Bates disagreed with the majority that this should be a factor. He stated that:

19 Ibid.   20 [1984] ILRM 197.   21 Ibid, at 202.   22 McMahon & Binchy, at p785.   23 [1984] ILRM at p203.

 

 

2.31

White says, regarding this factor (that the award will yield an income if prudently invested), that “it is difficult to understand what justifications may ever be suggested in its support”.²⁵ While this approach may be, logically, an unsound way of calculating damages, since it may reduce damages for non-pecuniary losses by reference to the amount awarded for pecuniary losses, it nevertheless reflects a belief that, ultimately, the calculation of damages in a personal injury case is, to a degree, an impressionistic exercise. As McMahon & Binchy say, the “Supreme Court is opting for the supremacy of an intuitive resolution of the issue of compensation”.²⁶ This is not as drastic an outcome as it may seem in that monetary compensation for physical and mental injuries is, by its very nature, an inexact science.

2.32

Another important aspect of the calculation of the damages is the consideration whether or not other compensating benefits received by a plaintiff will be deducted in calculating the award of damages.

2.33

In general, at common law, benefits which accrue to a plaintiff due to his or her own efforts (e.g. private insurance) are not deductible. Similarly, ex gratia or charitable payments (other than from the defendant himself or herself) will not be deducted.²⁷

2.34

Much of the common law position was given statutory force by s2 of the Civil Liability (Amendment) Act, 1964:

 

2.35

Section 50 of the Civil Liability Act, 1961, makes similar provision as regards awards in wrongful death actions:

24 Ibid at p205.   25 White, at p273.   26 McMahon & Binchy, at p785.   27 Redpath v Belfast and County Down Railway, [1947] Nl 167.

 

 

2.36

These sections apply to any of the benefits referred to, irrespective of their source. So, in Green v Russell,²⁸ the court held that a benefit paid by the liable employer to the deceased employee's estate was not deductible under the similar provision in the Fatal Accidents (Damages) Act, 1908.

2.37

Payments made under social welfare legislation are generally regarded as not being deductible. However, following the introduction of s68 of the Social Welfare (Consolidation) Act, 1981, payments of injury benefit or disability benefit paid to a plaintiff, in consequence of the injuries for which he is suing in tort, will be deductible from the element of the damages which is for loss of earnings or profits, past and future. The deduction applies to benefit that “will probably” be payable for a period of 5 years from the time the cause of action accrued. So while these benefits are paid periodically, the deduction from the tort award will amount to a reduction in the lump sum.²⁹

2.38

Section 306A of the 1981 Act, inserted by s12 of the Social Welfare Act, 1984, extends the above exception to the general rule of non deductibility to disability benefit (including any amount payable therewith by way of pay-related benefit) and invalidity pension in cases where the action arises out of the use of a motor vehicle, in circumstances where liability for such injuries is required to be covered by insurance. The Social Welfare Consolidation Act, 1993 incorporates these changes.

2.39

As regards other collateral benefits that may become available to the plaintiff, White argues that both benefits in kind, such as free health service and redundancy payments, are generally non-deductible.³⁰

Income Tax

2.40

The role taxation plays in the calculation of personal injury awards is

28 [1959] 2 QB 226.   29 For further detail on this area see McMahon & Binchy, pp23–27.   30 See White paras. 4.10.12 to 4.10.29.

 

 

also very important from the point of view of structured settlements or periodic payments.

2.41

For tax purposes compensation awards in personal injuries cases are treated as capital, rather than income, receipts. However, s24(1)(c) of the Capital Gains Tax Act, 1975, expressly excludes damages for loss of earnings recovered in a personal injury award from capital gains tax. Consequently the actual lump sum award itself is not taxed in the hands of the recipient.

2.42

However, the fact that the plaintiff's lost earnings would have been subject to income tax is taken into account when the court calculates that component of the award, thereby reducing the overall size of the award. This rule of calculation for personal injuries awards is called the Gourley principle after the case in which it was first used.³¹ The Supreme Court, in Cooke v Walsh³² in 1983, confirmed the application of this principle to Irish personal injury awards, namely that an amount should be deducted from that element of the award for loss of earnings which would have been payable to the Revenue as income tax if the earnings had been earned in the normal way. The principle applies equally to the amount the income would have been reduced by social insurance contributions and any other state levies that would have been payable by the plaintiff had he or she earned the income in the ordinary course of events. This principle of deduction also applies to other forms of lost income other than earnings, such as lost income from a pension.³³

The Appropriate Rate

2.43

The next problem that arises in calculating the deduction to be made according to the Gourley principle is to decide what income tax rate should be used in calculating the size of the deduction. This can be problematic as the income tax rate in the future may be different, thus affecting the amount of lost future net earnings. If the income tax rate increases in the future, then the plaintiff will be overcompensated for loss of future earnings if the deduction made is based on the tax rate at the date of trial. On the other hand, if the income tax rate decreases in the future, then the plaintiff will not have been accurately compensated for his loss of future earnings. Initially the courts were reluctant to engage in speculation as to future tax rates, the approach being that the income tax rate at the date of trial was to be used in making the deduction in the plaintiff's award for loss of future earnings. In Gourley, Lord Goddard said he would direct a jury as follows:

31 British Transport Commission v Gourley [1955] 3 All ER 796.   32 [1984] ILRM 208.   33 In re Houghton Main Colliery Co. Ltd. [1956] 1 WLR 1219.

 

 

2.44

However, in more recent times the courts have shown a greater willingness to consider the realistic possibility that income tax may decrease in the future and that to base the Gourley deduction on present income tax levels would be unfair to the plaintiff. Kenny J in Glover v BLN Ltd (No. 2)³⁵ stated that:

2.45

The position is not clear, however, and it seems that each case will depend on the circumstances, such as how far into the future the plaintiff will suffer a loss of earnings, the rate of taxation at the date of trial and whether a tax cut is proposed.³⁶ On this latter point, White states that “where there are firm government proposals for alterations in the rates of taxation, account should be taken of these.”³⁷

2.46

While the position as regards estimating future income tax rates is still uncertain, the Supreme Court, in Griffiths v Von Raaj,³⁸ has stated more clearly the approach to be taken to estimating future tax rates on income from an investment of the plaintiff's lump sum in an investment fund.

Exception

2.47

As was pointed out above, the capital lump sum is not taxed in the hands of the plaintiff. However, if this lump sum is invested, then the income produced by it will be taxed according to normal income tax rates. There is one important exception to this position. Section 5 of the Finance Act, 1990, provides that where the plaintiff is “permanently and totally incapacitated by reason of mental

34 Gourley, at 806.   35 [1973] IR 432, pp441–442.   36 In the English case of Daniels v Jones [1961] 1 WLR 1103 (CA), at page 1116, Pearson LJ was prepared to consider impending budget proposals for a tax cut as a factor in calculating the Gourley deduction: “if one merely allows for a reasonable expectation in 1960 that there would before long be some alleviation of the very high surtax rates then prevailing, it is still an important factor and strikingly illustrated by the 1961 Budget proposals.”   37 White, at p177.   38 [1985] ILRM 582.

 

 

or physical infirmity from maintaining himself” and the income from an investment of a lump sum for personal injuries is “the sole or main income” of the plaintiff, then the income will be exempt from income tax. According to Byrne and Binchy³⁹:

2.48

In any case where the requirements of section 5 are not met, the taxation of the income produced by an investment fund is important because, while the lump sum award is not taxed in the hands of the recipient, if the lump sum is invested by the recipient to produce a regular income, that income will be subject to income tax.

2.49

In Griffiths v Von Raaj, the Supreme Court acknowledged that the income tax that is payable on the income produced by an investment of the damages award should be taken into account when calculating the damages award and that therefore the size of this element of the award should be increased to compensate for this.⁴⁰ This is in line with the Gourley principle as regards future earnings. In terms of the tax rate to be used, however, Griffin J for the majority felt that it was excessive to award compensation on the basis of present tax levels since there was a high probability that this would not be continued, and therefore he reduced the overall amount. Griffin J stated:

2.50

Griffin J therefore reduced the amount of the award saying that “[h]aving regard to the assumptions on which the multiplier used in this case is based, that multiplier is in my view too high, and the damages of £350,000 awarded under this heading are therefore excessive.”⁴²

39 Byrne & Binchy, Annual Review of Irish Law, 1990, p458.   40 For a discussion of this case see White, pp182–187.   41 [1985] ILRM at p586.   42 Ibid, at p587.

 

 

2.51

Griffin J therefore reduced the damages for care and attention from £350,000 to £290,000 and the damages for loss of earnings from £125,000 to £85,000.

2.52

McCarthy J, while agreeing that income tax on income from an investment fund should be taken into account, dissented from this approach on the grounds that such a reduction, based on the future possibility of changes in the tax position on income from such an investment fund, was arbitrary in the absence of specific evidence. He stated:

2.53

White argues that McCarthy J's approach is preferable on the grounds that the reduction made to an award because the taxation rate on income from an investment fund is likely to be reduced should apply with equal force to the reduction made to damages for loss of future earnings on the grounds that income tax may be reduced:

2.54

The approach of the courts to the liability to tax on income from an investment of the lump sum award is very important in the context of the

43 Ibid, at p591.   44 White, at p186.

 

 

structured settlement debate. This is so because the income paid out periodically under a structured settlement arrangement in other jurisdictions is usually not taxed in the hands of the plaintiff. This raises the question whether if such an arrangement were arrived at in Ireland, the courts would simply reduce the lump sum amount on the grounds that the plaintiff would no longer be paying income tax on the income from the invested sum? This issue is one that clearly has to be addressed and resolved in any reform proposals.

2.55

Along with future taxation, inflation is also a very important factor in this context. Inflation and the devaluation of money were recognised as being valid factors to take into account when calculating damages for future losses by the Supreme Court in Donnelly v Browne.⁴⁵ The effect of taking inflation into account when calculating an award for future losses was clearly displayed in the case of Cooke v Walsh.⁴⁶

2.56

In that case Hamilton J in the High Court, in a judgment which was approved of by the Supreme Court, said that the real interest rate to be used for discounting the lump sum for loss of future earnings to present day values was to be calculated by reference to the current rate of inflation and the rate of interest from “safe easily realisable investments”.⁴⁷ In this particular case an investment in 15% Exchequer Bonds was possible at the date of trial and the rate of inflation was 12.5%. Consequently the real interest rate used by the court to discount the lump sum award was 2.5%. Hamilton J stated:

2.57

Griffin J in the Supreme Court upheld Hamilton J's approach and adoption of a discount rate of 2.5% stating:

45 Unreported, 15th May, 1972 (153–1969) (SC).   46 [1984] ILRM 208.   47 Cooke v Walsh [1983] ILRM 429, at 436.   48 Ibid, at 436.

 

 

2.58

The court did not take into account any tax payable on interest from the investment as, since the plaintiff was an infant, the High Court would determine the mode of investment of the fund for the plaintiff as a ward of court and a method was devised whereby the capital sum could be invested without attracting any income tax liability. This was done by investing the capital sum in short-dated securities, disposing of these before any dividend (income) became payable and re-investing the sum again in a similar security. This continuous re-investing of the capital profits as they arise avoids any liability to income tax until the plaintiff takes control of the funds. Presumably, if the scheme had attracted any income or capital gains tax, the court would have taken this into account and increased the award along the lines of the principles adopted in the Griffiths v Van Raaj case.

2.59

In conclusion, the Irish courts are willing to take future inflation rates into account in calculating what award to make. This can be a speculative process, particularly in times of fluctuating economic conditions.⁵⁰ It also contrasts with the approach of the English courts, who do not take inflation into account but effectively set off the interest on the investment of the lump sum against future inflation. Once again, if a structured settlement option were introduced the degree to which it would be inflation-proofed might impact on the way the courts calculate the lump sum in the first place. As the English courts do not consider inflation in determining the lump sum award, this is not a problem that has had to be addressed in England.

Contract⁵¹

2.60

In the vast majority of cases persons who are injured in an accident have no contractual relationship with the person they believe caused the accident. If they do, however, and if the accident may have been caused by a breach of contract, then damages may be obtainable by suing in contract.⁵² This may arise, for example, when a chauffeur drives in breach of the terms of his contract and injures his employer.

2.61

If damages are to be awarded for personal injuries (including mental

49 [1984] ILRM 208, at 216.   50 Second guessing future economic trends proved a hazardous process for the American courts in the late 1960s in this regard.   51 See generally Chitty on Contracts, General Principles, 25th ed para 1704–06, and Halsbury's Laws of England, 4th ed vol 12, para 1174.   52 Summers v Salford Corporation [1943] AC 283.

 

 

distress) under a contract, the test applied by the courts is whether or not the occurrence of the injuries as a result of the breach was within the contemplation of the parties at the time the contract was made.⁵³

2.62

Damages for mental distress caused by a breach of contract were allowed in Jarvis v Swan Tours Ltd⁵⁴ where Denning MR stated:

2.63

In Harte v Sheehy⁵⁵ Costello J refused to extend this to distress caused by the failure to complete a contract for the sale of land.⁵⁶

2.64

In McAuliffe v Moloney,⁵⁷ where a child was injured while playing on a gate, the Supreme Court was prepared to consider awarding damages for breach of a repairing covenant against the landlord in respect of the personal injuries suffered.⁵⁸

2.65

In Siney v Dublin Corporation⁵⁹ the Supreme Court allowed the plaintiff to recover damages for “physical inconvenience and discomfort” suffered as a result of the defendant's breach of contract in providing housing under the Housing Act, 1966, which was “unfit for human habitation”.

2.66

In view of the potential development of a practice of awarding damages for personal injuries suffered as a result of a breach of contract, this category of claim has to be included in any reform proposal. This will not, perhaps have as significant an impact as at first might be believed. The Civil Liability Act, 1961, which introduced radical changes in regard to aspects of civil liability, defines “wrong” as including a breach of contract. The change does not appear to have occasioned much judicial controversy or any real difficulty in practice.

53 Hutchinson v Harris (1978) 10 Build LR 19, and Konfos v C Czarnikon Ltd [1967] 3 AER 686.   54 [1973] 1 QB 213.   55 Unreported, 14 March 1986 (HC).   56 See generally White, pp257–8.   57 [1971] IR 200.   58 On the facts they held that the repairing covenant in the lease did not apply to this gate.   59 [1980] IR 400.

 

 

Provisional and Interim Awards of Damages

2.67

There is no precedent in Irish law or practice for provisional awards of damages. While there is no provision in any Irish statute or rule of court for interim awards of damages, such awards are sometimes made in practice. For example, from time to time when a court has awarded damages to a plaintiff and the defendant appeals against the quantum of damages only, a court will order the defendant to pay out a substantial amount of the award for damages, which order may be appealed to the Supreme Court by the defendant before payment is made on foot of the award.

2.68

Provisional and interim awards will be examined in greater detail in Chapter 7 in the context of the law in the United Kingdom.

 

 

CHAPTER 3: FATAL ACCIDENT ACTIONS

Introduction

3.1

The issue of periodic payments can be a relevant one even in cases where the injured party dies either as a result of the accident or from some other cause, before any action arising out of the accident is completed. This is so because he or she may leave behind members of his or her family who may have been financially dependent on him or her.

3.2

Two types of action can arise after a wrongful death. The first is a wrongful death action; the second, a survival action.

3.3

The causes of action for personal injuries which survive death are of two distinct types. First, there are causes of action for personal injuries which are unrelated to the death. For example, the defendant negligently injures the deceased during the latter's lifetime but, before the deceased has prosecuted his or her cause of action for negligence to judgment, he or she dies from an independent cause. Here the cause of action survives for the benefit of the deceased's estate, but it has nothing to do with wrongful death. Secondly, there are causes of action for personal injuries in respect of the very torts which occasion death. Here again the cause of action survives but the survival action derives from the wrongful death.

The Wrongful Death Action

3.4

The House of Lords in 1808 in the case of Baker v Bolton¹ decided that the English common law did not contain such a rule. That position was remedied by legislation; a statutory wrongful death action in Ireland is currently governed by the Civil Liability Act, 1961.²

3.5

The first statutory remedy was provided in 1846 by the Fatal Accidents Act, 1846, commonly known as Lord Campbell's Act, which applied to both England and Ireland. This Act afforded a remedy to a limited class of family members by way of wrongful death action. This statute was repealed and replaced in this jurisdiction by the Fatal Injuries Act, 1956, which in turn has been

1 (1808) 1 Camp 493.   2 The question as to whether or not there is a separate common law right and the nature and extent of such right has yet to be decided. See White, at pp295–309.

 

 

repealed and replaced by the fatal injuries provisions of Part IV of the Civil Liability Act, 1961, which provides the modern statutory remedy of a wrongful death action.³

Parties Entitled To Avail Of The Remedy

3.6

The remedy under Part IV of the 1961 Act is, by section 48(1), given to the “dependants” of the deceased. By section 47(1), “dependant” is defined as meaning “any member of the family of the deceased who suffers injury or mental distress” while “member of the family” is defined as meaning the spouse, parent, grandparent, stepparent, child, grandchild, stepchild, brother, sister, half-brother or half-sister of the deceased. Section 47(2) provided that, in deducing any relationship for the purpose of establishing title to sue for wrongful death, a person adopted under the Adoption Act, 1952, should be considered the legitimate offspring of the adopter or adopters and, subject to that provision, that an illegitimate person should be considered the legitimate offspring of his mother and reputed father. It also provides that in deducing such title to sue, “a person in loco parentis to another shall be considered the parent of that other”.⁴

3.7

The Status of Children Act 1987, which introduced a general principle of equality as beteeen children, regardless of the marital status of their parents, encourages the removal of language referring to children whose parents are not married as “illegitimate”. It does not appear to have affected the substance of Section 47 of the 1961 Act.

The Basis Of Liability Under Part IV Of The 1961 Act

3.8

The basis of liability is covered by section 48 of the Act. Section 48(1) of the Act of 1961 gives the remedy for wrongful death. It provides:

3.9

Section 2(1) of the 1961 Act defines “act” to include “default or other

3 In England, the Fatal Accidents Act, 1846, has been repealed and replaced by the Fatal Accidents Act, 1976, as amended by section 3(1) of the Administration of Justice Act, 1982. See Chapter 4.   4 See Hollywood v. Cork Harbour Commissioner [1992] 2 IR 457 where O'Hanlon J. held that the crucial test was whether the deceased has assumed “the moral responsibility, not binding in law to provide for the material needs of another.”

 

 

omission” and “wrong” is defined to mean “a tort, breach of contract or breach of trust, whether the act is committed by the person to whom the wrong is attributed or by one for whose acts he is responsible, and whether or not the act is also a crime, and whether or not the wrong is intentional”.

3.10

The condition precedent to liability under Part IV of the Act of 1961 is that the fatal injuries must have been caused by the wrongful act, default or other omission of the defendant so that the deceased could notionally have successfully sued the defendant or his estate in respect thereof at the time when he sustained the injuries. This requirement of an actionable wrong to the deceased as the basis of liability clearly follows from the wording of the statute. As White⁵ points out, there is scope for controversy concerning whether, given an actionable wrong to the deceased at the time when the fatal injuries were sustained, the wrong must also have been actionable at the suit of the deceased at the time of his death. There appears to be no reported Irish decision where the point in issue has been considered.

Recovery By Dependants For Pecuniary Loss

3.11

Section 49(1)(a)(i) of the Civil Liability Act, 1961, as amended by section 4 of the Courts Act, 1988, provides that the damages recoverable for wrongful death under Part IV of the 1961 Act shall include:

3.12

Recovery may be had in respect of the loss of money or services⁶ even though the deceased may not have been under any legal obligation to support the claimants.⁷ Even if the deceased did not contribute to the support of the claimants at the date of death, or make any contributions to the claimants prior to his death, the claimants can still recover provided they can show a reasonable expectation of pecuniary benefit from the continued existence of the deceased.⁸

5 See White p318.   6 Recovery may be allowed for loss of services: e.g., Franklin v The South Eastern Ry. Co. (1858) 3 H & N 211; Condon v The Great Southern & Western Ry. Co. (1865) 16ICLR 415; Wolfev v The Great Northern Ry. Co. (1890) 26 LR lr 548; Hull v The Great Northern Ry. Co. (1890) 26 LR lr 289; and for loss of gifts of goods: see, e.g., Dalton v The South Eastern Ry. Co. (1858) 4 CB (NS) 296, where recovery was allowed in respect of loss of the value of 'presents of tea, coffee, sugar, meat, & c., which with occasional donations of money averaged about £20 a year'.   7 Franklin v The South Eastern Ry. Co. (1858) 3 H & N 211; Dalton v The South Eastern Ry. Co. (1858) 4 CB (NS) 296.   8 Horgan v Buckley (No. 1) [1938] 1R 115 (SC) and Taff Vale Ry. Co. v Jenkins [1913] AC 1 (HL (E)).

 

 

3.13

The dependants cannot claim for pecuniary gains which are deemed at law to have accrued to them in consequence of the death of the deceased unless the statute otherwise specifically provides. In other words, recovery is allowed in respect of the balance of pecuniary losses over gains resulting from the death.⁹

3.14

Consequently the burden of proof is upon the plaintiff to show that the dependants have sustained a net pecuniary loss.¹⁰

What Is The Basis Of Assessment Of Dependency?

3.15

The occurrence of future happenings, such as the continuation of a life or the prospect of promotion, cannot be determined on the balance of probabilities as facts. With regard to the occurrence of future events, all that can be done is for the court to assess the chance of such events occurring on the basis of the evidence available, i.e. on the basis of facts proved on the balance of probabilities.¹¹

3.16

This issue was analysed in the former leading case of Horgan v Buckley (No. 1),¹² a decision of the former Supreme Court. In this case Meredith J, discussing the nature of the chance valuation enquiry involved in those cases where the issue of the claimants' having sustained pecuniary loss depends on what he described as “double contingencies” (i.e. what the deceased would have earned in the future and would have contributed to the support of the claimants had he survived) stated:

9 The position was clearly stated by Kingsmill Moore J in Murphy v Cronin [1966] IR 699, at 708 who said:   “What has to be ascertained as accurately as possible is the net pecuniary loss incurred by the dependants in consequence of the death of the deceased. In arriving at the sum the loss of a “reasonable expectation of pecuniary benefit ... from the continuance of the life” must be taken into account as well as the pecuniary benefit which can be demonstrated to have been lost: Franklin v South Eastern Railway Co.; Dalton v South Eastern Railway, Pym v Great Northern Railway Company. But “the damages ... must take into account any pecuniary benefit accruing to that dependant in consequence of the death of the deceased. It is the net loss on balance which constitutes the measure of damages”–Davis v Powell Duffryn Associated Collieries Ltd. A reasonable possibility of benefit accruing from the death must also be taken into account in reduction of damage. Byrne v Houlihan.”   10 Hull v The Great Northern Ry. Co. of Ireland (1890) 26 LR lr 289; Appelbe v West Cork Board of Health [1929] lR 107 (SC); Gallagher v Electricity Supply Board [1933] lR 558 (SC). See also Gallagher v Electricity Supply Board [1933] lR 558 (SC). See White at p327.   11 See White p328.   12 [1938] lR 115 (SC).

 

 

3.17

In Horgan's case, in finding that there was evidence from which a jury could properly find that the claimants had a reasonable expectation of pecuniary benefit from the deceased, had he lived, Sullivan CJ observed that the man had at an earlier time shown himself to be industrious, that the uncontradicted evidence was that he had been looking for a farm and that the inference could be drawn that he was preserving the deposit for the purpose of buying a farm which would have enabled him to support his wife and children.

3.18

Cases involving claims by parents in respect of the deaths of young children will frequently raise the further contingency, namely, whether the parents would at some time in the future be in need of support as a result of a deterioration in their financial position so that the issue becomes one of the valuation of the chances that the deceased would have earned and would have contributed in the event of the parents being in need. Indeed, in modern times this is the most likely basis of the parents' dependency – the loss of the element of security which is provided by having an adult son or daughter upon whom they

13 [1913] AC 1 (HL (E)).   14 [1938] IR 115, at 132–134, emphasis added.

 

 

can rely for assistance in the event of their needing it in their old age. The loss of this element of security is a proper subject of recovery notwithstanding that it depends on multiple contingencies for, as Meredith J observed in Horgan's case, “the product of the chances in the latter case may show a higher degree of probability than in the case of a single more remote contingency”.¹⁵

The Calculation Of Future Losses

3.19

For the purposes of periodic payments the important element of the damages award is that part which represents future losses. In a wrongful death action, future (i.e. post-trial) losses are determined by ascertaining the weekly or annual value of the dependency of the claimants and the post-trial period during which the dependency would have continued to exist, from which may be deduced the gross financial loss of the dependants in respect of this period.

3.20

As with future losses in a personal injuries action, the calculation of the actuarial multiplier to be used to calculate what sum to pay the dependants at the date of trial is all important. The calculation of this multiplier depends principally on four factors, namely, the anticipated period of post-trial loss, the appropriate discount rate in respect of interest which will be earned by the capital investment fund of damages during that period, the adjustment to that discount rate to offset the impact of future taxation on such interest and the impact of future cost inflation.

Period of loss

3.21

The period of loss is determined by ascertaining the number of years during which it is likely that the deceased would have contributed to the dependants' support. The life expectation not only of the deceased but also of the dependants is relevant to this enquiry. The expectation of life of the dependants is determined as of the date of death for there is no guarantee that, but for the wrongfully occasioned death, the deceased would have survived to the date of trial. From the ascertained total period of anticipated loss is deducted the period between the date of death and date of trial, which will have been included in the calculation of pre-trial losses. The balance of years of lost support, if any, forms the basis of the actuarial multiplier. Where the loss has been determined to be likely to continue to a given age of the deceased and a dependant, allowance will be made for the contingency of an earlier than average death by the actuary in the multiplier which he or she proposes. Likewise, where the loss has been determined to be likely to continue for the life of the deceased

15 [1938] IR 115, at 134.

 

 

(had he or she not been tortiously killed) or the life of a dependant, the actuarial multiplier proposed by the actuary will allow for the chance of departure, either way, from the average represented by the period of the expectation of the relevant life or lives derived from mortality tables. In other words, the probability of survival of the deceased and the dependants to a given age is built into the actuarial multiplier.

The discount rate

3.22

The question of the appropriate discount rate to be applied to effect a reduction to present value is no longer determined solely by the relevant market interest rates available for investments. It also depends upon the anticipated impact of income taxation on the interest from such fund and the impact of future cost inflation upon the value of interest from the investment fund. What is relevant is the net rate of return which is capable of being obtained when the capital fund is invested in the relevant mode, i.e. from safe, easily realisable investments at the date of the judgment.¹⁶ We have seen earlier that the Irish Courts have taken the view that where future income taxation is required to be taken into account, the proper course is first to reduce the available market interest rate obtainable on investment of the damages in the relevant mode to take account of such future taxation and then to reduce the resultant rate of interest by the relevant inflation rate to give the net real rate of return, which gives the final discount rate to be adopted in the calculation.

Allowance for taxation of interest from investment fund

3.23

Allowance for the impact of taxation upon the deceased's earnings will reduce his or her assessed disposable income and consequently the dependants' damages awards for pecuniary loss. This allowance must necessarily be made, for what is relevant is the deceased's contribution to the dependants from his income. If, however, no further allowance is made for the impact of taxation on income from an investment fund, then the result will be that the dependants will not enjoy the full value of the assessed damages for loss of dependency. This is because the interest from such damages when invested will be subject to income tax. The damages must therefore be increased to allow for the impact of such taxation on interest from the capital fund.

3.24

On this point, Lord Reid in the House of Lords in Taylor v O'Connor¹⁷ stated that:

16 See per Hamilton J in Cooke v Walsh [1983] ILRM 429, at 436 (HC).   17 [1971] AC 115 at p129.

 

 

3.25

In Griffiths v Van Raaj¹⁸ the Supreme Court recognised the propriety of making allowance for the impact of taxation on interest from the investment fund in the assessment of damages for pecuniary loss in personal injury actions – although the extent of the allowance sanctioned by the Court in that case may be criticised as inadequate – and there is no doubt but that the same principle applies in the context of the assessment of pecuniary loss in wrongful death actions. Expert evidence must be adduced to deal with the projected impact of taxation on interest from the capital fund. Allowance for this factor is properly made in the calculation by an adjustment of the discount rate employed for reduction to present value with consequent adjustment of the actuarial multiplier.

Allowance for impact of inflation

3.26

The Irish courts, unlike their English counterparts,¹⁹ make a direct allowance in the calculation of damages for future pecuniary loss for the future impact of cost inflation.²⁰ The matter has been considered in the context of the assessment of future pecuniary loss in personal injury actions, but the same principle applies to the assessment of such loss in wrongful death actions. The established approach in personal injury actions, which is of equal application in wrongful death actions, is to seek to protect the damages award when invested from the impact of such future inflation. This is done by adjusting the discount rate employed in reducing the lump sum award to present value. The market interest rates available at the date of judgment for safe, easily reliable investments, after having first been reduced to allow for the impact of income taxation on interest from the investment fund, are further reduced to allow for the future rate of inflation. The resulting interest rate, representing the net real rate of return is employed in discounting the award for future pecuniary loss to present value. If legislation introducing periodic payments or structured settlements were introduced and this contained provisions for these payments to be treated in a special way for tax purposes, then this might affect the way the courts calculate the damages in the first place.

18 [1985] ILRM 582 (SC).   19 See Cookson v Knowles [1979] AC 556 (HL(E)); and Taylor v O'Connor [1971] AC 115 (HL (E)).   20 Described as the projected general rise in the level of prices for goods and services in Cooke v Walsh [1984] ILRM 208 (SC).

 

 

The Survival Action

3.27

At common law the rule was that a cause of action in tort which was vested in a deceased person before his death abated with his death. The rule applied to prevent the estate of a deceased tort victim from pursuing to judgment both a cause of action vested in the deceased before his death in respect of a tort which resulted in his death and also a cause of action vested in the deceased before his death in respect of a tort which arose independently of the circumstances which occasioned his death. Where the tort resulted in the deceased's death, his dependants were, until the enactment of the Fatal Accidents Act, 1846, likewise without a remedy because of the complementary rule of the English common law,²¹ which has also been assumed to form part of Irish Law,²² that the death of a human being was not something which could be complained of in a civil court.

3.28

Part II of the Civil Liability Act, 1961, abolished the general rule in this jurisdiction (as did the Law Reform (Miscellaneous Provisions) Act, 1934, in England) and provided, subject to certain exceptions, for the survival of causes of action for the benefit of, or against, a deceased's estate. The effect of this is that a cause of action for personal injuries, which is vested in the deceased before death, survives the death of the deceased for the benefit of the estate, and may be prosecuted by the personal representative on behalf of the estate in what is called a survival action. However, claims for damages for non-pecuniary loss which are competent in a personal injury action when maintained by the injured person are not competent where the action is maintained for the benefit of the estate after the death of the deceased. Where, therefore, a wrongful death action on behalf of the deceased's dependants under Part IV of the 1961 Act is competent, a survival action in respect of the tort which occasioned the death may also be maintained on behalf of the deceased's estate, if the deceased suffered damage of a kind which is compensatable in such a survival action, or if the estate incurred funeral expenses in respect of the death of the deceased. If such losses have been sustained, then a survival action will be competent and may be maintained in addition to any wrongful death action which may be competent under Part IV of the 1961 Act. Sometimes, however, because of the scope of the statutory wrongful death action²³ and its interrelationship with the survival action, no advantage will be gained from also bringing such a survival action.

21 Baker v Bolton (1808) 1 Camp 493, discussed earlier in this Chapter.   22 We have already noted White's discussion of the arguments either way on this question.   23 For example, expenses incurred by the deceased by reason of the tort (such as medical expenses) and funeral expenses which are recoverable in a survival action are alternatively recoverable in a wrongful death action under Part IV of the Act of 1961 where such recovery will enure for the benefit of the dependants: see section 49(2) of the Act of 1961. These elements of loss may, therefore, be recovered in the wrongful death action without the necessity of bringing a survival action.

 

 

3.29

There can be circumstances where both actions should be brought, such as where the deceased has suffered a loss of earnings occasioned by the tort in the period between the accident and his or her death. The family cannot recover for such a loss of earnings in an action under Part IV of the Act of 1961, which compensates only for loss of dependency consequent on death. Therefore, if the family are to recover in respect of this loss, they can only do so by participation in the deceased's estate as increased by recovery in a survival action in respect of such lost earnings.

3.30

Section 7(1) of the 1961 Act abolishes the general common law rule that a cause of action for tort vested in a person before the death does not survive that person's death. Section 7(1) provides that:

3.31

The effect of this provision is that a cause of action for personal injuries which is vested in a person before death is, on death, transmitted to the estate and may be prosecuted by the personal representative on behalf of the estate.²⁴

The Nature Of Damages Recoverable

3.32

The cause of action transmitted to the estate is the same as that which the victim would have had, had he or she survived. Recovery is not allowed in a survival action, however, in respect of all of the elements of damages which are recoverable in a personal injury action. Section 7(2) of the 1961 Act precludes recovery by the estate in a survival action of damages in respect of non-pecuniary loss, i.e., for pain and suffering, loss of amenities of life and loss of expectation of life. Nor can exemplary damages be recovered.

3.33

Recovery is, therefore, limited in a survival action to: (i) funeral expenses which are expressly made recoverable by section 7(3) where the tort which is the subject of the action has occasioned the death (and would not otherwise be recoverable since the deceased could not have maintained a claim in respect of the same during his or her lifetime except on the basis of the loss represented by the acceleration of the incidence of such expenses by reason of anticipated premature death); and (ii) the deceased's pecuniary loss resulting from the tort which includes: (a) expenses incurred by the deceased before

24 The excepted causes of action defined in section 6 of the Act of 1961 (as amended by the Family Law Act, 1981) include one for a claim for compensation under the Workmen's Compensation Act, 1934 (now the Occupational Injuries Act, 1966).

 

 

death as a result of the tort; (b) the deceased's loss of earnings and other pecuniary benefits between the date of the accident and the date of death; and, it is submitted, (c) the deceased's loss of earnings and other pecuniary benefits which would have accrued to him or her during the last years, i.e., the years after the date of death during which he or she would have been alive and earning and in receipt of such other pecuniary benefits were it not for the tort. The issue of recovery under this latter head requires further consideration and is dealt with below.

3.34

Any losses or gains to the estate which occur due to the death are irrelevant to the damages recoverable under the survival action. This is because of section 7(3) which provides that, in a survival action brought on behalf of the estate of a deceased person in respect of a wrong which has occasioned the death of the deceased, losses and gains to the estate consequent on the death cannot be taken into account in the damages calculation.

3.35

Damages for loss of earnings and other pecuniary benefits in the lost years are calculated in the same fashion as those in a wrongful death action.

The Relationship Between Survival Actions And Wrongful Death Actions

3.36

The action on behalf of the estate under section 7(1) of the Civil Liability Act, 1961, is completely unaffected by recovery of damages in a wrongful death action brought by the dependants under Part IV of the 1961 Act. Section 7(4) of the Act expressly provides that:

3.37

However, wrongful death damages may be affected by a survival award. This is so because where there is a claim made in a wrongful death action under Part IV of the 1961 Act by the dependants and a claim made in a survival action by the estate, a defendant has an interest in the allocation among the various dependants of the total sum assessed in respect of the dependants' dependencies in the wrongful death action. The amount adjudged due to a particular dependant may be reduced or extinguished by that dependant's succession to the whole or part of the victim's estate with consequent reduction in the sum payable by the defendant in the wrongful death action, and if the apportionment of damages in the wrongful death action among the dependants differs from the distribution of the estate among the dependants under the rules of testate or intestate succession, there will be an increased liability imposed upon the

defendant.

3.38

White argues that there are four important limitations on the rule of deduction from wrongful death damages.²⁵

3.39

First, no deduction ought to be made in respect of that part of the damages awarded in a survival action and subsequently received by the dependants, which is referable to the victim's loss of earnings between the date of the accident and the date of death, and which would have been expended by the victim on the maintenance of the dependants had the victim not been tortiously injured.

3.40

Secondly, no deduction ought to be made in respect of that part of the damages recovered by the estate and subsequently received by a dependant which is referable to funeral or medical or other expenses of the deceased which that dependant has paid or is liable to pay.

3.41

Thirdly, White argues, any sum recovered by the dependants in respect of mental distress resulting from the death in an action under Part IV of the 1961 Act cannot be affected by any amount received by the dependants as a result of the estate's action. Like can only be set off against like. The justification for reducing or eliminating the dependants' wrongful death award in respect of their financial loss is that the dependants have suffered less or no financial loss as a result of the death because of their succession to the deceased's estate as increased by the amount recovered in the survival action. The dependants' mental distress consequent on the death cannot, however, be in any way affected by the reduction of their financial loss as a result of their succession to the deceased's estate and, therefore, the damages for mental distress should not be affected by any amount received by the defendants from the estate of the deceased either as a result of the survival action or otherwise.

3.42

Finally, White argues that where a deduction falls to be made from the wrongful death damages for loss of financial dependency, such deduction is only properly made in respect of the net pecuniary benefit to the dependants from the award made in the survival claim.

3.43

One final point worth noting is that a judgment in either a survival action or wrongful death action is not a bar to bringing a subsequent action in the other. This can occasionally cause problems as White points out:

25 See White pp452–3.

 

 

26 Ibid, at p454.

 

 

CHAPTER 4: EXISTING PROPOSALS FOR REFORM

4.1

A number of different reform options have been floated from time to time in Ireland. In this section it is proposed to look at some of them.

The O'Connor Report, 1972

4.2

In 1972, a Committee under the chairmanship of John O'Connor produced a Report on Motor Insurance¹ having investigated the insurance industry in Ireland.

4.3

The report examined the motor insurance industry in Ireland in some detail. The legal environment in which the motor insurance industry operates was also examined. In this context the Committee looked at the many different proposals and reforms that had been made to the legal environment for motor insurance and road accident compensation in other countries.² Eleven proposals were examined in detail and a further nine proposals given a brief examination.

4.4

The Committee noted that all twenty proposals had a recurring theme which was that problems with motor insurance systems stemmed from “the dependence of the motor insurance system on the law of tort for providing compensation in respect of the damages caused by traffic accidents, in particular the proof of negligence or fault on the part of the wrong-doer”.³

4.5

The Committee, therefore, decided to examine the merits and demerits of the fault principle. They took the view that:

4.6

While the Committee felt that there were serious anomalies in the fault system, they were agreed that they did not want to see it eliminated completely in the context of traffic accident compensation.

1 Committee of Inquiry into the Insurance Industry, Interim Report on Motor Insurance, (Dublin, 1972).   2 These are described in Chapter 4.   3 Interim Report on Motor Insurance, supra n.1 at p59.   4 Ibid, at p63.

 

 

4.7

They made a number of recommendations which were designed to reduce the role of negligence in the determination of compensation for personal injuries and damage in road accident cases.⁵ There was unanimous agreement among the members of the Committee on the recommendations. A minority of the members, however, felt that these recommendations did not go far enough, and they made further recommendations in an addendum to the Report.⁶ The unanimously accepted recommendations include:

4.8

Apart from recommendation (iv) above, the Committee did not make any specific recommendation on the way compensation should be paid. However, making comment on lump sums earlier in the Report they state:

5 These are set out in Chapter 8.   6 Interim Report on Motor Insurance, supra n.1 at p92.   7 Among the defences which the Committee considered should be removed were: unknown and/or unascertainable physical defect in the driver, unknown and/or unascertainable defect in the vehicle, that the injured party volunteered to join the driver/owner in the adventure and an Act of God.

 

 

4.9

The report does not, however, go into any further detail about how a system of regular payments might be set up.

4.10

The minority recommended that, in addition to the unanimously accepted recommendations of the Committee, a form of no-fault compensation system be set up. The benefits under this scheme would be paid periodically. The minority state:

4.11

This proposal was intended to be supplementary to, rather than in replacement of, the recommendations in the main report. It is also clear that a plaintiff could still sue in tort for damages, but these would be reduced by the amount of scheduled benefits the plaintiff would receive under the new scheme.

The MacLiam Report, 1982

4.12

The MacLiam Report was the product of an enquiry into the costs and methods of providing motor insurance and was concluded in 1982.¹⁰ In this report the Committee's main concern was with the costs of the motor insurance industry and the concern over rapidly rising motor insurance premiums.

4.13

The costs of claims for compensation were examined and the Committee

8 Ibid, at p69.   9 Ibid, at p92.   10 Report of Enquiry into the Cost and Methods of Providing Motor Insurance, (Dublin, 1982).

 

 

looked into the option of having awards paid periodically. In this context the Committee discussed several problems that the payment of compensation in a lump sum award can create. The Medical Director of the National Medical Rehabilitation Centre gave evidence that the making of large lump sum awards in cases of very serious personal injury could often be very unsuitable. The report describes his evidence:

4.14

The Committee acknowledged that a system which allowed the compensation award to be paid periodically would help solve this problem. However they felt that in the context of their own report there was no evidence to suggest that such a scheme would alter the cost of motor insurance. They state that a problem with such a scheme would be that the nature of the motor insurance business “is incompatible with the acceptance of such long-term obligations”.¹¹ However they also state:

4.15

The Committee recommended that the relevant government departments discuss the possibility of setting up such an arrangement with the insurance industry. The Committee then concluded that while such a system would allow compensation to be more finely tuned to suit the purpose for which it was intended “there is no reason at present to suppose that it would prove particularly more or less costly to insurers than the present system”.¹³

11 Ibid, at p47.   12 Ibid, at p47.   13 Ibid.

 

 

The Barrington Report, 1983

4.16

The Barrington Report was the product of a Commission of Inquiry's research into the area of “Safety, Health and Welfare at Work”. The Report examines the area of compensation for accidents at work in the context of the contribution the compensation schemes make to accident prevention.¹⁴

4.17

In this context the Commission of Inquiry stated seven reasons why they believed the tort system of compensation, despite being based on fault, was counter productive to the work of accident and disease prevention:¹⁵

14 Report of the Commission of Inquiry on Safety, Health and Welfare at Work, (Dublin, 1983) at Ch 21.   15 Ibid, at pp164–165.

 

 

4.18

The Commission then acknowledged that there were some advantages to the tort system of compensation. A tort action can draw attention to defects in safety in the place of work. There was also an argument that the concept of individual responsibility operated more strongly within the tort system than it would in a no-fault system.

4.19

The Commission then briefly considered the option of a no-fault system in the context of accident prevention. They acknowledged that there were certain advantages to a no-fault system. For example, since fault is not an issue, the job of investigation is not impeded and accident prevention is thus enhanced.

4.20

Compensation in a no-fault system also tended to be less of a lottery with the injured worker being virtually guaranteed compensation. On the other hand they recognised that there might be certain disadvantages in a no-fault system. A no-fault system could be counter-productive as far as accident prevention is concerned in that, since compensation is automatic, there might be less of an incentive for employers to take care in providing a safe place of work.

4.21

In the end, however, the Commission felt that the issue demanded a lot more analysis that went beyond the scope of their reference. They concluded that, while a no-fault system had advantages and disadvantages for accident prevention, “we find it difficult to come to a reasoned conclusion on whether such a fundamental change in the present system would be justified on that basis alone.”¹⁶

4.22

They stated further that “whether a no-fault system is better than that of tort, turns on considerations of costs, benefits, equity and effectiveness of alternative systems, considerations which were beyond our mandate and resources.”¹⁷ The Commission then concluded: “Our uneasiness about the present system prompts us to recommend that such a major inquiry should be carried out as early as possible.”¹⁸ The Commission however did not examine the merits or demerits of the way the tort system pays its compensation awards in lump sum amounts.

16 Ibid, at p166.   17 Ibid, at p168.   18 Ibid, at p169.

 

 

SECTION II: THE UNITED KINGDOM

CHAPTER 5: PERSONAL INJURIES ACTIONS

5.1

The basic principles of tort which are the basis for compensation for personal injuries in the United Kingdom are similar to those applied in Ireland. However, there are a number of interesting and significant differences in the way damages are calculated and paid that merit examination.

The Calculation Of The Award

5.2

The rules for calculating the compensation award in a personal injuries action in England are somewhat different to those in Ireland. In terms of the way damages are calculated in England the major differences are:

5.3

As in Ireland the lump sum must be calculated to represent the present value of any future loss.⁵ By and large this is done by the use of two figures, a multiplier and a multiplicand. The multiplicand is an annual sum that represents the plaintiff's loss of earnings or expenses at the date of trial. This figure is then multiplied by the multiplier, a figure based not on actuarial evidence,⁶ as in Ireland, but one calculated by reference to previous cases and which reflects what the court believes is a balanced assessment of the plaintiff's loss. All contingencies have to be taken into account. In the case of future loss of earnings, these include mortality, sickness, unemployment, promotion and all other factors that would have affected the plaintiff's earnings if he had not been injured; in the case of future expenses, these include mortality and the prospect that in the future more expensive arrangements may have to be made for the plaintiff's care.

5.4

In this regard there are four important differences in the approach adopted by the English courts as compared to those in Ireland:

5.5

As the issue of future inflation is an important one in the debate over periodic payments, it is proposed briefly to look at the rationale behind the difference in the English approach in this regard.

5.6

The English courts have adopted the approach to inflation advocated by Lord Diplock in Mallet v McMonagle⁹:

5.7

It also appears that, in cases where tax on income from an investment of the award will reduce the income from the assumed 4% or 5% rate, the courts will take this into account in the discounting process.¹⁰ In practice, therefore, depending on the factors affecting the particular plaintiff's tax liability, the effective discounting rate can be between 2% and 3%. Lord Scarman describes the approach in Lim Poh Choo v Camden and Islington Health Authority:¹¹

9 [1970] AC 166, at p176.   10 Authority for this proposition can be found in the speeches delivered by members of the House of Lords in Taylor v O'Connor [1971] AC 115 per Lord Reid at p129, per Lord Morris of Borth-y-Gest at pp133–134, per Viscount Dilhorne at p139, and per Lord Pearson at p143).   11 [1980] AC 174.

 

 

5.8

As with the calculation of lump sum awards in Ireland, this system of calculation may lead to inappropriate compensation. This is because before applying the rules for calculating compensation for future loss, a judge has to make findings on the evidence before him or her of certain facts such as the plaintiff's life expectancy, the timing and extent of any deterioration in the disability, the likelihood and timing of future surgery, and the necessity for professional care or residential care. Inevitably, there will often be conflicts in the evidence presented to the court over these issues increasing the likelihood of a wrong choice, which will result inevitably in either under or over-compensation.

The Payment Of The Award

5.9

Prior to 1981 and the introduction of provisional damages and interim awards, the way damages were paid in the United Kingdom was broadly similar to that in Ireland. Damages could only be awarded in the form of a once-off lump sum, although, as we have seen, the criteria for calculating that lump sum were different in certain respects.

5.10

The reason why only a lump sum could be awarded is because, at common law, judgments awarding damages for personal injuries extinguished the plaintiff's cause of action. Thus, if the plaintiff, after judgment, suffered a serious deterioration in health, or developed a serious disease caused by the defendant's fault, he or she was bound by the judgment. There could be no second action for further damages, no matter how serious the later complications, nor how modest the original injury.¹³

5.11

These common law principles still apply unless a claim for provisional damages is made.¹⁴

5.12

The once-off lump sum approach contains a risk of injustice. For example, where a plaintiff, who was said at trial to be at risk of future epilepsy,

12 Ibid, at p193.   13 Fitter v Veal (1701) 12 Mod 542.   14 Provisional damages are discussed in Chapter 7.

 

 

was compensated in proportion to the degree of risk and eventually suffered the onset of grand mal epilepsy, he could not claim further damages.

5.13

The financial consequences could be very significant. A standard authority on the range of damages in epilepsy cases in England is Jones v Griffith.¹⁵ The Court of Appeal, in 1968, suggested a range of £10,000–£11,000 for damages for pain, suffering and loss of amenity for grand mal epilepsy. The updated value of that award is £55,000–£60,000.

5.14

Herbert v GLC¹⁶ provides an example of a specific award to reflect the risk of epilepsy. A 10–20% risk for a 63 year old plaintiff led to an award of £4,000 which was upheld in the Court of Appeal. If the plaintiff did not go on to develop epilepsy, he was enriched by £4,000; if he did, he was undercompensated by something in the region of £50,000.

5.15

Brennan in his book on provisional damages¹⁷ gives an example of how the previous law operated in practice in an epilepsy case:

15 [1969] 1 WLR795.   16 (1981) Kemp Vol 2, 3–221.   17 Provisional Damages, A Guide to the New Procedures, (London, 1986).   18 Brennan, at p18 (footnotes omitted).

 

 

5.16

Brennan then comments:

19 Brennan, at p18 (footnotes omitted).

 

 

CHAPTER 6: FATAL ACCIDENT ACTIONS

Introduction

6.1

In the United Kingdom, as in Ireland, there are two separate actions that may be brought if the victim of an accident dies. The first is the survival action under the Law Reform (Miscellaneous Provisions) Act, 1934 and the second is a wrongful death action under the Fatal Accidents Act, 1976.

The Survival Action

6.2

In the case of causes of action accruing after 1 January 1983 the damages recoverable in fatal cases are limited to financial loss suffered before death, to damages for pain and suffering sustained by the deceased before death and to funeral expenses. In the many cases where death is instantaneous or almost instantaneous there will of course be no award for pain and suffering.¹

The Wrongful Death Action

6.3

The second, and more important, cause of action that English law now allows on death is the independent cause of action given to the near relatives of the deceased who have been deprived of support or services. This is the remedy provided by the Fatal Accidents Act, 1976.

6.4

At common law the relatives had no cause of action when they suffered loss in consequence of a tortiously inflicted death. Such a cause of action was first introduced by the 1846 Act. The present provisions are contained in the Fatal Accidents Act, 1976.

6.5

Section 1(1) provides that if death is caused by any wrongful act, neglect or default such as would, if death had not ensued, have entitled the person injured to maintain an action and recover damages, the person who would have been liable if death had not ensued is liable to an action for damages, notwithstanding the death of the person injured.

1 The Law Reform (Miscellaneous Provisions) Act, 1934 had provided for the survival of all causes of action subsisting in the deceased, including a right to damages for loss of expectation of life. This was abolished by s1 of the Administration of Justice Act, 1982.

 

 

6.6

It is to be noted that the right of action created by the Fatal Accidents Act, 1976, is for damages suffered, not by the deceased, but by the deceased's family after his or her death. It is, of course, a pre-condition under the Act that the deceased would have been entitled to maintain an action on his or her own behalf and recover damages if he or she had survived. Furthermore, damages recoverable by dependants are reduced if the deceased contributed to the accident by his or her own negligence (section 5).

(i) Who can claim?

6.7

This is dealt with by section 1 of the Act. Section 1(2) provides that every such action shall be for the benefit of the dependants of the deceased. Section 1(3) defines “dependant” as (a) the wife or husband of the deceased; (b) any person who is a parent or grandparent of the deceased; (c) any person who is a child or grandchild of the deceased; (d) any person who is, or is the issue of, a brother, sister, uncle or aunt of the deceased.

6.8

In practice, most claims under the Fatal Accidents Act, 1976, are brought by a widow or widower on behalf of herself or himself and their children, or sometimes by the parents of an unmarried son or daughter who is contributing to their support. It goes without saying that even if a person falls within the definition of “dependant” provided in the Act, he or she will still have to prove loss arising from the death of the deceased, and in practice many relatives have no claim at all.

(ii) How are damages assessed?

6.9

Section 3(1) of the Fatal Accidents Act, 1976, deals with the assessment of damages and consolidates the Fatal Accidents Acts. It provides that such damages can be awarded as are proportioned to the injury resulting from the death to the dependants respectively. This is in similar, but not identical, terms to section 2 of the 1846 Act.

6.10

The effect of section 3 is that there is no statutory limitation on the damages to be awarded. The law developed in practice over the years, and it became settled that damages were awarded for financial loss only. Save as provided by section 3 of the Administration of Justice Act, 1982, in the case of causes of action accruing after 1 January 1983, no sum can be awarded to relatives under the Act for their own mental distress or for the loss of society of the deceased.

 

 

6.11

The purpose of the award of damages in a wrongful death action and the mode of assessing damages in these cases were set out by Lord Diplock in Mallet v McMonagle²:

6.12

The purpose of the award is not to give the dependants such sums as would give them an annual income equal to the dependency. This would clearly be unfair on the defendant because at the end of the period of the dependency the whole of the capital sum would remain. Lord Pearson expressed the way in which the courts approach this aspect very clearly in Taylor v O'Connor⁴ when he said:

2 [1970] AC 166.   3 At pp174–175.   4 [1971] AC 115.

 

 

6.13

On the question of what multiplier to use in calculating the damages, Thomas Gaunt states:

6.14

The most important factor to take into account when considering which multiplier to apply is, of course, the age and probable working life of the deceased and the expectation of life of the dependants. If the deceased has good prospects, the multiplier will be higher.

6.15

There must also be a discount for the uncertainties of life: the fact that the deceased might have been run over by a bus on the following day or that he or she was involved in a particularly hazardous occupation. Discount must also be made for the fact that the dependants will receive an accelerated benefit in the form of a lump sum down rather than smaller benefits over a number of years. Because of these uncertainties the appropriate time for selecting the multiplier is at the time of death, and the number of pre-trial years for which special damages are awarded should then be deducted from the multiplier.⁷

5 At p143.   6 Kemp & Kemp, Damages for Personal Injury and Death, 2nd ed, at p46.   7 See House of Lords decision in Graham v Dodds [1983] 1 WLR 808.

 

 

CHAPTER 7: STRUCTURED SETTLEMENTS AND OTHER REFORMS

7.1

The various problems with the once-off lump sum system were addressed in two studies carried out in the 1970s in England, by the Law Commission in 1973 and Pearson Commission in 1978.¹ The problem has again been addressed by the Law Commission in their recent Report on Structured Settlements and Interim and Provisional Damages.²

(i) The proposals of the Law Commission

(a) The 1973 Report

7.2

The Law Commission recommended legislation to institute a right to seek provisional damages and thereafter additional damages if the plaintiff developed a serious disease or suffered some serious deterioration in his or her physical or mental condition.

7.3

Clause 6 of their draft Bill set out their proposals (pp.108–111 of the Report).³ The essential contents of Clause 6(1) were embodied in Section 32A(1) of the Supreme Court Act, 1981, as enacted by Section 6 of the Administration of Justice

Act, 1982.

7.4

The Law Commission also made recommendations on the calculation of awards of damages for future losses. The Commission considered the speeches of the House of Lords in Taylor v O'Connor.⁴ In the light of this case and that of Mitchell v Mulholland (No 2)⁵ they concluded that the view of the courts was that:

7.5

The Law Commission considered that this position was unsatisfactory and recommended that legislation should be introduced to allow parties in these cases to rely on actuarial evidence and that the courts should be allowed refer to actuarial tables.⁶

7.6

Following the Law Commission's recommendation, the Government Actuary's Department published the Actuarial Tables with Explanatory Notes for use in Personal Injury and Fatal Accident Cases, often referred to as “the Ogden Tables”. In the absence of any statutory reform or of agreement between the

6 They recommended a legislative provision along the following lines:   “   (1) Where   (a) in an action under the Fatal Accidents Acts damages are claimed in respect of future pecuniary loss; or   (b) in an action for damages for personal injuries damages are claimed in respect of future pecuniary loss (including future pecuniary loss consisting of the reasonable value of any services to which section 5(1) of this Act applies, being services that would probably have been rendered after judgment), then, subject to any relevant rules of court and without prejudice to any power or discretion of the court as to the costs of or incidental to any proceedings, subsection (2) below shall apply in relation to that claim.   (2) For the purposes of establishing the capital value, as at the date of judgment, of any future pecuniary loss to which the claim relates, or the capital sum which at that date represents the reasonable value of any services to which the claim relates, any party to the action shall be entitled to adduce and rely on any admissible actuarial evidence; and where any such evidence is relied on for that purpose, the court shall have due regard to it in assessing the damages claimed.   (3) The Lord Chancellor may, after consultation with such persons or bodies of persons as appear to him requisite, by order approve for the purposes of this section any actuarial table or set of actuarial tables which in his opinion merit such approval; and any such table or set of such tables that is for the time being so approved shall, as regards any claim in relation to which subsection (2) above applies, be admissible in evidence for the purpose mentioned in that sub-section in so far as it is relevant for that purpose. For the purposes of this sub-section any notes or other explanatory material issued in conjunction with any actuarial table or set of actuarial tables shall be treated as part of that table or set.   (4) The power of the Lord Chancellor to make orders under sub-section (3) above shall include power to revoke a previous order and shall be exercisable by statutory instrument.”

 

 

parties, an actuary has, in fact, to be called to prove the Ogden Tables if they are to be used in evidence as they constitute hearsay evidence.

7.7

The Law Commission also considered the option of giving the courts the power to order periodic payments of awards but decided against such a proposal. They felt that the experience in the jurisdictions they examined, Western Australia and Germany, showed that periodic payments were by and large not popular with either plaintiffs or defendants.⁷ They concluded, however, that the only worthwhile system of periodic payments would be one “devised to apply as widely and comprehensively as possible” and which “would be used by a significant number of litigants”.⁸ These criteria meant that they considered only a reviewable system of periodic payments, i.e. one in which the periodic payment could be altered in the light of changed circumstances. This proposal was floated in the working paper⁹ and met with almost universal opposition. In their final report they noted that “the introduction of a system of periodic payments would meet with vehement opposition from almost every person or organisation actually concerned with personal injury litigation”.¹⁰ They therefore decided not to recommend any system of periodic payments.

(b) The 1994 Report

7.8

Twenty one years after their 1973 Report on the Assessment of Damages in Personal Injury Cases referred to above, the Law Commission reported again on the topic in the context of their examination of damages as a remedy. The Report was preceded by a Consultation Paper which noted the deficiencies of lump sum damages and considered whether the development of voluntary structured settlements and the existing provisions for interim and provisional payments usefully corrected such deficiencies.

7.9

Noting that their recommendation on the admissability of actuarial evidence in the 1973 Report had not been implemented, the Commission in 1994 recommended, inter alia:

7 Law Commission Working Paper No. 41, (1971), at pp114–130.   8 Ibid, at p 129.   9 Law Commission, Consultation Paper No. 125, paras. 3.39–3.46.   10 See note 1, above.

 

 

We will refer to other conclusions of the Law Commission as they arise later in this Report.

(ii) The proposals of the Pearson Commission

7.10

In 1973 the British Government set up a Royal Commission on Civil Liability and Compensation for Personal Injury to be chaired by Lord Pearson. The Commission's terms of reference were broad¹¹ and included examining the question of whether or not the tort system was an appropriate mechanism for awarding compensation to accident victims.

7.11

The Commission was in favour of retaining tort as a basis for compensation. However, it examined the question of whether or not damages should be paid in a once-off lump sum.

7.12

The Commission commented on the problems of the traditional method of calculating the damages for future losses:

11 The Commission notes at p3, Vol 1, of its Report:   “We were appointed on 19th March 1973: 'to consider to what extent, in what circumstances and by what means compensation should be payable in respect of death or personal injury (including ante-natal injury) suffered by any person –   a. in the course of employment;   b. through the use of a motor vehicle or other means of transport;   c. through the manufacture, supply or use of goods or services;   d. on premises belonging to or occupied by another or   e. otherwise through the act or omission of another where compensation under the present law is recoverable only on proof of fault or under the rules of strict liability, having regard to the cost and other implications of the arrangements for the recovery of compensation, whether by way of compulsory insurance or otherwise'.”

 

 

7.13

The Commission felt that this method of calculating and awarding damages involved many potential inaccuracies with the result that the compensation awards often proved inadequate. Consequently, the majority decided that the courts should be given the power to award periodic payments of the damages for future loss, and that, in cases of serious injury, the courts should be obliged to so award the damages unless the plaintiff could show that a lump sum would be more appropriate in the circumstances of his or her case.¹³

7.14

On the subject of periodic payments the majority's recommendations can be summarised as follows:

7.15

The minority did not favour the introduction of such a system of periodic payments. Their reasons can be summarised as follows:

7.16

The majority's recommendations on periodic payments were not implemented.

7.17

The following is a constructive critique of the Pearson Commission's proposals by J H Prevett:¹⁴

14 See Chapter 5 of Kemp & Kemp, Damages for Personal Injury and Death, 2nd edition.

 

 

7.18

While the Commission's recommendations on periodic payments were never specifically implemented, their findings did influence the debate on the topic.

7.19

Reform in one area finally came in 1981 with the introduction of a procedure for obtaining interim awards. Ultimately, three major alterations to the way damages are awarded for personal injuries have been made to the tort system in England which differentiate it, in terms of specific statutory provisions, from the system in Ireland. As well as interim awards, provision for provisional damages was introduced in 1982 (although the provisions only came into effect in 1985),¹⁶ and then in 1987 the Inland Revenue and the Association of British Insurers came to an agreement which made structured settlements possible.¹⁷

15 Ibid, at pp104–105.   16 See Appendix 3 for the Rules of the Superior Courts which introduced the provisions.   17 See Appendix 2 for a copy of this agreement.

 

 

Interim Awards

7.20

Two procedural devices have enabled the final award to be delayed until the medical prognosis is clear:

(a) Interim payments¹⁸

Under s32 of the Supreme Court Act, 1981, and the Rules of the Supreme Court, order 29, rr9–17, the court has power to order an interim payment of damages if liability is admitted or otherwise clear and the defendant is a public authority or is covered by insurance or has other sufficient resources.¹⁹

7.21

Munkman says that this procedure “is suitable where the injuries are serious and it will take time to assess the ultimate damages but in the meantime expenses have to be met. In such cases the mere existence of the procedure is likely to result in an agreement”.²⁰

(b) The split trial²¹

7.22

This approach separates the resolution of liability from the assessment of damages. An order for the interim payment of damages can be made after a finding of liability.

Provisional Damages

7.23

One of the problems with the interim awards procedure was the difficulty in assessing the quantum where there was a risk of some serious disability supervening at a later stage, though the chance of this was quite small and would not justify a large award if assessed immediately.

7.24

Section 6 of the Administration of Justice Act, 1982, was introduced to

18 RSC Order 29 pt 11 means that interim payments are available if the plaintiff will succeed at trial – see Breeze v McKennon Ltd, The Times, 23rd November, 1985.   19 Ord 29, r12(1) provides that an interim award may be made if the applicant can show “that if the action were to proceed to trial the plaintiff would succeed in the action on the question of liability without any substantial reduction of the damages for fault on his part or on the part of any person in respect of whose injury or death the plaintiff's claim arises and would obtain judgment for damages against the respondent (or where there are two or more defendants, against any of them)”.   20 Damages for Personal Injuries and Death, 7th Edn, at p164.   21 RSC Order 33 rr3, 4A.

 

 

deal with this problem.²² It introduced a new power (put into operation by rules of court) to allow damages to be assessed in two stages if:

7.25

Munkman describes the operation of the section as being that “the stated risk will be ignored when damages are assessed in the first place (they will be assessed “on the assumption” that the disease or deterioration will not occur) but if eventually it does occur, further damages will be assessed”.²⁴ The typical case where this power could be used is epilepsy, which may appear for the first time several years after a head injury takes place.

7.26

While neither the word “chance” nor “serious” was defined or qualified by the legislation, the reasoning behind the legislation was that the provisional damages procedure should only be used in exceptional cases.

7.27

This was certainly the intention of the English Law Commission when they prepared their draft Bill on the subject. Whilst clause 6 of their draft Bill did not define the word “chance” or otherwise limit the scope of an award for provisional damages, they clearly intended that the provisional damages claim should be exceptional.

22 The section implements with certain variations recommendations of the English Law Commission and the Pearson Commission, though their recommendation that provisional awards should be made only where the defendant was a public authority or was insured in respect of the plaintiff's claim was not adopted. The Lord Chancellor, when introducing the Bill in the House of Lords (Hansard, HL Vol 428, cols 28–29) stated, regarding this procedure, that “it will not be involved unless the plaintiff wants it and the court is satisfied that this procedure will not cause serious prejudice to the defendant”.   23 S32A(1) of the Supreme Court Act, 1981, (inserted by s6 of the Administration of Justice Act, 1982) provides in sub-sections (1) and (2):   “   (1) This section applies to an action for damages for personal injuries in which there is proved or admitted to be a chance that at some definite or indefinite time in the future the injured person will, 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 in his physical or mental condition.   (2) Subject to subsection (4) below, as regards any action for damages to which this section applies in which a judgment is given in the High Court, provision may be made by rules of court for enabling the court, in such circumstances as may be prescribed, to award the injured person –   (a) damages assessed on the assumption that the injured person will not develop the disease or suffer the deterioration in his condition; and   (b) further damages at a future date if he develops the disease or suffers the deterioration.”   24 Supra, note 20, at 165.

 

 

7.27

Note 2 to clause 2 of the draft Bill emphasises this:

7.28

Further, by note 7 to clause 6 of the draft Bill the Commission underlined the power of the court's “full discretion to grant or refuse” an application for provisional damages.

7.29

It was the Commission's “expectation” that provisional damages awards would only be made in the sort of case they describe in paragraph 232 of their report. Such cases were those with a risk of future “catastrophe such as epilepsy, cancer or total blindness”, where “medical prognosis cannot say whether the catastrophe will or will not occur.”

7.30

The Law Commission concluded that provisional damages should be restricted to those cases where the onset of some future catastrophic condition was foreseen. However, section 32A of the draft Bill uses the adjective “serious” to describe the future condition – which arguably has in contemplation something less than catastrophic.

7.31

The provisional damages rules were introduced by the Rules of the Supreme Court (Amendment No. 2), 1985, paragraphs 2, 3 and 4 – amending order 18 r8(3) and adding rr7–10 to order 37.²⁵ They came into force on 1 July, 1985. These rules provide that a claim for a provisional damages award can only be made by the plaintiff.²⁶ Consequently a defendant has no right to seek such an award. An award of provisional damages can only be made by the court. There is no provision for such an award by private settlement – settlements must lead to a court order.

7.33

An award for provisional damages can be made against an uninsured person despite the Law Commission's recommendation that it be restricted to actions against public authorities, insured persons and persons covered by the requirements of Part VI and section 143 of the Road Traffic Act, 1972 (“the insurer concerned”).

7.34

There are three important rules which cover the making of a provisional

25 See Appendix 3.   26 Order 37 r8(1).

 

 

damages award. They are order 37 r8(1), r8(2) and r8(4).²⁷ A number of consequences flow from these three provisions. First, the Court has a discretion. Both provisions state that the court may make an award. According to Brennan²⁸ the relevant factors in exercising that discretion are:

7.36

Secondly, they mean that the court can only make an award if the plaintiff has pleaded a provisional damages claim and if the court is satisfied that it is a section 32A case (i.e. that it is a chance case and that the chance condition is serious).

7.37

Thirdly, the court may make an award in respect of one or more chance conditions and, if appropriate, for a different period in respect of different conditions.

7.38

Fourthly, the terms of an award may be such as the court thinks just. As Brennan points out this can be an area of contention. He states:

27 Order 37 r8(1) provides that:   “The court may on such terms as it thinks just and subject to the provisions of this rule make an award of provisional damages if:   (a) the plaintiff has pleaded a claim for provisional damages, and   (b) the court is satisfied that the action is one to which Section 32A applies.”     Order 37 r8(2) provides that:     “An order for an award of provisional damages shall specify the disease or type of deterioration in respect of which an application may be made at a future date, and shall also, unless the court otherwise determines, specify the period within which such application may be made.”     While Order 37 r8(4) provides that:     “An order for an award of provisional damages may be made in respect of more than one disease or type of deterioration and may in respect of each disease or deterioration specify a different period within which an application may be made at a future date.”   28 Provisional Damages – A guide to the new procedures, (London, 1986).   29 Ibid, at p52.

 

 

739

Finally the order must be precise. This is so because of order 37 r8(2) which requires the court to “specify” the disease or type of deterioration in respect of which further damages can be claimed and to specify the time period within which a further damages application can be made “unless the court otherwise determines”. There may of course be different specified periods for different chance conditions.

Structured Settlements

7.40

Despite these reforms, many of the problems that had been identified with the once-off lump sum awards still remained. It was against this background of dissatisfaction that the Inland Revenue in Britain and the Association of British Insurers, the ABI, came to an agreement to allow the use of structured settlements.³¹

7.41

Awarding a structured settlement in a case means that, instead of the traditional lump sum payment made to plaintiffs, they receive a guaranteed income or pension derived from an annuity bought by the insurer and held for the benefit of the injured person. In contrast to the lump sum award the income payments can be varied and “structured” over a period of time. Structured settlements are now used in a number of countries.³²

7.42

The agreement between the Inland Revenue and the ABI provided that plaintiffs could receive guaranteed periodic payments of their compensation award, tax free, by means of the purchase, by the defendant's insurers, of an annuity. These “structured” settlements were only possible if both parties agreed out of court to the arrangement. The financial arrangements had to satisfy one of the model agreements drawn up in the agreement.

7.43

The case of Dott v Brown,³³ which decided that deferred payments of a debt could be treated as capital and not income, provided the legal basis for the Inland Revenue allowing the periodic payments of the award in the form of an annuity not to be taxable in the hands of the plaintiff.

30 Ibid, at p53.   31 This agreement is reproduced in Appendix 2.   32 In Chapters 10 and 13 the use of structured settlements in the United States and Canada respectively will be examined.   33 (1936) 14 Law Times 484.

 

 

7.44

The concept of structured settlements allows plaintiffs to receive whatever proportion of their damages they wish in the form of a series of future annual payments, linked to the life and projected future cash requirements of the plaintiff. The balance of the damages is paid in the manner of the traditional lump sum.

7.45

The general philosophy behind the structure is that once a plaintiff in a large personal injury or fatal accident case has been provided with his or her setup costs, e.g. home, equipment and car, and also has a reasonable contingency cash fund, the balance of the lump sum is normally used as a means to provide an annual income.

7.46

What happens in practice is that the amount of money that is used to fund the settlement is used by the defendant's insurer to purchase an annuity in order to fund the regular payments that it has to make to the plaintiff as damages by instalments. Effectively the arrangements are back-to-back. The important point from a tax point of view is that there are two very distinct contractual relationships involved. Thus, first, the insurer has an obligation to pay damages by instalments to the plaintiff and secondly, by the purchase of an annuity, the insurer has a right to receive a series of future payments which are linked to the life of the plaintiff.

7.47

While there is a good deal of flexibility in the way the annuity can be established in the beginning,³⁴ once the structure is established it cannot be varied. Hence the need for an adequate contingency cash fund.³⁵

7.48

The mechanics are that the general insurer will pay out to the plaintiffs damages by instalments which may be index-linked and last for the life of the plaintiff or for a specified number of years, if longer. In turn, the general insurer purchases an annuity from a life office in order to fund the series of payments as determined above. Under present UK tax legislation the life office will pay to the general insurer the required annuity after deduction of income tax. The general insurer has to pay to the plaintiff the gross equivalent of the annuity, but he can write this amount off against his corporation tax liability. There will thus be a loss in cash-flow to the general insurer, but overall the whole arrangement is fiscally neutral.

34 The court in the case of Kelly v Dawes, Times, 27 September, 1990, set down guidelines to be followed by the parties in agreeing a structured settlement. These guidelines are discussed below.   35 This is stipulated in the Kelly v Dawes guidelines.

 

 

7.49

The fiscal consequences of these transactions are as follows:

7.50

Under existing tax legislation, the annuity purchased by the general insurer must be received after deduction of tax. The general insurer has to pay the equivalent of the gross amount to the plaintiff. This makes the concept of structures less attractive to the insurance industry because of the loss in cash-flow and the requirement to maintain an administrative record of the payments.

7.51

However, while the insurers will have to meet a cost in the loss of cash flow and some administration, this is to be set against the advantages of a reduced cost to the insurer in the overall settlement of the case. There is a reduced cost to the insurer because the plaintiff does not have to pay any tax on the annual instalments.

7.52

The Inland Revenue and the ABI have drafted and agreed model agreements.³⁶ The Revenue has advised that if an agreement is made between the parties which complies with one of the model agreements, then the receipt by the plaintiff of the regular monies will be tax free.

36 A copy of the Model Agreement for such a structured settlement is set out in Appendix 2.

 

 

7.53

While the courts in England have no powers to order a structured settlement award, they have set down guidelines to be adopted in cases where the parties agree to use the mechanism. The guidelines were set out by Potter J in Kelly v Dawes³⁷, the first case where a structured settlement was used.

7.54

Potter J set out a six point plan to be followed in cases where it is proposed to arrange a structured settlement:

7.55

On the 12 February 1992, the High Court in England issued a Practice Note on the obtaining of court approval for structured settlements.³⁹ This practice note is primarily based on Potter J's guidelines.

7.56

In practice there are four different types of annuity available to a plaintiff. They are:

7.57

Some degree of flexibility is allowed and the Inland Revenue have indicated that a number of variations on the type or types of annuity provided are allowed so long as certain minimum requirements are met. John Frenkel refers to three in particular:⁴⁰

7.58

Unlike the position in some states of the United States,⁴¹ the courts in England have not been given any power to impose a structured settlement on the parties. So far, there has been only one attempt to persuade a Court that it has power to impose an order for periodic payments upon a defendant. In Burke v Tower Hamlets Health Authority,⁴² Mr Justice Drake refused to make an order that the cost of future care for the plaintiff should be paid directly by the defendants for the rest of the plaintiff's life. The judge took the view that defendants were entitled to close their files; that continuing payments were an oppressive lingering financial burden; and that it was in the public interest that litigation should come to an end.

7.59

A solicitor with experience in the field, Keith Popperwell, has commented:

7.60

While structured settlements have yet to be used in England in fatal accident cases (as they have been in North America), commentators have expressed the view that they will have a useful role to play.

7.61

Pickering, commenting on the potential use of structured settlements in fatal accident cases says:

41 The position with respect to structured settlements in the US is dealt with in Chapter 10.   42 Times Law Reports, 10 August 1989.   43 Ibid, at p3.

 

 

7.62

It is also worth noting that structured settlements can provide added security for dependents of surviving plaintiffs. This is because the annuity can be guaranteed for a minimum number of years. If the plaintiff dies before this period of time has elapsed then the payments will go to the beneficiaries of his or her estate. However, because the contractual nexus is broken, they must pay tax. The general insurer can therefore direct payments to be made direct by the life company to the beneficiaries as nothing is lost. The guarantee period does not therefore affect the general insurer.

7.63

Initially the opportunity to structure large awards in this way was not often used; there was only one such settlement agreed in the first two years since the agreement. However, while statistics are not available, it does appear that “structured” settlements are being more frequently agreed in some of the more serious cases.⁴⁵

7.64

Editorial comment in the New Law Journal in January, 1990⁴⁶ noted that the advantages of the structured settlement arrangement had been perfectly demonstrated by the Kelly case where a structured settlement was approved, and that the increased use of the facility was probably dependant on practitioners getting used to the idea:

44 Ibid, at pp12–13.   45 In Field v Hertfordshire Health Authority reported in the Irish Independent, 1 November 1991, the plaintiff was awarded £1,042,413 and the defendant agreed to “structure” the settlement. This is believed to be the first structured award agreed by a public body. Similarly, in Tombs v Merton and Sutton Health Authority (reported in the London Independent, 1 December, 1991), the High Court approved in principle an award of £1.65 million, which, the report suggests, may also be invested under a structured settlement.   46 (1990) 140 New Law Journal 88.   47 Ibid.

 

 

7.65

Richard Lewis states that the new system has advantages:

7.66

Lewis then points out that there are two limits to this system. First, judges have no power to order the structuring of their award of damages – it is up to the parties to arrange this. However, he points out that this is not too much of a problem since only a tiny percentage of cases proceed to judgment. Secondly, it can only apply when there is going to be significant financial loss in the future. Lewis, relying on statistics derived from the Pearson Commission Report, points out that only 7 1/2% of tort cases involve any future financial loss.⁴⁹

7.67

There have also been some teething problems with the use of structured settlements. The incentive for the defendant insurer is that, by being able to write off the payments they make to the plaintiff, they can reduce their tax liability. This created a problem where the defendant insurer was a non-trading insurer and consequently had no investment income in respect of which to make use of the write-off.⁵⁰ This problem initially applied to two types of insurers, namely mutual insurers and health authorities.

(i) Mutual insurers

7.68

Such insurance companies do not pay tax on any of the trading profits that they make because trading effectively takes place with their own members and in tax terms it is not possible to make a profit on dealing with oneself. Thus, the insurance company would have to pay tax on the annuity that it receives from the life office as it is treated as investment income. However, it would not get the corresponding write-off for the payments that it makes to the plaintiff as this could not be set against the investment income of the company. This means that the insurer would have to bear the cost of the taxation and therefore would need to appraise a structured settlement differently as compared to a normal trading (i.e. Schedule D, Case I) insurer.

48 Structured Settlements – a new way of paying damages, (1988) 138 New Law Journal, at p660.   49 Ibid.   50 See Frances Gibb, Accident awards held up by dispute over who pays, Times, 28 July 1992.

 

 

7.69

The Law Commission in their Consultation Paper conclude, provisionally, that a mutual insurer should be able to pay instalments of damages direct to the plaintiff, and that this solution should go hand in hand with an extension of the tax status currently given to settlements which conform to the model agreements.⁵¹

(ii) Medical negligence cases

7.70

The initial understanding regarding structured settlement claims for medical negligence was that they could not be implemented as effectively as for a normal trading insurance company. However, in January 1990, the Crown Indemnity rules were changed to make the Department of Health ultimately responsible for paying damages in these cases.

7.71

The future for structured settlements in medical negligence cases now looks more promising. John Frenkel has commented:

7.72

Further advantages and disadvantages of structured settlements will be discussed in Chapter 16. However, what seems clear at this stage is that their use, which only occurs with the agreement of both parties, is on the increase as more plaintiffs and practitioners become aware of their advantages. One way of facilitating a wider use of this arrangement could be to allow the courts to award

51 Law Commission Consultation Paper No. 125, at paras 3.32–3.33.   52 Frenkel, op. cit. at p26.

 

 

payment of compensation in the form of a structured settlement, thereby encouraging precedents of their use to become a regular feature of the system more quickly than under the present situation whereby the courts can only approve settlements devised by the parties which they do not have the power to award themselves. The question then arises as to whether and in what circumstances the courts might be given the power to award compensation under a structured settlement in the absence of full agreement between both parties. This subject is discussed further in Chapter 16.

 

 

SECTION III: THE UNITED STATES OF AMERICA

CHAPTER 8: PERSONAL INJURIES ACTIONS

8.1

The legal systems in the United States have several different methods of awarding compensation for personal injuries. Many states have no-fault statutory schemes for road accidents and injuries to workers. These states do not however preclude the taking of a tort claim except in the case of injuries at work, although the existence of the statutory scheme will affect how often a tort claim will be made.¹

8.2

The principles of tort have been altered by legislation in many states with regard to cases of personal injury. Special rules for products liability, medical malpractice and occupiers' liability are common in many states.

8.3

Our concern, however, is with the way the award is calculated and how it is paid as opposed to when and in what circumstances liability will be held to attach.

8.4

In this context, it is therefore proposed to look at the approach United States courts take to calculating damages, in particular for future losses, and the account taken of inflation and taxation. This will be done in the context of fatal accident cases² as well as personal injury actions. Then it is proposed to look at the practice of structuring awards and at the various laws enacted in different states to allow courts to order periodic payments of certain elements of personal injury awards.³

The Calculation Of The Award

8.5

As in Ireland and the United Kingdom, the rules for calculating damages for personal injury are independent of the basis of the claim. The emphasis is upon the plaintiff's condition without regard to whether the injuries resulted from a car crash or a defective product.

1 This is because damages received under the statutory scheme will generally be set off against any award of damages made in a tort action.   2 This will be discussed in Chapter 9.   3 This will be discussed in Chapter 10.

 

 

8.6

For the purpose of assessing the merits or demerits of a system of periodic payments it is helpful to distinguish between past (pre-trial) losses and future losses, if any. In the United States most states, as in Ireland and the United Kingdom, require future losses to be reduced to their present value so that the damages can be awarded in the form of a once-off lump sum.

8.7

As before, the critical factors that need to be taken into account are those related to future taxation and inflation rates.

8.8

An adjustment to the damages awarded is necessary to take into consideration the amount of interest that an investment of the lump sum itself will earn over time. The trier of fact has to fix a figure which, when placed in safe investments at the date of judgment, will earn interest equal to the projected loss of wages. Certain factors should be taken into account in fixing the final figure for damages.

8.9

The determination of the percentage rate to be used for discounting the damages has evoked considerable controversy among courts, commentators, and experts. A high discount rate works to the defendant's advantage by lowering the total liability; conversely, the plaintiff benefits from applying the lowest possible percentage rate.

8.10

No consensus has developed as to whether, and to what extent, the impact of inflation should be looked at when calculating the projected earning scheme. Proponents of its inclusion as an adjustment factor contend that, unless the damages award reflects estimated future inflationary trends, a plaintiff will be undercompensated because inflation will erode the purchasing power of the substituted wages. Critics of adjusting damages for inflation argue that predicting future inflation is akin to crystal ball gazing; it is too speculative and unreliable to be fairly applied. Moreover, forecasting such trends is too complex for accurate assessment by jurors, even with the aid of expert testimony.

Inflation

8.11

The inflation factor must be distinguished from other factors which may affect the computation of damages. For example, apart from inflation, estimated wage increases may be entirely attributable to projected job promotions or industry growth.

8.12

Courts have employed numerous methods to evaluate the respective roles of the discount rate and future inflation rate. One approach acknowledges that

both the discount and inflation factors are relevant, yet not susceptible of being accurately predicted. Therefore, both factors are simply offset and cancel each other out. Another method allows the introduction of expert testimony with respect to each factor, leaving the trier of fact to evaluate the evidence and make any adjustments as deemed appropriate. Other courts have disregarded inflation, but have adjusted the damages award downward by some discount rate. Many courts are now following the lead of the United States Supreme Court with a varied offset approach. Under this method courts discount the damages award only by the “real” rate of interest. This method considers that market interest rates include two components: an estimate of anticipated inflation and the desired real return on investment. The first element concerning inflation is offset against projected future inflation. The real interest rate, which essentially remains constant over time (between 1 and 3%), is then applied to reduce the damages award into present value.

8.13

Some courts have taken a “real interest rate” approach which has been adopted in Australia.⁴ They have endorsed the economic theory suggesting that market interest rates include two components – an estimate of anticipated inflation, and a desired “real” rate of return on investment – and that the latter component is essentially constant over time. They have concluded that the inflationary increase in the estimated lost stream of future earnings will therefore be perfectly “offset” by all but the “real” component of the market interest rate.

8.14

Still other courts have preferred to continue relying on market interest rates. To avoid undercompensation, they have shown at least tentative willingness to permit evidence of predicted future price inflation in estimating the lost stream of future income.

8.15

In the leading case of Jones & Laughlin Steel Corporation v Pfeiffer⁵ the US Supreme Court noted three different methods that various courts have used to adjust damages to take account of wage and price inflation:

8.16

The difficulties in this area were clearly outlined by Justice Stevens in the US Supreme Court in Pfeiffer. Stevens stated:

8.17

The Supreme Court concluded that it should not establish one method as the exclusive federal rule for use in federal causes of action in federal courts. The Court observed that there are two stages in calculating damages (estimation of the lost stream of income and selection of an appropriate discount rate), and found that inflation should be included in both stages.

8.18

It noted that, in the early 1980s, two Federal Courts of Appeals decided to allow litigants a choice of methods. The Court of Appeals for the Fifth

Circuit in Culver v Slater Boat Co⁶ overruled its prior decision in Johnson v Penrod Drilling Co,⁷ and held it acceptable either to exclude evidence of future price inflation and discount by a “real” interest rate, or to attempt to predict the effects of future price inflation on future wages and then discount by the market interest rate. A panel of the Court of Appeals for the Seventh Circuit took a substantially similar position in O'Shea v Riverway Towing Co.⁸

8.19

These decisions were noted by the court in Pfeiffer, but it declined to establish any one method as the federal rule, although it did note the attractiveness of the total offset method.

8.20

Finally, some courts have applied a number of techniques that have loosely been termed “total offset” methods. What these methods have in common is that they presume that the ideal discount rate – the after-tax market interest rate on a safe investment – is, to a legally tolerable degree of precision, completely offset by certain elements in the ideal computation of the estimated lost stream of future income. They all assume that the effects of future price inflation on wages are part of what offsets the market interest rate.

Taxation⁹

8.21

With respect to tax rates, the United States Supreme Court held in Norfolk & Western R Co v Liepelt¹⁰, decided prior to Pfeiffer, that the lost stream of income in a Federal Employers' Liability Act (FELA) case should be estimated in after-tax dollars and that the discount rate should also represent the after-tax rate of return to the injured worker.

8.22

The position as regards federal income tax is that the plaintiff's award for personal injuries is not subject to the federal income tax. Under s104(a)(2) of the Internal Revenue Code of 1986, a tort victim can exclude from gross income the amount of compensatory or punitive damages he or she received on account of personal injuries. Punitive damages in libel and slander suits, however, are considered income. In most states, the rule regarding compensatory and punitive damages is usually the same. It seems clear that the single fact that

6 (1982) 688 F.2d 280, at pp308–310.   7 (1975) 510 F.2d 234.   8 (1982) 677 F.2d 1194, at p1200.   9 See generally Yorio, The Taxation of Damages: Tax and Non-Tax Policy Considerations, (1977) 62 Cornell L Rev 701; (1982) 16 ALR 4th 589 and supplements; Annot, (1980) 47 ALR Fed 735 Lost Wages Portion of Injury Settlement Is Not Taxable (1985) 63 J Tax'n 341; Richmond, Taxation of Personal Injury Awards: An Update (1984) 3 Trial Advocate Q 148; Dolin and Slessnick, Taxes and Their Effect on Compensatory Awards (1983) 33 Fed Ins Couns Q 397; Franz, Should Income Taxes Be Excluded When Calculating Lost Earnings? (1982) 18 Trial [No 10] 53.   10 (1980) 444 US 490, 100 SC 755, 62 L Ed 2d 689.

 

 

a tort award is or is not subject to income tax should not in itself be sufficient to affect the amount of the award. A problem arises when the award, or a part of it, is to compensate for the loss of benefits that would have been subject to the tax if they had been received. The primary instance is compensation for lost wages. If no reduction is made in the award, the injured plaintiff receives more for wages than if he or she had not been injured. For this reason, some courts have held that the absence of income taxes must be taken into account in setting the amount of the award.¹¹

8.23

Most courts have been concerned about the speculative character of the amount of a potential deduction, at least insofar as it applies to future earnings. There is no way of telling what the tax rates will be in the future, nor what exemptions, deductions and other income the plaintiff would have, so as to determine what tax bracket he or she would have been in; and the whole matter is affected by possible future inflation. For these reasons, the federal courts and most state courts have been inclined toward the position that, in the case of the average taxpayer, no deduction should be made, but that the other imponderables in the calculation would take care of the problem.

8.24

A separate problem is that of what should be said to the jury. Trial courts often find the whole matter frustrating and say nothing about it; and appellate courts usually find this within the discretion of the trial court. Other courts say that the jury should be told only that the award is not subject to income tax. The Supreme Court in Norfolk & Western Ry Co v Liepelt¹² ruled that, in cases brought under the Federal Employers' Liability Act, evidence may be offered to show the effect of income taxes on the deceased's estimated future earnings, and the court may instruct juries that awards are tax-exempt and jurors should not consider such taxes in fixing the amount of the award. The Court found reasonable cause for concern that tax-conscious juries would not be aware of the special statutory exception for personal injury awards contained in the Internal Revenue Code.¹³

11 Floyd v Fruit Indus (1957) 144 Conn. 659, 136 A.2d 918; Maus v New York C & St LR Co 165 Ohio 281, 135 N.E.2d 253 (1956), “to deduct the anticipated tax saving from the recovery would nullify the tax benefit conferred by Congress”: Dixie Feed & Seed Co v Byrd (1964) 52 Tenn. App. 619, 376 S.W.2d 745; Note (1956) 69 Harv L Rev 1495.   12 (1980) 444 US 490.   13 See also Blanchfield v Dennis (1982) 292 Md. 319, 438 A.2d 1330. The Seventh Circuit, however, found the Norfolk & Westernholding to be “procedural,” and proceeded to apply state law to arrive at a somewhat different conclusion. In the case of In re Air Crash Disaster Near Chicago (1983) 701 F.2d 1190 (7th Cir), cert, denied, (1983) 464 US 866, the court held that although an lllinois court would admit tax evidence to arrive at a measure of damages, under current lllinois practice, it was proper to refuse to instruct the jury that the damage award would not be subject to income taxes.

 

 

Miscellaneous Other Factors

8.25

Three other factors are commonly acknowledged in the United States as being relevant to the adjustment of damages for future losses. They are:

8.26

Judge Posner explained this problem in O'Shea v Riverway Towing Co:

14 See State v Guinn, (1976) 555 P.2d 530.   15 See Kaczkowski v Bolubasz, (1980) 491 Pa. 561, 421 A. 2d 1027.

 

 

Conclusion

8.27

The uncertainties surrounding this area have led to some suggestions that these damage adjustment issues would be better resolved by the legislature rather than the courts or, alternatively, that this element of the damages award would be better paid by means of periodic payments.¹⁷

8.28

In the final analysis, predicting future inflationary trends, future market interest rates, and future industrial trends is an inexact science. The final lump sum damages award almost certainly will, in hindsight, turn out to be either overcompensation or undercompensation. Consequently, there is a growing interest in periodic payment of damages in a series of instalments rather than in a lump sum. The various reforms that have been introduced in some states of the United States are discussed in Chapter 10.

16 (1982) 677 F.2d 1194, at 1199 (7th Cir).   17 For additional information concerning the roles of inflation and discount rate as adjustments to damages see the following commentary: Mutatis & Widicus. Toward Just Compensation: A Statistical Comparison of the Total Offset Method of Valuing Lost Future Earnings (1986); Landsea & Roberts, Inflation and the Present Value of Future Economic Damages (1982) 37 U Miami L Rev 93; Note, Inflation, Productivity, and the Total Offset Method of Calculating Damages for Lost Future Earnings (1982) 49 U Chi L Rev 1003; Sherman, Projection of Economic Loss: Inflation v Present Value (1981) 14 Creighton L Rev 723; Kolbach, Variable Periodic Payments of Damages: An Alternative to Lump Sum Awards (1978) 64 lowa L J 138; Formuzis & O'Donnell, Inflation and the Valuation of Future Economic Losses (1977) 38 Mont L Rev 297; Note, Future Inflation, Prospective Damages, and the Circuit Courts (1977) 63 Va L Rev 105; Henderson, The Consideration of Increased Productivity and the Discounting of Future Earnings to Present Value (1975) 20 SDL Rev 307; Lawless, Computation of Future Damages: A View of the Bench (1966) 54 Geo L J 1131; Leasure, How to Prove Reduction to Present Worth (1960) 21 Ohio St L J 204; Immel, Actuarial Tables and Damage Awards (1958) 19 Ohio St L J 240.

 

 

CHAPTER 9: FATAL ACCIDENT ACTIONS

9.1

Wrongful death and survival actions are almost exclusively statutory actions with limited damages. There is little agreement among jurisdictions on appropriate damages when a tortfeasor's conduct results in death rather than personal injury short of death.

9.2

The same common law rules that led to the legislation in Ireland and the United Kingdom also explain the present state of the law in the United States.¹ First, the death of a person was not considered an actionable injury. Second, personal tort actions died with the plaintiff. The result of these rules was harsh for dependants who consequently had no claim for the tortious death of a family member. In the United States these rules have been changed, usually by statute. The odd patchwork of the current law is attributable to this history.

9.3

Most state legislatures now have provided Survival Acts that allow the deceased's estate to bring at least some tort actions. Many jurisdictions allow the victim's personal injury claims to survive under these Acts. The orientation of these actions is upon the deceased's losses rather than upon the family's losses. The estate recovers the damages and distribution is by will or intestacy.

9.4

Many state and federal statutes provide for wrongful death actions in addition to, or as an alternative to, the survival of personal injury claims. A typical wrongful death statute names specific beneficiaries with some relationship to the deceased who may sue and limits the types of recoverable damages, such as to “pecuniary” losses sustained by the statutory beneficiaries. Jurisdictions with both a Survival Act and a Wrongful Death Act allow both actions and use rules such as collateral estoppel to avoid double recovery by family members.

9.5

Damages in the survival or wrongful death actions vary by jurisdiction. Some or all of the following elements may be permitted: loss of future income, loss of child's services in minority and support of parents in their elderly years, the child's pain and suffering before death, medical expenses, funeral expenses, loss of society with the child, and parents' grief.

1 See Chapters 3 and 6 respectively.

 

 

The Wrongful Death Action

9.6

The damages provisions in Wrongful Death Acts are generally one of three types: (1) the all-inclusive type lists particular elements of damages; (2) the pecuniary loss type restricts recoveries to economic losses; and (3) the general loss type provides for damages in a vague way, e.g. such “damages as are just”.

9.7

Commentators have harshly criticised the jurisdictions that limit recoveries to pecuniary loss.²

9.8

In wrongful death actions, the beneficiaries can recover the value of the deceased's support and services in the home. Evidence of the deceased's work history, if any, and contribution to the household is relevant. Such contributions can include wages from work outside the home, performance of routine household tasks, and advice, counsel, or guidance for other family members, especially children. The amount that would have been spent from earnings toward the personal support of the deceased is deducted.³

9.9

The “pecuniary loss” or “actual loss” limitation in many Wrongful Death Acts has posed a problem in claims of mental anguish and grief by surviving family members. Such limitations create particular problems with the death of a child, because the value of a child's services and support to family is usually low. Although solace damages, often called solatium, are allowed in many civil law countries, the influence of Lord Campbell's Act made such recovery rare in common law jurisdictions. The modern trend has been to reconsider this exclusion, as the principal case reflects.

9.10

Mental suffering is distinguished from loss of society in many jurisdictions following the modern trend. Reform by statute or judicial interpretation has liberalized recovery for intangible losses, but mental anguish and grief is often excluded as an element of damages. Some jurisdictions that allow recovery for loss of society, comfort and affection nonetheless prohibit grief damages as likely to produce unjustifiably high awards. Other jurisdictions allow the mental element because it is no less intangible than other non-economic

2 See for example Strong & Jacobson, Such Damages as are Just: A Proposal for More Realistic Compensation in Wrongful Death Cases (1982) 43 Mont L Rev 55; Belfance, The Inadequacy of Pecuniary Loss as a Measure of Damages in Actions for the Wrongful Death of Children (1979) 6 Ohio Northern UL Rev 543; Speiser & Malawer, An American Tragedy: Damages for Mental Anguish of Bereaved Relatives in Wrongful Death Actions 51 Tulane L Rev 1; Death of Children: A Nonparametric Statistical Analysis of Compensation for Anguish (1974) 74 Colum L Rev 884.   3 See for example Wentling v Medical Anaesthesia Services, PA (1985) 237 Kan, 503, 701 P.2d 939 (assistance in spouse's work and care of handicapped child); and (1967) Henneman v McCalla 260 lowa 60, 148 N.W.2d 447 (housework, care of minor child, assistance to husband in farm work, income outside home as nurse's aide).

 

 

losses.⁴

9.11

The orientation of the death statute toward the survivors or the deceased also affects intangible losses. For example, New Hampshire refused to allow parents to recover for loss of society with an injured or deceased child. The court in Sicilano v Capital City Shows, Inc⁵ reasoned that the state's wrongful death statute is not based on loss to survivors but focuses on losses suffered by the deceased. The court further invoked public policy reasons: (1) the emotional nature of intangible, nonpecuniary losses could lead to disproportionate awards; (2) multiple claims hinder settlements; and (3) consortium claims increase expenses ultimately to be borne by the public through increased insurance premiums.

Survival Actions

9.12

Some jurisdictions allow damages for the deceased's pain and suffering in survival actions. The usual requirement is that the victim be conscious and in pain before death.⁶

9.13

One noteworthy case involving pre-death mental and physical suffering is Delong v Erie County⁷ A woman who heard a prowler outside called the police 911 emergency number, but the operator negligently dispatched the nearby patrol car to the wrong address. She died of multiple knife wounds in a savage attack. The court upheld a $200,000 pain and suffering award.

9.14

In terms of the deceased's loss of the pleasure of life as an element in survival actions equivalent to such elements in personal injury actions, a few jurisdictions have recognised these damages which are sometimes called hedonic damages. For example in Sherrod v Berry⁸ the court awarded $850,000 for the loss of the pleasure of life supported by an expert witness who testified on the measurable value of life apart from the $300,000 in lost earnings. In Katsetos v Nolan⁹ the court awarded $400,000 for loss of ability to enjoy life's activities, pain and suffering, and lost future earnings.

4 See for example Wilson v Lund (1971) 80 Wash.2d 91, 491 P.2d 1287 (statute permits recovery for loss of love; mental anguish damages allowed if established by expert testimony); Dawson v Hill & Hill Truck Lines (1983) 206 Mont. 325, 671 P.2d (grief damages allowed under statute providing for “just” damages); Smith v Hub Manufacturing, Inc (1981) 634 F.Supp 1505 (NDNY) (no grief damages under New York pecuniary loss statute); and Pagitt v Keokuk (1973) 206 N.W.2d 700 (lowa) (allowing mental suffering under pecuniary loss statute).   5 (1984) 124 NH 719, 475 A.2d.   6 See for example Murphy v Martin Oil Co (1974) 56 III.2d 423, 308 N.E.2d 583; and Schlichte v Franklin Troy Trucks (1978) 265 N.W.2d 725 (lowa).   7 (1982) 89 A.D.2d 376, 455 N.Y.S.2d 887.   8 (1987) 827 F.2d 195 (7th Cir).   9 (1976) 170 Conn. 637, 368 A.2d 172.

 

 

CHAPTER 10: STRUCTURED SETTLEMENTS AND OTHER REFORMS

10.1

Structured settlements akin to those used in the United Kingdom began to be used in the United States in the early 1970s. Various states have introduced legislation giving various powers to the courts to order periodic payments of awards in certain circumstances.

Structured Settlements¹

10.2

Structured settlements were first utilised in the United States about twenty five years ago. Initially only very substantial claims were structured. Today virtually any claim can be structured depending on the needs of the parties.

10.3

Structured settlements are legal in all states and under federal law. Juries, however, are not empowered to structure their awards. They have been utilised for many types of damages awards, including cases of personal injury, property damage, workers' compensation, toxic waste clean-up and first party property claims.

10.4

They are tailored to meet the specific needs of the claimant and take the form of a financial package providing the claimant with periodic payments, either for a fixed term of years or, more usually, for the life of the claimant. In most cases the claimant will also receive a capital sum in respect of special damages.

10.5

US income tax legislation generally exempts the proceeds of structured settlements from tax liability as long as the beneficiary is not the owner of the annuity. In other words, payments from most settlements are tax free provided the carrier (i.e. the defendant's insurance company) retains ownership of the policy.

10.6

As with structured settlements in the United Kingdom, there are several

1 See Hindert, Periodic Payment of Personal Injury Damages (1980) 31 Fed Ins Couns Q 3; Krause, Structured Settlements for Tort Victims (1980) 66 ABAJ 1527); Stone, Explaining Structured Settlements (1985) 21 Trial 96; Winslow, Tax and Economic Considerations in Structured Settlements (1984) 35 Fed Ins Counsel Q 56; Vaughan, Tax Issues of Personal Injury and Wrongful Death Awards (1984) 19 Tulsa L.J 702; Staller, The Periodic Payment Settlement Act of 1982 (1983) 29 Prac Law [No 3] 25; Wells, Tax Consequences of Damages (1983) 12 Colo Law 53; Leland, Periodic Payments (1983) 3 Cal Law 32; Harrison, The Ethics of Structuring Settlements (1985) 34 Drake L Rev 1045; Sweeney, Structured Settlements: Plaintiffs' Attorneys' Fees (1982) Tr Law Guide 335.

 

 

practical advantages to the plaintiff. First, the plaintiff does not have the responsibility of arranging investment to insure that the income will last for the required time. Secondly, there is a tax advantage to the plaintiff because under a conventional award, although he or she would not have to pay income tax on the lump-sum amount, he or she would have to pay the tax on income from the investment of that lump sum. This contrasts with periodic payments under a structured settlement which are not taxed on receipt by the plaintiff. In Processes of Dispute Resolution,² the authors comment:

10.7

These savings to the plaintiff can lead to a settlement which is also attractive to the defendant, and sometimes also to the plaintiff's lawyer, because of the way lawyers are paid in personal injury actions (i.e. generally receiving between 25–35% of the damages award). The lawyer negotiating the structured settlement may be able to structure his or her fee over some or all of the payment period, thereby avoiding the tax consequences of a large increase in income in any one year.⁴

10.8

Several commentators in the United States have noted how the growing use of structured settlements has increased the opportunity for parties to reach settlements in circumstances where negotiations over a conventional lump sum have failed to produce an agreement.⁵

2 Murray, Rau and Sherman, Processes of Dispute Resolution – The Role of Lawyers, (New York, 1988).   3 Ibid, at pp 149–150.   4 A lawyer trying to postpone income in this way, however, must be careful to avoid “constructive receipt” treatment.   5 See Danninger, Johnson & Lesti, Negotiating a Structured Settlement (1984) 70 ABAJ 67.

 

 

10.9

An excellent example of the way structured settlements operate in practice and of how their mutual advantages can lead to a settlement of a cause of action is described as follows:⁶

10.10

However, once a structure is “bought”, it cannot be varied, and unless it has a built-in contingency fund,⁸ a structured settlement may not be appropriate for an injured plaintiff whose health is unpredictable or whose needs are highly variable. The advantages and disadvantages of structured settlements are discussed further in chapter 16.

Periodic Payments⁹

10.11

As structured settlements became more popular and widely used, many states began to enact legislation to permit, or in some instances require, periodic payment of damages.¹⁰ The Uniform Laws Commissioners in the United States prepared a model Periodic Payment of Judgments Act in 1981.¹¹ This provided a model for many states introducing their own periodic payments laws.

6 Murray, Rau and Sherman, Processes of Dispute Resolution – The Role of Lawyers, (New York, 1988).   7 Ibid, at pp149–150.   8 One of the requirements laid down in Kelly v Dawes, in England. See Chapter 7.   9 For further discussion, see Corboy, Structured Injustice: Compulsory Periodic Payment of Judgments (1980) 66 ABAJ 1524; Henderson, Restoring the Tort Victim to Pre-Injury Position: A Goal on Which All Can Agree (1980) 67 ABAJ 301; Elligett, The Periodic Payment of Judgments (1979) 46 Ins Couns J 130; Grossman & Roman, The Model Periodic Payment of Judgments Act: An Economic Analysis (1982) 18 Trial [No 5] 62. See generally Hindert, Dehner & Hindert, Structured Settlements and Periodic Payment Judgments (1986).   10 See e.g., Florida, Ch 86–160 of 1986; Michigan, Public Act of 178 of 1986; New York, Ch 682 of Acts of 1986.   11 14 Uniform Laws Ann 2 (West Supp 1981). The Act is discussed by the Reporter of the Act in Henderson, Periodic Payments of Bodily Injury Awards (1980) 66 ABAJ 734.

 

 

10.12

The following US states have legislation which permits court-awarded periodic payment of damages awards in the context of medical malpractice: Alabama, Alaska, California¹², Delaware, Florida,¹³ Illinois, Kansas, Louisiana, Maryland, New Mexico, New York,¹⁴ Oregon, South Dakota, Utah, Washington and Wisconsin. South Dakota and Washington make periodic payment of damages available in all actions for personal injury and totally disabling personal injury, respectively.¹⁵

10.13

In 1986, the State of New York introduced legislation to allow for periodic payments to be ordered by the courts in cases of medical malpractice. Explaining the reasoning behind the legislation, the legislature stated:

12 Relevant provisions from the Californian Civil Code appear in Appendix 6.   13 Relevant provisions from the Florida Statutes appear in Appendix 4.   14 Relevant provisions from the New York CLS appear in Appendix 5.   15 See Ala. Code 6–5–486 (1975); Alaska Stat 09.55.548 (1983); Cal Civ Proc Code 667.7 (West 1980); Del Code Ann 18, 6864 (supp 1984) Fla Stat Ann 768.51 (West 1986); III Ann Stat ch 110, paras 2–1701 to 2–1719 (Smith-Hurd Supp 1986); Kan Stat Ann 60–2609 (1983); La Rev Stat Ann 40:1299.39 and 40:1299.43 (West Supp 1986); Md Cts & Jud Proc Code Ann 3–2AO8(b) (1974); NH Rev Stat Ann 507–C:7 (1983); NM Stat Ann 41–5–7 (1978): NY Civ Prac L & R 5031 to 5039 (McKinney Supp 1986) Or Rev Stat 752.070 (1985); S D Codified Laws Ann 31–3A–5 to 21–3A–13 (Supp 1986); Utah Code Ann 78–14–9.5 (Supp 1986); Wash Rev Code Ann 4 56 240 (Supp 1983); Wis Stat Ann 655 015 (West Supp 1985).

 

 

Constitutionality Of Legislation Providing For Periodic Payments

10.14

The constitutionality of legislation providing for periodic payments has been tested in many state courts. For example, the California legislation providing for periodic payments in medical malpractice actions¹⁷ was challenged for breaching the due process and equal protection principles in the United States Constitution. The courts have consistently held its provisions to be constitutional.

10.15

During the 1970s, a number of states enacted statutes providing special procedures and rules for recovery in medical malpractice actions. One such special rule adopted in some jurisdictions provided for the periodic payment of future damages in such actions. In determining the constitutional validity of these provisions, the courts have dealt with issues of whether state or federal constitutional provisions for due process of law, equal protection of the laws, or the right to trial by jury were violated thereby. The leading case in this regard is American Bank & Trust Co v Community Hospital.¹⁸

10.16

In this case it was held that a state statute providing for periodic payment of future damages in medical malpractice actions was constitutionally valid in that it did not deny “due process of law”, “equal protection of the law”, or “trial by jury”, as alleged by opponents of such statutes.

10.17

The Court rejected attacks on the constitutional validity, under both federal and state constitutions, of a statutory provision for the periodic payment of future damages in medical malpractice actions.¹⁹ Rejecting the claim that the statute violated due process by reducing the rights of a class – victims of medical malpractice – without a corresponding quid pro quo, the Court observed that a plaintiff has no vested property right in a particular measure of damages, and that the legislature has broad authority to modify the scope and nature of such damages.

10.18

As to the plaintiff's argument that the legislation was not “rationally related” to the ends sought – reducing “skyrocketing” medical malpractice premiums which increased health care costs, as well as assuring the availability of funds to the victim of malpractice when they were needed – the Court declared

16 Laws 1985, Ch 294, S I legislative findings and declaration.   17 See Appendix 6.   18 (1984) 36 Cal.3d 359, 683 P.2d 670, 204 Cal. Rptr 671.   19 Cal Code Civil Procedure, s667.7. Reproduced in Appendix 6.

 

 

that although reasonable persons might disagree as to the wisdom of the legislative approach to the problem, it was clearly not irrational.

10.19

The Court pointed out that the argument that the statute's failure to contain malpractice insurance costs was based on unsubstantiated doubts, and thus had never been given a fair trial in practice. In any event, the Court said, “rationality” is not determined by success. Responding to an argument that the statute violated equal protection of the laws, the Court declared that equal protection was not violated by the statute through the creation of a privileged class of tort defendants. The statute was a reform measure and the equal protection clause does not prohibit the legislature from implementing reform “one step at a time”. The Court noted the existence of sentiment to the effect that all future tort damage should eventually become subject to the “periodic payments” formula.

10.20

Finding the statute ambiguous on the issue whether the amount of future damages so to be paid was a matter for judge or jury, the Court declared that, in any event, the provision for the Court to determine the actual amount of each periodic payment was not an unconstitutional interference with the right to jury trial, such right being protected so long as there is no impairment of the substantial features of a jury trial by improper interference with the jury's decision.

10.21

The Court concluded by finding the statute not to be vague, and therefore not unconstitutional, notwithstanding its leaving unsolved the problem of actual formulation of such periodic payments. Trial courts would deal with such issues as they had in time-honoured fashion, and appellate courts would remain available to aid in the familiar task of filling in statutory gaps.

10.22

A statutory provision in Wisconsin for payment into a “future medical expenses fund” of medical malpractice awards exceeding $25,000, such amounts to be disbursed in periodic payments for such expenses until the amount was exhausted or the patient should die, was held by the Court in State ex rel Strykowski v Wilkie²⁰ to be a valid legislative enactment which could not be said to be unreasonable or to deny equal protection of the law. Refusing to apply a strict scrutiny to the statute, which in its view involved no suspect classifications and affected no “fundamental” rights, the Court declared that the procedure in question was obviously intended for the benefit of a claimant with substantial injuries requiring long-term treatment. The Court would not concern itself with the wisdom or correctness of the legislative determination, but only with whether there was a reasonable basis upon which the legislature might have acted.

20 (1978) 81 WIs.2d 491, 261 N.W.2d 434.

 

 

10.23

In North Dakota, the Court in Arneson v Olson²¹, although holding invalid as a whole a medical malpractice statute on the basis of state constitutional inadequacies (irrelevant to this particular issue), obliquely considered the issue of a provision for periodic payment of future damages, declaring that it found no constitutional objection to the last sentence of the section providing for such payments, whereby a judgment so entered might be subject to modification or termination on the basis of specified contingencies. The Court construed the modification provision as relating only to periodic rather than lump-sum payments, and the contingencies in question to be those stated in advance in the original judgment itself. By considering and declaring constitutional a particular aspect of the periodic payments provision, it might be argued, the Court may have indicated that it would give favourable consideration to the provision itself were it to come before the Court as part of a statute otherwise constitutional.

10.24

However, not all state legislation has succeeded in avoiding some element of unconstitutionality in its provisions. For example, the Court in Carson v Maurer²² held that statutory provisions for periodic payment of future damages in medical malpractice actions were unconstitutional as violating “equal protection” provisions.

10.25

The Court held that the right to recover for medical malpractice fell within an “equal protection” evaluation category lying somewhere between those matters requiring fulfilment of a “compelling state interest” for validity and those requiring only a “rational basis”. The Court held invalid under the test adopted –“a fair and substantial relation to the object of the legislation”– a statute providing, inter alia, for periodic payment of future damages exceeding $50,000 in medical malpractice actions. The Court noted that the purpose of the provision relating to periodic payments in such instances was to reduce medical reparations system costs by eliminating a bonus element, consisting of the payment of portions of the award no longer required to compensate a malpractice victim who dies before the expiration of his or her actuarial life expectancy.

10.26

The Court declared that, regardless of whether the provision substantially furthered that purpose, it unreasonably discriminated in favour of health care defendants, while unduly burdening seriously injured malpractice plaintiffs. Noting further that this provision was apparently designed to insure that the claimant with substantial injuries requiring long-term treatment would have money available to pay for future medical care, the Court found this a questionable benefit, particularly the denial of a plaintiff's right to dispose of the property obtained in a judgment as and when he or she pleased. The Court

21 (1978) 270 N.W.2d 125.   22 (1980) 120 NH (New Hampshire State Supreme Court) 925, 424 A.2d 825, 12 ALR 4th I.

 

 

pointed out that, although the statute prevented the injured party's distributees from gaining a windfall through the victim's premature death, by the same token it created a windfall in such event for the tortfeasor's insurer. Finally, the Court said, a statute singling out seriously injured malpractice victims with over $50,000 in future damages offended basic notions of fairness and justice by requiring one class to shoulder the burden inherent in a periodic payment scheme from which the general public benefited, so that the statute in question constituted an unreasonable exercise of the legislature's police power violating the state's equal protection guarantee.²³

23 For further commentary on these Acts see Henderson: Periodic Payments of Bodily Injury Awards, (1980) 66 American Bar Association Journal 734; and Grossman and Roman, The Model Periodic Payment of Judgments Act: An Economic Analysis (1982) 18 Trail Magazine 62.

 

 

SECTION IV: CANADA

CHAPTER 11: THE PERSONAL INJURIES ACTION

11.1

As the Canadian legal system is a common law system, the civil action for damages for personal injury is based on similar principles of tort to those applied in Ireland and England. In examining the application of these principles in Canada, it must be remembered that all the provinces in Canada have enacted some form of statutory no-fault compensation schemes for work and road injuries.¹

11.2

As in Ireland and England, damages in a civil action can only be awarded in the form of a lump sum which must include a final estimate of losses incurred before the trial and future losses. The Canadian courts have no power to order periodic payments. This was the express finding of the Canadian Supreme Court in Watkins v Olafson² where it was held that, in the absence of legislation, the Court had no power to award the periodic payment of damages. McLachlin J explained the Court's reasoning:

11.3

As to the question whether to assess damages for personal injury in

1 See Pearson, Vol 3.   2 [1989] 2 SCR 750, 61 DLR (4th) 577.   3 61 DLR (4th) 577 at 584.

 

 

terms of a global sum or to allocate amounts to the separate heads of damages, the Canadian courts have only recently come down in favour of the latter approach.⁴

11.4

The significance of the courts' choice of approach is that if legislation introducing a power to award periodic payments is enacted but this power is restricted to certain “heads” of damages (e.g. only future losses, as in many US states), then the impact that the new legislation will have will be easier to assess, and the legislation will be less complex, if the courts are in the habit of assessing personal injuries damages awards under separate headings.

11.5

In the Andrews⁵ case Dickson J stated:

11.6

In Arnold v Teno,⁶ Spence J approved the following dictum of Zuber J in the court below:⁷

11.7

The fourfold classification of damages awards approved by the Supreme Court involves a division of the heads as follows:

11.8

So far as the three heads of pecuniary loss are concerned, the arithmetical approach to assessment will require further itemization, and may thus involve sub-categorisation within those heads. However, despite a well-recognised subdivision of the head of non-pecuniary loss,⁸ it was the view of the Supreme Court that damages under that head should be awarded globally, because of the clear overlap between its subdivisions. Dickson J in the Andrews case explained this view as follows:

11.9

As to whether or not these cases were intended to set down an approach to be adopted by courts in all personal injury actions, Cooper-Stephenson and Saunders¹⁰ comment that:

8 Phillips v South Western Railway (1879) 4 QBD 406.   9 (1978) 83 DLR (3d) 452 at 478.   10 Personal Injury Damages in Canada (Toronto, 1981).   11 (1978) 89 DLR (3d) 112.   12 Ibid, at 128.   13 Cooper-Stephenson and Saunders then note that “[t]his practice is now being followed in almost all personal injury cases”.

 

 

11.10

In terms of the legislative reforms that have been introduced in Canada with respect to periodic payments, it is interesting to note the approach the Canadian courts have taken to the effect that (i) taxation and (ii) inflation and interest should have on the assessment of a damages award.

(i) Taxation

11.11

The position adopted by the Canadian courts in relation to what effect future income tax rates should have on the calculation of an award for loss of future earnings is different to that adopted in Ireland and the United Kingdom.

11.12

Dickson J, in the Andrews¹⁵ case, summarised the position as follows:

11.13

This approach has been criticised as tending to over-compensate the accident victim.¹⁷ It also, interestingly, contrasts with the position in fatal accident cases.¹⁸ Explaining the reasoning behind this difference, Dickson J stated:

14 Cooper-Stephenson and Saunders, supra n. 10 at p49.   15 (1978) 83 DLR (3d) 452.   16 Ibid, at 474–75 (SCC).   17 See Cooper-Stephenson and Saunders, supra n. 10 at pp185–89.   18 This will be covered later on in this Chapter.

 

 

(ii) Inflation and interest

11.14

In this regard, the approach of the Canadian courts has more in common with the approach in Ireland than with that adopted in the United Kingdom. As has been seen,¹⁹ the English courts decided, effectively, to ignore both considerations of inflation and interest rates on the grounds that these factors generally tended to cancel each other out and were in any event too speculative. While fluctuating economic conditions tend to lend support to the latter argument, the Canadian courts have chosen to include the variables of inflation and interest rates when calculating the lump sum amount to a plaintiff for future losses.

11.15

Once again, the position was definitively stated in the Andrews case, where Dickson J stated:

19 See Chapter 5.

 

 

11.16

According to Cooper-Stephenson and Saunders “[t]here is little doubt that emphasis on the average expected differential between inflation and interest rates will do greater justice to personal injury victims”.²¹ They then refer to research carried out by Gibson²² who looked at inflation and interest rate figures for Canada for the period 1965–77.

11.17

Gibson observed:

11.18

Interestingly, Cooper-Stephenson and Saunders in their conclusions argue for an approach, and a discount rate, which would produce very similar results to those achieved in Ireland in the Griffiths v Von Raaj case (where the discount rate settled on was 2.5%).²⁴ They state:

20 (1978) 83 DLR (3d) 452 at 471–2.   21 Supra n.10 at p267.   22 D Gibson, Repairing the Law of Damages (1978) 8 Man LJ 637.   23 Ibid, at pp651–2.   24 See Chapter 2.

 

 

11.19

As to how the problems presented by these uncertainties could be resolved, they comment:

25 Ibid, at p274.   26 Ibid, at p151.

 

 

CHAPTER 12: FATAL ACCIDENT ACTIONS

12.1

As in Ireland there are two types of action possible in Canada where the victim in an accident dies. They are a survival action and a fatal accident claim.

The Survival Action

12.2

With one exception, actions for personal injury everywhere in Canada survive for the benefit of the injured party's estate, regardless of whether death was due to the conduct of the defendant or independently caused. The lone exception is Saskatchewan, where actions are preserved only in the case of injuries “not resulting in death”. However, as a general proposition, the modern law does not create a new cause of action based on the death; it merely extends to the personal representative the existing rights of the injured party. As Furlong CJ stated in Anthony v Fleming.¹

12.3

It should be noted that survival actions are in addition to and not in derogation of any rights under the Fatal Accidents Acts, though damages received by way of a survival action may be taken into account in a fatal accident claim.²

12.4

In terms of the measure of damages recoverable in a survival action, the injured party's estate is restricted by the fact that only such rights as were vested in the deceased immediately before he or she died are preserved.

12.5

Consequently, the general rule is that an estate can recover in respect of all the losses for which the injured party would have been compensated had he or she survived to pursue the claim, subject only to the effect of the death on the substance of those losses. However, most jurisdictions have legislatively modified the rule, in one or both of two ways: (a) by excluding some damages normally allowed, e.g. damages for non-pecuniary loss, and (b) by allowing some damages normally excluded, e.g. funeral expenses. In the result, the measure of damages in a survival action is the above-stated general rule as amended, if at all,

1 (1962) 37 DLR (2d) 93.   2 Ibid, at p94.

 

 

by the statute in question.

12.6

In terms of damages specifically for loss of future earnings, most Canadian provinces exclude any damages for future earnings or profit.³ Cooper-Stephenson and Saunders comment that:

12.7

Most statutes expressly prohibit recovery under this head. Most explicit of all is the British Columbia legislation, which precludes “damages in respect of expectancy of earnings subsequent to the death of the deceased which might have been sustained if the deceased had not died”. Less explicit, though equally effective it seems, are those Acts which limit compensation to “actual financial loss”. As for the remaining legislation, however, the denial of prospective pecuniary loss is difficult to justify on the wording. This includes the Manitoba statute, even though it provides that “damages shall be calculated without reference to any loss or gain to the estate consequent on his death”.

12.8

Derived from an English statute,⁵ this oddly-phrased provision⁶ was at first thought to bar recovery of future loss,⁷ but the predominant view now⁸ is that it excludes only those items which in the nature of things the deceased could never have gained or lost while alive.⁹ Insurance money due on death is an example of such a gain, while funeral expenses and annuities ceasing on death are examples of such a loss.¹⁰ So, in Manitoba, the Northwest Territories, Ontario and the Yukon, damages for future loss seem in practice to be refused when in law they are arguably recoverable, on the ground that they are not statutorily prohibited. At the same time, to deny lost earnings or profits may well achieve the preferable result, which, as one commentator has pointed out,¹¹

3 This was the position favoured by the English Law Commission in its Report on Personal Injury Litigation Assessment of Damages (1973), at pp28–9.   4 Ibid, at p390.   5 Law Reform (Miscellaneous Provisions) Act, 1934, s1 (2)(c).   6 H McGregor, Damages (1972), at p380.   7 Slater v Spreag [1936] 1 KB 83 at 87–88, per McKinnon J obiter. In Canada, the point was left open in Stebbe v Laird [1938] 1 DLR 240 at 245 (Man. KB).   8 First explained by Lord Wright in Rose v Ford [1937] AC 826 at 842.   9 H Street, Principles of the Law of Damages (1962), p146. See also H McGregor, Damages (1972), p380.   10 Examples given by Lord Wright in Rose v Ford. And see N Hutton, Mechanics of Law Reform (1961) 24 MLR 18, at p25; Whitten v Pottronetti (1974) 44 DLR (3d) 120 at 128 (Man. QB).   11 J A Jolowicz, [1960] Camb LJ 160, at p163.

 

 

would not be the first time that a mistaken view of the law has provided the correct solution.

The Fatal Accident Action

12.9

Every province in Canada has now enacted, in some form or other, legislation to allow family members and dependents to bring fatal accident claims.¹² Fatal accident claims are separate from survival actions, though damages received by way of a survival action may be taken into account in a fatal accident claim.

12.10

For the most part only relatives are protected. These typically include the wife, husband, parents, children, grandparents, grandchildren, step-parents and step-children. Brothers and sisters are sometimes included, while certain statutes also accord rights of suit as a result of so-called “illegitimate” and adoptive relationships, including de facto adoptive relationships. By far the longest list of beneficiaries can be found in the recent law of Prince Edward Island. There, protection is expressly furnished, to a child en ventre sa mere, “a spouse of a child, grandchild or parent of the deceased”, and, in prescribed circumstances, a divorced spouse and the surviving partner of unmarried cohabitation, the latter having gained some standing also in Ontario. Prince Edward Island even affords rights to “any other person who for a period of at least three years immediately prior to the death of the deceased was dependent upon the deceased for maintenance and support”.

12.11

The limitation period for a fatal accident suit is usually either one or two years, with time commencing to run from death. Only one action lies and, regardless of the nominal plaintiff, every action is deemed to be for the benefit of all dependants who have suffered actionable loss. The claim should be brought by the executor or administrator of the deceased's estate, not however as representative of the deceased but as fiduciary for the beneficiaries. Where there is no executor or administrator, or no action is brought by him or her within a designated time, any or all of the beneficiaries can commence proceedings themselves. And should it happen that the wrongdoer dies before

12 Current statutes, not including amendments, are: The Fatal Accidents Act, RSA 1970, c138; Family Compensation Act, RSBC 1979, c120; The Fatal Accidents Act, RSM 1970, cF50; Fatal Accidents Act, RSNB 1973, cF–7; The Fatal Accidents Act, RS Nfld 1970 c126; Fatal Accidents Ordinance, RONWT 1974, cF–3; Fatal Injuries Act, RSNS 1967, c100; Family Law Reform Act, 1978 (Ont), c2, ss60–64; Fatal Accidents Act, PEI 1978 c7; The Fatal Accidents Act, RSS 1978, cF–11; Fatal Accidents Ordinance, YT 1980, c9. And note the fatal accidents provisions in the Canada Shipping Act, RSC 1970, cS–9, ss718–726; LeVae v SS Giovanni Amendola [1959] Ex CR 24, affirmed as to damages [1960] Ex CR 492. Also the Carriage by Air Act, RSC 1970, cC–14; Frederick v Ottawa Aero Services Ltd (1964) 42 DLR (2d) 12, affirmed (1964) 48 DLR (2d) 702n (SCC). Further on the new Ontario legislation, which is very poorly drafted, see I Ellyn, Damages for the Injured Plaintiff: Can the Value of Non-Contracted Services be Recovered under Ontario Law? (1979–80) 2 Advocates' Q 47; M Smith, Part V of the Family Law Reform Act, 1978 (1977–78) I Advocates' Q 367; T Sagel, The Family Law Reform Act, 1978: Changes in Procedure in Personal Injury Litigation (1979–80) 2 Advocates' Q 478.

 

 

the victim, the latter's dependants can still sue.

12.12

The effect of taxation on the assessment of damages in fatal accident cases is different to that in personal injuries actions. The Supreme Court in R v Jennings¹³ had set out the position in relation to personal injuries actions, namely, that damages for loss of future earnings were to replace a “lost capital asset of earning capacity” and therefore were not to be reduced by taking future income tax on those earnings into account.

12.13

Initially, the courts were in doubt as to whether the decision in Jennings applied to fatal accident cases. For, traditionally, the value of lost dependency has been calculated on the basis of a proportion of the deceased's earnings after tax. The courts, in general, took the view that fatal accident cases were distinguishable on the theoretical basis that the value of a dependency necessarily required that the deceased's after-tax income be considered, and that lost dependency could not be constructed as the loss of a capital asset. However, in Gehrmann v Lavoie,¹⁴ the Supreme Court of Canada decided to bring fatal accident cases into line with cases for personal injuries, and applied the Jennings case to an action under the British Columbia Families' Compensation Act.¹⁵ Compensation for lost dependency was to be based on the deceased's gross earnings. Then, in 1978, the Supreme Court reversed itself in Keizer v Hanna,¹⁶ a decision of the full Court. The leading judgment of de Grandpre J made reference to the general attitude of the legal profession over the years¹⁷ to the number of fatal accident cases based on the deceased's net earnings,¹⁸ to the views of various writers¹⁹ and to the “fundamental” theoretical distinction between a claim for lost dependency and a claim for loss of earning capacity by a personal injury victim.²⁰

12.14

There was also initial uncertainty in Canada as regards the allowance to be made for interest rates and inflation. The position was clarified in the case of Lavis v Todd²¹ where Dickson J explained:

13 (1966) 57 DLR (2d) 644 (SCC).   14 (1976) 59 DLR (3d) 634 (SCC).   15 RSBC 1960, c138.   16 (1978) 82 DLR (3d) 449 (SCC).   17 Ibid, at p465.   18 Ibid, at pp465–7.   19 Ibid, at pp466–67, McGregor on Damages, 13th ed (1972), para 407; Stevenson and Orr, The Tax Element in Damages (1956) British Tax Review 6; H Street, the Law of Torts 6th ed (1976); JG Fleming, The Law of Torts, 4th ed (1971); Income Tax and Damages in Delict (1950) 67 South African LJ 296.   20 Ibid, at pp466–68.   21 (1980) 14 CCLT 294.

 

 

12.15

This is much the same approach as that adopted in personal injuries actions. Once again it draws some criticism from Cooper-Stephenson and Saunders, who argue:

12.16

Once again the experience in Canada has been that the obligation to award plaintiffs their compensation for future losses in a lump sum value at present day values is a complicated and inexact science.

22 Ibid, at 309–310.   23 Personal Injury Damages in Canada, (Toronto, 1981) at 455–6.

 

 

CHAPTER 13: STRUCTURED SETTLEMENTS AND OTHER REFORMS

13.1

As in the United States, there was a growing dissatisfaction in Canada with the once-off, lump sum award. In the early 1980s, structured settlements began to be used to combat some of the uncertainties with the lump sum award. The tone was set in 1978 in the Andrews v Grand & Toy Alberta Ltd¹ case, where Dickson J commented:

Structured Settlements

13.2

The structured settlement market has been in existence in Canada for over ten years and according to Frenkel:³

13.3

Frenkel also comments that, unlike in the United States, “the structured settlement market ... is principally Plaintiff driven.”⁵

13.4

In Canada, the advantages to the structured settlements are similar to those in the United Kingdom and the United States. First, periodic payments received pursuant to a structured settlement are generally totally tax-free in the hands of the plaintiff. To gain this benefit, however, the structured settlement must be properly arranged. The following are essential characteristics:

1 (1978) 2 SCR 229.   2 Ibid, at 236.   3 In his paper delivered at a Seminar in Sheffield, July 1991, and reproduced in Structured Settlements – A practical guide to using structured settlements in personal injury cases.   4 Ibid, at p3.   5 Ibid.

 

 

13.5

The situation that gave rise to structured settlements being used in Canada was very similar to that in the United Kingdom. The Canadian revenue authority, Revenue Canada, conferred a tax advantage on structured settlements complying with these criteria by ruling that interest earned on the lump sum premium by the life insurance company which issues the annuity is accumulated and paid to the plaintiff tax-free. By contrast, if the plaintiff had received the same amount of principal as a lump sum, he or she would be liable for tax upon the interest income earned on investment of that lump sum.

13.6

As with the agreement in the United Kingdom between the ABI and the Inland Revenue,⁶ this favourable tax treatment results only from an administrative decision of Revenue Canada.⁷ There is no legislation which guarantees the tax advantage; and advance tax rulings are obtained from Revenue Canada for each case in which an annuity-funded structured settlement is being considered.

13.7

Thus, with a tax-free status, a structured settlement/award providing benefits identical to a lump sum settlement is less expensive to the defendant, and therefore has advantages for both liability insurers and life insurers. The Manitoba Law Reform Commission cites the following example:⁸

6 See Chapter 7. The agreement is reproduced in Appendix 3.   7 The decision is recorded in Revenue Canada's Interpretation Bulletin, IT 365R of 1981.   8 Manitoba LRC, Report on Periodic Payment of Damages for Personal Injury and Death, No. 68, 1987.

 

 

13.8

In 1987, Revenue Canada restricted the tax-free status of annuity payments by a revision of its earlier 1981 ruling. The new ruling¹⁰ states that the “casualty insurer is the owner of, and annuitant (beneficiary) under, the annuity contact and must report as income the interest element inherent in the annuity contract while the payments received by the claimant represent, in the Department's view, non-taxable payments for damages.” (emphasis added). However, the insurer is entitled to set off against its liability the annuity payments made to the claimant as claims expenses, and thereby put itself in a tax-neutral position. This is the same arrangement that exists in the United Kingdom, where the general (defendant) insurer has to pay tax on the annuity payments received from the life insurer but can write these off against other taxable income.¹¹

13.9

Under a personal injury annuity contract, the defendant (or his liability insurer) pays a single lump sum (capital premium) to a life insurer (“the issuer”) in return for which the issuer agrees to pay periodic amounts to the plaintiff. Those amounts are made up of two blended components:

Ontario

13.10

The Ontario Law Reform Commission carried out a study of this area in 1987 which appears in their Report on Compensation for Personal Injuries and Death.¹²

13.11

In that Report, the subject of periodic payments is examined,¹³ in particular the issue as to whether the Court should be allowed order periodic payments and whether they should be reviewable.

13.12

The majority decided not to recommend any change in the existing law either to allow for periodic payments to be awarded contrary to the wishes of

9 Ibid, at p41.   10 Recorded in Interpretation Bulletin, IT 365R2, 1987.   11 This is further outlined in Chapter 7.   12 Ontario LRC, Report on Compensation for Personal Injuries and Death, 1987.   13 See Chapter 5 of the Report.

 

 

either party or to make these payments reviewable.¹⁴

13.13

The Vice Chairman, H Allan Leal, DC, QC, dissented and argued in favour of the approach adopted by the Manitoba Law Reform Commission, where it was recommended that the court be given the power to order periodic payments in its own discretion.¹⁵

13.14

Despite these recommendations against giving the court power to order periodic payments, the Ontario legislature has since taken the lead in enacting statutory provisions giving the court the power to order them.

13.15

Section 129 of the Courts of Justice Act, 1984, SO 1984, cll, provided that, in a proceeding in which damages are claimed for personal injuries, or in a proceeding brought under Part V of the Family Law Reform Act, 1986, where all the affected parties consent, the court may order the defendant to pay all or part of the award of damages periodically. The Courts of Justice Act, 1984, was amended by SO 1989, c67, to make structured settlements mandatory where the plaintiff requests a gross up for income tax, unless the parties agree that such an order should not be made or the court determines that it would not be in the best interests of the plaintiff to make such an order.¹⁶

13.16

Frenkel comments that “as this is the lead province in relation to legal matters it is anticipated that this will come to be the norm nationwide”.¹⁷

Manitoba

13.17

The Law Reform Commission of Manitoba produced a Report on this topic in 1987¹⁸ and proposed that legislation be adopted to allow for the courts to order periodic payments of damages in personal injury cases. The Commission drafted an Act¹⁹ in the matter, and features of particular interest in this Act are the proposal that the decision to order periodic payments be in the sole discretion of the court and that the courts be permitted to make an order for the periodic payment of any aspect or “head” of damages as part of the award.

14 Ibid, at p178.   15 Ibid, at pp175–178.   16 A copy of the current provision now contained in section 116 of the Courts of Justice Act, RSO 1990, is reproduced in Appendix 8.   17 Ibid, at p3.   18 Manitoba LRC, Report on Periodic Payment of Damages for Personal Injury and Death, No. 68, 1987.   19 See Appendix 9 for a copy of the proposed Act.

 

 

13.18

In general, the view of the Manitoba LRC was that the ambit and circumstances of any order or award of damages to be paid periodically should be left to the court unfettered by legislative guidelines.

13.19

The basic recommendation in the Report is that “legislation be enacted to authorize the courts to award damages for personal injury or death by way of periodic payments”.²⁰ In making this proposal, the Manitoba LRC sought to address three problems: the inherent inaccuracy of lump sum awards; the large size of damages awards; and “money management”, that is, concern over the possibility that plaintiffs may dissipate lump sum damages awards.

13.20

They did not recommend that periodic payments be made subject to review. The Commission rejected a system of reviewable payments because of the loss of finality, the additional burden and expense that would be placed on the courts and the parties, and the difficulties that would be faced by insurers, the last of which, it suggested, would necessarily lead to increased cost that would be reflected in higher liability insurance premiums.²¹ The Commission was of the view that further study would be necessary before it could propose a reviewable system.²² The Commission did acknowledge, however, that merely providing for periodic payments would preserve a “major element of inaccuracy”²³ and would not alleviate the problem of delay.

13.21

The Manitoba Law Reform Commission made more than twenty recommendations dealing with various aspects of periodic payments. The most significant of them are referred to below.

13.22

The Commission recommended that no restriction should be placed either on the types of case in which courts may grant damages in the form of periodic payments or on the heads of damage in respect of which periodic payments may be ordered.²⁴ The Commission further recommended that the decision to order periodic payments should rest entirely in the discretion of the court, and expressly rejected systems under which the jurisdiction to do so depends on the preference of either party, or both of them.²⁵

20 Ibid, at p63.   21 Ibid, at pp65–66.   22 The Manitoba Law Reform Commission also considered a scheme of provisional damages, such as that recommended by the English Law Commission (see Law Commission Report, supra, note 8), and later enacted by the Administration of Justice Act, 1982, s6, as well as the possibility of interim damages: see Manitoba Report, at pp67–68. As with reviewable periodic payments, its view was that further study was necessary before either of these alternatives could be endorsed.   23 Ibid, at p63.   24 Ibid, at pp74–79.   25 Ibid, at pp79–83. It was further recommended that “the legislation authorizing the awarding of damages by periodic payments contain neither guidelines for the exercise of the court's discretion nor a preamble as to the legislation's purpose”: ibid, at p85.

 

 

13.23

With respect to the important question of securing future payments, the Commission made several proposals. The basic recommendation was that adequate security for an award of periodic payments should be posted by or on behalf of the defendant, unless the court determined otherwise. The Report proposed further that “security be in the form of an annuity contract issued by a life insurer satisfactory to the court or in any other form of security satisfactory to the court”.²⁶

13.24

With respect to the impact of inflation, the Commission recommended that, rather than allow courts to determine the inflation rate on a case-by-case basis, “all judgments awarding damages by periodic payments provide that the amount of the periodic payments shall increase over time in recognition of inflation at a rate specified in the legislation”.²⁷ The specified rate of inflation, it was proposed, should reflect the long-term rate of inflation in Canada, and should not be varied to take account of short-term changes in inflation. The Commission further recommended that the specified rate of inflation, to be established in consultation with the life insurance industry, should be based on the long term trend of the Consumer Price Index of Canada, All Items (Not Seasonally Adjusted).²⁸

13.25

In addition to the foregoing matters, the Commission considered:

13.26

They decided

13.27

The Manitoba Report and its recommendations have yet to be implemented. In commenting on the Manitoba Report, the Law Reform Commission of Tasmania noted that:³³

British Columbia

13.28

In the province of British Columbia, the Justice Reform Committee produced a Report in 1988, which also recommended that legislation be introduced to allow the courts to order awards of damages by way of structured settlements.³⁵ The intent behind this recommendation was to clear up any uncertainty over whether or not the courts had the authority to order the payment of an award by way of structured settlement.³⁶

13.29

Legislation was introduced to the Parliament in British Columbia in May 1990, and the Structured Compensation Act (Bill No 29) has been referred to a Standing Committee of the legislature for its inquiry and recommendations.

13.30

This Structured Compensation Bill aims at providing for periodic compensation under any or all heads of damages by requiring the defendants' insurer to purchase a single premium annuity contract which must be non-assignable, non-commutable and non-transferable. Payments under the annuity contract must be made directly to the plaintiff. The court may only make a structured compensation order if the defendant is backed by an insurer; and may seek the recommendations of experts as to the provisions to be contained in the annuity contract, the cost thereof, and the choice of the appropriate life insurer or financial institution proposed to issue the annuity contract. Most importantly, the court may override a plaintiff's wish to receive a lump sum award for future loss, and may order that such compensation be by way of periodic payments where it considers that the best interests of the parties would be served by structuring the compensation in the manner contemplated by the Act.

32 Recommendations 11 and 12.   33 Law Reform Commission of Tasmania, Report No.67, Damages for Personal Injury.   34 Ibid, at p41.   35 Access to Justice: The Report of Justice Reform Committee, BC, 1988.   36 The Committee's Report (which was only 1 page) appears in full in Appendix 10.

 

 

13.31

According to the Law Reform Commission of British Columbia, this Bill is still under consideration by the legislature.

 

 

SECTION V: OTHER COMPARATIVE ASPECTS

CHAPTER 14: AUSTRALIA

14.1

Compensation for personal injury in Australia is based primarily on the common law action of tort. Legislation providing for periodic payments has been enacted in three Australian states. In 1966, with the enactment of the Motor Vehicle (Third Party Insurance) Amendment Act, 1966,¹ Western Australia became the first jurisdiction in the common law world to depart from the lump sum award of damages.² The following year, the Supreme Court Acts, 1935–1966, were amended in South Australia to confer authority on the courts to order periodic payments.³ New South Wales introduced a power for the courts to award periodic payments in serious road accident cases with the enactment of the Transport Accidents Compensation Act, 1987.

Western Australia

14.2

Under the Western Australia Motor Vehicle (Third Party Insurance) Act, 1943, as amended in 1966 and 1972,⁴ the court has power to order payment of damages by way of lump sum or periodic payments, or both, in claims for death or bodily injury caused by, or arising out of, the use of a motor vehicle.⁵ Periodic payments may be ordered for whatever period the court determines. At any time, the court, either acting on its own motion or on an application by a party, may review the payments and order them to be varied or terminated. Apparently, periodic payments have been ordered rarely under the legislation.⁶ In the first 15 years of the Act's operation, only 33 orders for reviewable periodic payments were made.⁷

1 No. 95 of 1966, s15.   2 In non-common law jurisdictions, damages by way of periodic payments are more common: see, generally, Fleming, Damages: Capital or Rent? (1969) 19 U Toronto LJ 295.   3 Supreme Court Act Amendment Act (No. 2), 1966–1967, No. 21 of 1967, s4.   4 No. 32 of 1943, s16(4), as amended by No. 95 of 1966, s15 and No. 42 of 1972, s6.   5 Originally, in 1966, the power to order periodic payments had been given to a special motor claims tribunal, known as the Third Party Tribunal. In 1972, on its abolition, the power was conferred on the court: see Motor Vehicle (Third Party Insurance) Amendment Act, 1972, No. 42 of 1972.   6 New South Wales Law Reform Commission, Report on a Transport Accidents Scheme for New South Wales, LRC No. 43 (1984) (hereinafter referred to as “New South Wales Report”), Vol 1, para 4.6, at p82.   7 See Luntz, Damages for Personal Injury: Rhetoric, Reality and Reform from an Australian Perspective (1985), 38 Current Legal Probs 29, at p34.

 

 

South Australia

14.3

The power to order periodic payments was first introduced in Southern Australia in 1967.⁸ Pursuant to section 30b of the South Australia Supreme Court Act, 1935–80, in an action for damages, the court may make a declaratory order on the issue of liability and postpone the determination of damages. Where such an order is made, the court may order interim payments on account of damages. In addition to, or instead of, an order for interim payment, the court may order periodic payments for a fixed period or until a further order. Periodic payments may be varied or terminated by the court on the application of any party.

14.4

Where the court has postponed the determination of damages, any party may apply for a final assessment of damages. In an action for personal injury, where such an application has been made, the judge must undertake a final assessment where the plaintiff's medical condition has stabilised, or where a period of four years has elapsed since the original declaratory judgment. However, even where these conditions are met, a final assessment may be refused if the judge is of the view that there are special circumstances that justify continuing postponement of that assessment.⁹

14.5

Unlike the Western Australia legislation, the availability of periodic payments is not confined to compensation for motor vehicle accidents, but extends to all actions that may be brought in the Supreme Court. There is, however, a limitation as to the heads of damage. Interim payment in respect of non-pecuniary loss is not permitted, except in certain, specified cases.¹⁰

14.6

As in Western Australia, the power to order periodic payments has been exercised only rarely.¹¹ In neither Western Australia nor South Australia has there been any study of the reasons why there has been so little recourse to periodic payments.¹² Professor Veitch¹³ suggests that the South Australia changes have “not found favour with the legal profession, the bench or litigants”, because they fail to affect significantly three key problems of the tort system – delay, inexactitude of assessment and cost.¹⁴

14.7

In 1984, the Law Reform Commission of New South Wales produced a

8 By No. 21 of 1967 which amended the Southern Australian Supreme Court Acts.   9 See Supreme Court Act, 1935–80, s30b(6), as enacted by No. 21 of 1967, s4.   10 Ibid, s30b(2).   11 New South Wales Report, see note 6, para 4.7, at p83.   12 Ibid.   13 See Veitch, Cosmetic Reform: Periodic Payments and Structured Settlements (1981–83) 7 U Tasm L Rev 136.   14 Ibid, at p144.

 

 

report on accident compensation for transport accidents.¹⁵ In broad terms, the Report advocated the introduction of a scheme which would provide for no-fault compensation for people injured, or the families of people killed in transport accidents. The Report led to the enactment in New South Wales of the Transport Accidents Compensation Act, 1987.

14.8

Section 81 of the Motor Accidents Act, 1988 (NSW), introduced the mechanism for courts to impose structured judgments by way of periodic payments for future economic loss for New South Wales plaintiffs who have suffered severe permanent or long-term disability as a result of a motor vehicle accident. The defendant must be compulsorily insured.

14.9

However, only months after its commencement, the Act was amended: the express requirement that the plaintiff be severely disabled was removed; and separate provision was made for future care damages on the one hand, and loss of future earning capacity on the other. The court may order that payment be made in accordance with such arrangements as it determines or approves, but only if the plaintiff and the defendant's insurer also agree.

14.10

The Act also now lists the factors to be taken into account in making the order, which include:

In respect of loss of earning capacity, the court may order the purchase of an annuity, with periodic payments to be paid at intervals no greater than 12 months. Any party to the arrangements may apply for their variation or termination.

14.11

In 5 November 1990, the Personal Injuries Damages Bill, 1990 (NSW) was introduced into Parliament. This Bill would empower the court to impose structured judgments so that payments for future economic loss could be made on a periodic basis (as an alternative to “lump sum” payments) in all awards of damages for death or personal injury not actionable under the Motor Accidents Act, 1988 (NSW), the Workers Compensation Act, 1987 (NSW), or the Dust Diseases Tribunal Act, 1989 (NSW). The Bill would require the court to

15 New South Wales Law Reform Commission Report No. 43, Accident Compensation: A Transport Accidents Scheme for New South Wales (1984).

 

 

determine separately the amount of damages for non-economic loss, past economic loss and future economic loss before empowering the court to order periodic payments for the last-mentioned head of damage. The Bill suggests (but does not require) the purchase of an annuity.

14.12

Victoria and Tasmania, which do not have schemes providing for periodic payment of damages within the context of the common law personal injuries action, do have statutory no-fault compensation schemes for injured victims of road accidents.¹⁶

Victoria

14.13

The scheme in Victoria was established under the Motor Accidents Act, 1973. It followed from the recommendations of a special committee set up by the state government to seek ways of reducing the time taken to settle claims and provides for the provision of benefits to road accident victims during an initial period of 104 weeks, without regard to negligence. A claim under the Act must be made within three years of the accident.

Tasmania

14.14

The scheme in Tasmania was established under the Motor Accidents (Liabilities and Compensation) Act, 1973. It followed from proposals made in 1972 by the Law Reform Commission of Tasmania for a no-fault road accident insurance scheme. Common law rights are retained, but benefits are provided on a no-fault basis for a maximum period of 208 weeks.

14.15

Since then there have been further proposals for altering the common law approach of only awarding damages in lump sums. In a Working Paper prepared by Mr R W Baker, QC, in 1981 for the Law Reform Commission of Tasmania, entitled Compensation for Personal Injuries Arising out of Tort, a tentative recommendation was made to empower the Supreme Court to make a preliminary damages award and an order for periodic payments in cases of serious or lasting injury or disability. It was proposed that both pecuniary and non-pecuniary losses would be so payable. Variations in payments according to the rate of inflation were envisaged by an annual revaluation in line with the movement of average earnings.

16 See Pearson, Vol 3 for greater details of these schemes.

 

 

14.16

With narrower terms of reference, the Law Reform Commission of Tasmania published its Report on Compensation for Victims of Motor Vehicle Accidents (No. 52) in 1987, in which it recommended, by a majority, that the Supreme Court should be required to order reviewable periodic payments for future pecuniary losses related to earning capacity, and medical care costs in excess of $5,000. The Commission recommended that lump sum awards should continue to be made for past pecuniary loss; pain, suffering and loss of amenities; and fatal accident claims. The Report refers to widespread support for periodic payments within Tasmania, though its recommendations have not been implemented.

14.17

In 1990, the issue of compensation for personal injury was again referred to the Tasmanian Law Reform Commission, and they produced a Report which recommended that the court be given the power to award damages in the form of periodic payments.¹⁷

The Commission recommended that:

17 Report No. 67, Damages for Personal Injury (1990).

 

 

14.18

As yet the Tasmanian Report has not been implemented.

Australian Federal System

14.19

The viability of no-fault schemes for the whole of Australia was examined in 1973 when the Australian Federal Government set up a Committee under the chairmanship of Mr Justice Woodhouse, called the National Committee of Inquiry on Compensation and Rehabilitation in Australia. The Committee reported in 1974.¹⁸

14.20

The Committee of Inquiry drew attention in its Report in July 1974, first, to what it regarded as a lack of moral basis for the fault theory in that such factors as momentary inattention, fatigue, attitude, age and capacity are ignored; and then, to the plight of those injured persons who, though entirely innocent themselves, frequently receive nothing. The Committee went on to outline what it described as the capricious and selective results of the existing system; the delays and anxieties that lead up to trial and possible appeal; the nature of common law damages, in particular, the finality of awards and such imponderables as future loss of earnings; the effect of the system on rehabilitation; and its costs.

14.21

The Committee recommended that a scheme should cover all incapacities, regardless of cause and irrespective of fault. It took the view that once the principle of community responsibility for the injured is accepted, that same responsibility cannot be withheld from the sick. All persons injured in Australia should be covered, whether their usual place of residence was in Australia or not, but only residents of Australia should be covered for sickness. Injuries received by those convicted of committing serious crimes of violence, such as murder, hijacking and grievous bodily harm wilfully caused, should be excluded.

14.22

The Committee took the view that the scheme should replace any common law actions available. In general the state governments were opposed to the scheme. According to Pearson:¹⁹

18 The Report of the National Committee of Inquiry on Compensation and Rehabilitation in Australia, 1974.   19 Pearson Report, Vol 3, at p 180.

 

 

14.23

The Labour Government who had commissioned the Report began drafting a Bill to implement the Scheme but, with a change of Government in November 1975, the Bill was dropped. Since then the only action that has taken place has been at state level, as outlined earlier in this chapter.

20 Ibid, para 183.

 

 

CHAPTER 15: NEW ZEALAND

15.1

In terms of the scope of this Report, which considers the introduction of some form of periodic payments within the confines of the tort system, New Zealand is in a category all its own. This is because, in 1972, tortious causes of action for personal injuries were abolished, and a statutory scheme of benefits for accident victims without proof of fault was introduced by the Accident Compensation Act, 1972. This Act came into effect in 1974. Under the Act, compensation payments are paid periodically.¹

15.2

There are three aspects to the no-fault compensation scheme. They are (i) the basis of entitlement, (ii) the administration of the scheme, and (iii) the financing of the scheme. In terms of this Report, some of the features of the scheme may have relevance, namely, the types of loss for which periodic compensation is available.

Basis Of Entitlement

15.3

Under the scheme, anyone in New Zealand who suffers a “personal injury by accident” can file a claim for compensation for their losses with the Accident Compensation Commission (“ACC”), the statutory body charged with administering the scheme.

15.4

The provisional heads under which claims may be brought include loss of earnings (in the case of earners) or potential loss of earnings (in the case of non-earners), the cost of medical treatment, expenses generally incurred in consequence of the accident, the cost of necessary attendance on the accident victim, assistance to him or her by others and lump sums for permanent disability, for pain and suffering, disfigurement and loss of enjoyment of life. In cases where the victim dies, dependants are able to claim earnings-related compensation, as well as reasonable funeral expenses. Earnings lost during the first week after an accident are paid in full by the employer if the accident was at work, or by the ACC if not. After this the ACC pays compensation at 80% of the victim's usual earnings; this goes up to 90% in the case of the low paid. If the victim can still work, but his or her earning capacity is diminished, then compensation is paid at 80% of the amount by which his or her earning capacity is lessened. Interim payments may be made while the relevant calculations regarding entitlement are made. There are statutory upper limits on all awards that may be made.

1 See generally the Pearson Commission Report, Vol 3, Chapter 10.

 

 

15.5

One of the most important features of the scheme is that it has unified the approach to all kinds of accidental injury. As Holyoak points out:

15.6

In terms of the principles relied upon in awarding compensation, the ACC does not rely on the old common law principles. The ACC, in a way similar to the Employment Appeals Tribunal in Ireland, is not bound by its own decisions, but has developed a relatively coherent approach to interpreting the key phrase in the legislation “personal injury by accident”. Cases are dealt with on a case by case basis.

15.7

Section 114 of the Act allows the ACC to make a final assessment of the degree of impairment which a permanently injured victim has suffered, when his or her condition has stabilised. In practice, the process of handling such complaints is slow. Another feature of this procedure is that the earnings-related element of compensation can be increased if the victim's condition worsens but it cannot, by law, be decreased if his or her condition improves. This feature of the scheme has been criticised as being overly generous to some claimants.

Administration Of The Scheme

15.8

The scheme is administered by the ACC. The ACC has twelve centres in the country and 40 smaller centres administered by state insurance offices or private insurance companies who act as agents of the ACC. To file a claim an individual fills in a form at an ACC office or a post office. Since only the ACC can reject or accept claims, all prospective claims are then sent to the ACC's head office in Wellington. The procedure for dealing with claims is straightforward. An ACC officer will examine the claim. If he or she refuses it, then his or her superior must check it. If both agree that the claim is not merited, then a “pre-decision” letter is sent to the claimant explaining that the claim may not be sustainable and inviting the claimant to provide further relevant information. Only after 21 days does the ACC proceed to make a formal decision to reject a claim. If the claimant is dissatisfied with the decision, he or she can then request the Commission to review the decision. This formal review can consider any evidence, which evidence will be made available to the applicant. The procedure is quite informal and will normally be conducted by an

2 David K Allen, Alternative Accident Compensation Strategies in Allen, Bourn and Holyoak (eds), Accident Compensation After Pearson, (1979, London), at p185.

 

 

ACC official with the claimant present. According to the Pearson Commission, claimants were only assisted by lawyers in 25% of the cases.³ If the claimant is still dissatisfied, an appeal may be made to the Accident Compensation Appeal Authority (which normally consists of a single judge, though possibly with an expert assessor), which sits in public and reconsiders all the evidence. There can be a further appeal to the Supreme Court on a point of law of public importance, and a further appeal in the usual way to the New Zealand Court of Appeal and, where appropriate, to the Privy Council.

Financing Of The Scheme

15.9

The scheme is financed from three separate funds. First, there is the earner's scheme which covers all injuries suffered by the employed or self-employed. This scheme is financed by a levy on employers as a percentage of wages, the percentage varying with the degree of risk in the employment generally. Secondly, a separate scheme exists for the compensation of persons injured in road accidents. This is financed by a levy on vehicles dependant upon the class of vehicle. Thirdly, there is a catch-all scheme financed from national funds for anyone else injured or killed by an accident in New Zealand. One of the problems in financing the scheme has been to know at what rate to set the various levies to meet the outgoings of the ACC. This is a particular problem with section 114 cases, relating to permanent injury, where a final assessment has yet to be made.

Conclusions

15.10

The scheme has recently come under considerable criticism in New Zealand. This criticism has been directed, not at the no-fault aspect of the scheme, but rather at the way it is funded. In July 1991 the Minister for Labour, Bill Birch, outlined a number of reforms his Government intended to introduce.⁴ The document's principal commitment is to relieve the employers from having to fund non-workplace injuries, something they had been doing to an increasing degree. The document also contains a continuing commitment to the abolition of the common law action.

3 Pearson, Vol 3, Chapter 10.   4 W. Birch, Accident Compensation, A Fairer Scheme, (1991).

 

 

SECTION VI: CONCLUSIONS

CHAPTER 16: CONCLUSIONS AND RECOMMENDATIONS

16.1

The once-off lump sum award is the traditional form of compensation payment for personal injuries actions. The insurance and legal professions are trained and accustomed to appraise the settlement of tort claims on a lump sum basis. There are clearly certain advantages to the once off, lump sum award. It allows the injured plaintiff the benefit of a large capital sum and the freedom to dispose of that as he or she sees fit. The advantage for the insurance companies is that, in paying a lump sum, they can close their books on a case. This allows them to plan for their future liabilities with more certainty. However, as has been discussed at various previous stages in this paper, this system has certain major disadvantages.

16.2

A lump sum is obviously appropriate to cover accrued losses. Whether it is appropriate for future losses has regularly been questioned.¹ As well as the many specially commissioned reports that have criticised lump sums, many common law judges have also been critical. For example Dickson J. in Andrews v. Grand & Toy Alberta Ltd. thought it “highly irrational to be tied to a lump sum system and a once-and-for-all award”.² McLachlin J., in his judgment in the Canadian Supreme Court in Watkins v. Olafson, set out some of the shortcomings of the traditional, once-off lump sum when he stated:

1 For a discussion of the issue, see J G Fleming, op cit. Also the panel on Pensions or Damages? in The Failure of Personal Injury Compensation, at pp35–71 (1979).   2 (1978) 83 DLR (3d) 452, at 458 (SCC).

 

 

16.3

The Canadian writers, Cooper-Stephenson and Saunders,⁴ comment that “[s]uch strong partiality towards the lump sum is striking. Civil law systems often allow periodical damages. Even within the common law world, periodical payments are typically the norm under workers' compensation schemes, not to mention no-fault insurance provisions, welfare plans, and the maintenance laws”.⁵

16.4

Large lump-sum awards, however, are on the increase. Severe injuries require long term treatment and rehabilitation. Combined with loss of earnings, this leads to large lump sum awards being made. The purpose of these awards is to compensate the victim for his loss, but it must do so on the basis of evidence available at the trial and based on an expectation that the money will serve its compensatory purpose.

Problems With The Lump Sum System

16.5

An award of damages can be very difficult to assess at the date of trial when there may be several uncertainties, such as the future medical prognosis of the injured party. Since damages will be assessed once and for all at the trial, this uncertainty can often contribute to delays in a case coming to trial. These delays can occasionally lead to plaintiffs settling their cases prematurely and provide a disincentive to rehabilitation.⁶

16.6

A second problem which has been identified in both the United Kingdom and North America is that many plaintiffs may, due to inexperience in dealing with large sums, see their lump sums dissipate quicker than intended. It would be wrong to exaggerate this problem, however. Studies recently conducted by the Law Commission and the Disability Management Research Group at the University of Edinburgh have shown that the risk of dissipation is less than was

3 Ibid. at 580.   4 Personal Injury Damages in Canada (Toronto, 1981).   5 Ibid, at p9. For a comment on the implications of periodic payments for Canada see J G Fleming, Damages: Capital or Rent? (1969) 19 UTLJ 295.   6 Both these problems were referred to in the McLiam Report and the Barrington Commission Report, which are discussed in Chapter 3.

 

 

widely believed and that those awarded very high damages are least likely to fritter away their compensation.

16.7

It is worth referring to some of the evidence on the issue. In America, a survey in Business Insurance⁷ noted that “90 per cent of all major windfalls – be they in the form of sweepstakes, lotteries or court settlements – have been squandered within five years”. An article in the English Law Society Gazette⁸ notes “[t]hat there has long been concern that many awards are either squandered on extravagant expenditure or not used to their full effect”. The same article refers to a Canadian insurance industry study of the disbursement of large cash awards which found that “50 per cent of the recipients had nothing left after one year; 70 per cent of the recipients had nothing left after two years and 90 per cent of the recipients had nothing left after five years”.

16.8

In 1983, a study was carried out in New South Wales in Australia to see what happened to large lump sums. Colin Bass Human Resources conducted a study for the Law Reform Commission of New South Wales of 263 accident victims who received lump sums as compensation in 1976. The survey covered motor vehicle compensation claims, workers' compensation redemption and common law industrial injury claims. The sample of people was generated from records maintained by three major insurance companies and the Workers' Compensation Commission. It included approximately 70 per cent of all traffic accident victims who had received high amounts of compensation ($100,000 or more), and a representative sample of traffic accident victims who had received medium range awards ($20,000–$35,000).

16.9

The major findings of the Lump Sum Survey in relation to all categories of respondent, and to traffic accident victims in particular, as to their economic circumstances after 7 years were as follows:

16.10

A small-scale study carried out in Edinburgh in 1993 found no evidence that the victims of personal injury surveyed were being profligate.¹⁰

16.11

The English Law Commission undertook some research of its own into a sample of 761 people who had received awards of damages for personal injury within two to ten years of the survey. The recipients were classified into four size bands according to the amount of damages received:

Award
Band 1	£500	–£19,999
Band 2	£20,000	–£49,999
Band 3	£50,000	–£99,999
Band 4	£100,000	– or greater

16.12

It found that:

9 A paper on the survey, entitled Lump Sum Accident Compensation, was published by the Commission in September 1983.   10 Paul Cornes, Coping with Catastrophic Injury – A follow-up survey of personal injury claimants who received awards of £150,000 or more in 1987 and 1988 (January 1993), published in June 1993.

 

 

16.13

There is little hard evidence of what happens to large awards in Ireland. The McLiam Report into the cost of motor insurance¹² heard evidence of this problem from the Medical Director of the National Medical Rehabilitation Centre, and the Report noted that “[p]eople suddenly finding themselves in possession of large sums of compensation money are sometimes tempted to spend it imprudently on purposes other than those for which it was intended, leaving themselves later unprovided for”.¹³

16.14

There is a third problem. The fact that the award assessed at the date of trial is both once-off and final can militate against the accuracy of the award in its aim of compensating the victim. Since awards are made as lump sums assessed at the date of the trial, they must, in most serious cases, be based on predictions as to the future progress of the plaintiff's medical condition. There are also other uncertainties which will affect the calculation of the award, such as the economic factors upon which the calculation of damages for future loss are based (such as inflation and income tax rates).

16.15

As a result, an award will be calculated on the percentage probability of,

11 Report on Structured Settlements and Interim and Provisional Damages: Law Com. No. 224, paras 2.29, 2.30. See also para 3.28.   12 Report of Enquiry Into the Cost and Methods of Providing Motor Insurance, 1982.   13 Ibid, at p46.

 

 

for example, an injured plaintiff developing epilepsy. If the plaintiff goes on to develop epilepsy, he loses out; if he does not, he has been unjustly enriched. This problem was alluded to by the late Mr. Justice Niall McCarthy, of the Supreme Court, who stated, extra-judicially:

16.16

Commenting on the same problem, Fleming says “[t]he shortcomings of the process are lamentable beyond imagination”.¹⁵

16.17

Furthermore, with improving medical care, the plaintiff's life may exceed his or her life expectancy at the date of trial, leaving him or her short-changed.

The Options For Reform And Recommendations

16.18

There are a number of possible reform options that could be introduced to tackle these problems.

(i) Reviewable periodic payments

16.19

The most elaborate proposal would be a system of reviewable periodic payments, whereby one of the parties could return to court at a later date to apply for the amount of damages being paid periodically to be altered in light of a change in the condition of the plaintiff. Kansas, Louisiana and New Mexico all have legislation providing for reviewable period payments.¹⁶ Both the Wodehouse and Pearson Reports¹⁷ recommended some form of reviewable periodic payment system, the argument supporting such a proposal being that only such a system can fully tackle the problem of inaccuracy in compensation awards.

16.20

The arguments against such a proposal are, however, very strong. If the payments are reviewable downwards this would operate as a serious disincentive

14 In his foreword to J P M White, Irish Law of Damages for Personal Injuries and Death.   15 Ibid.   16 Kan Stat Ann 60–2609 (1983), La Rev Stat Ann s40:1299.39, s40:1299,43 (West Supp. 1986) and NM Stat Ann s41–5–9 (1978) respectively.   17 See Chapters 14 and 7 respectively.

 

 

to the rehabilitation of the plaintiff. Similarly the mere possibility of a review (either upwards and/or downwards) would contribute to great uncertainty in the context of insurers estimating the full extent of liability and therefore the value at which to set their premiums. The possibility of a further return to court in uncertain and possibly contentious circumstances would also add greatly to the costs of administering a scheme.

16.21

The English Law Commission rejected the option in 1973¹⁸ and the specific proposals of the Pearson and Wodehouse Reports on this point were never implemented.

16.22

Now that structured settlements are a fact, the English Law Commission, reconsidering the matter in their Consultation Paper, provisionally concluded that reviewability was desirable in principle to the extent that it takes into account any deterioration in the plaintiff's medical condition connected with the original injury, provided it has caused further financial loss. Review should not be triggered by improvement in the plaintiff's condition or by inflation. Review could involve the provision of new money or the restructuring of the original agreement but the Law Commission doubted that, because of expense, defendants would agree to review even if tax law was amended. Restructuring was also considered undesirable in principle.¹⁹

16.23

On consultation, a majority of the English Law Commission's consultees opposed review and the Commission, ultimately, in their Report did not recommend giving a power of review to the Courts, suggesting that the flexibility sought by those in favour of review could be achieved by structuring provisional and interim awards.²⁰

16.24

The Manitoba and Ontario Law Reform Commissions also rejected the idea.²¹ McLachlin J, commenting on this proposal, stated:

18 See Chapter 7.   19 Law Commission, op cit. paras 3.39 to 3.46, 6.15 to 6.18.   20 Report para 3.85.   21 See Chapter 13.

 

 

16.25

Furthermore the problems with inaccuracy can be tackled by other reform proposals, such as provisional awards. For the above reasons therefore, we would not recommend that a system of reviewable periodic payments be introduced.

(ii) Interim awards and provisional damages²³

16.26

The next question is whether provisions for interim awards and provisional damages should be introduced. There are provisions for both these measures in the United Kingdom.

(a) Interim awards

16.27

A provision for interim awards allows an immediate payment of certain elements of a damages award in personal injuries cases, such as medical expenses, where liability is either not contested or is clear. Such a reform could be introduced by amending the Rules of Court, and the Court could be given a discretion as to when to make such awards. Commentary on the equivalent provision in the United Kingdom suggests that the mere existence of the procedure tends to produce an agreement as to an interim payment in many cases.

16.28

However, concern was expressed to the English Law Commission that interim damages were not sought in some cases in which they ought to be and they examined these concerns on consultation.

22 Ibid, at p584.   23 For a detailed description of how these features operate in the United Kingdom see Chapter 7.

 

 

The “need” requirement

16.29

The English Law Commission found that although RSC Order 29 contained no need-based restriction on making an interim award, it had become customary in personal injury actions for such payments to be limited to sums for which need was shown.

16.30

They referred to the case of Schott Kem Ltd. v. Bentley and Others²⁴ in which Neil LJ regarded the practice of requiring need to be shown in these cases as sensible

16.31

Very few of those consulted by the English Law Commission considered that the overall discretion to grant an interim order was exercised ungenerously, notwithstanding the practice of requiring need to be shown, nonetheless, a majority were opposed to the practice. The Commission shared this view.

16.32

Noting the increase in popularity of split trials, where liability and damages are assessed separately, the Law Commission observed that when the question of liability had been settled:

24 [1991] 1 QB 61, 74B.   25 Report op cit. para 4.3.   26 Ibid para 4.7.

 

 

16.33

They quoted with approval from the judgment in Stringham v. McArdle:²⁷

16.34

As we saw in para. 2.67 above, interim awards of damages are not made in Ireland except where the court, having awarded damages to the plaintiff, refuses a stay on a portion of the damages pending an appeal by the Defendant against quantum. It is highly desirable that this practice be grounded in a statute or in a rule of court. In para. 7.20 above, we noted the English Rule of Court which gives the court power to order an interim payment of damages if liability is admitted or otherwise clear and the defendant is a public authority, is covered by insurance or has other sufficient resources. The Commission is satisfied that a provision on those lines would put the existing practice into a proper framework.

16.35

Accordingly, we recommend that there should be provision in law in the Rules of Court for the interim award of damages and that:-

27 [1994] PIQR 230 at 233–4.

 

 

(b) Provisional awards

16.36

An award of damages could be provisional and permit a supplemental award, at least in the case of loss which was unforeseeable during the original assessment. However, the common law for centuries has required not only that damages be assessed in a lump sum, but also that they be assessed once-and-for all.²⁸ Again, there is the notion of a “split” trial, in which the ultimate calculation of damages is postponed until the victim's physical condition has stabilised. There would be a provisional award covering both past and estimated future losses, pending a final medical report.

16.37

A provision for provisional damages would, if invoked at the request of a plaintiff, allow the court to award damages in a case for all existing losses and injuries and for future losses based on these existing injuries, but not for diseases or disabilities that only might arise in the future, such as epilepsy. Such an award would specify the particular disability in question, and if this disability did subsequently arise, the plaintiff could apply for the relevant damages. Again it is thought that the existence of this procedure would in most cases lead to the payment being made by agreement.

16.38

In Chapter 7 above we examined the English legislation on provisional awards. The interpretation and development of these provisions have been very helpfully analysed in 1991 by Scott Baker J in Willson v. Minister of Defence.²⁹ Having referred to S.32A of the Supreme Court Act 1981, which applies to an action for damages for personal injuries in which there is proved or admitted to be a chance, in the future, that the plaintiff will develop a serious illness or deteriorate seriously, as a result of the wrong, he said that there are three questions to be answered:

28 Fitter v. Veal (1702) 91 ER 1122; 1 Ld Raym 339.   29 [1991] 1 All ER 638.

 

 

16.39

Scott Baker J adopted with approval observations on the relevant law in other judgements, notably those of Simon Brown J in Patterson v. Minister of Defence:

Scott Baker J also approved of the statement of Michael Davies J in Allott v. Central Electricity Generating Board, to the effect that:

30 Ibid, at 641–642.   31 [1987] CLY 1194.

 

 

16.40

Having quoted these authorities Scott Baker J concluded:

The provisional view of the English Law Commission in their Consultation paper was that the judgment in Willson was in keeping with the Commission's original recommendation and that the law should not be changed.³³ The Commission had referred to the possibility of an “event” occurring as the distinguishing feature of “chance” cases.³⁴ The idea of an “event” did not encompass natural progression. They suggested that it would require a clear policy reason such as repeated injustice, to change the law.

16.41

In their Report, the Commission found with respect to this suggestion that:

32 Unreported, 19 December 1988.   33 Law Commission, op cit, paras 5.6, 6.41.   34 (1973) Law Com. No. 56, p66, para 239.

 

 

16.42

Our own consultations revealed that there was universal support for provisional awards, again, based on a chance of serious deterioration and never based on non-medical contingencies. Such awards could be structured, if this proved desirable. A procedure of this sort would help alleviate the inaccuracy in some awards in very serious personal injuries cases and might also lead to earlier settlements and reduced delays. Furthermore, assuming that the probabilities used to calculate the size of damages for these disabilities are reasonably accurate, then insurance companies could plan future liabilities with some confidence on the basis of a number of cases. Therefore, we would recommend the introduction of a facility for provisional awards in cases where a chance of serious deterioration in the plaintiff's health exists as a result of the wrong.

(c) Structured Settlements

16.43

Earlier in this Report we have described how structured settlements operate in practice. We now address the crucial question. Should provision be made for structured settlements of awards, at all events where both parties consent to the arrangement?

16.44

Such a proposal could be implemented in a number of ways. For example, the initial practice of using structured settlements in North America, and the current practise in the United Kingdom, were based on a non-statutory based agreement between the respective Revenue and Insurance authorities. In North America, legislation putting the practice on a statutory footing was eventually introduced. This legislation simply guaranteed the tax free status of the periodic payments and allowed the Life Office to pay the payments directly to the plaintiff, thus simplifying the practice. The use of structured settlements has become more and more frequent in both these jurisdictions.

16.45

In many respects the adoption of structured settlements does not represent a radical alteration of the present tort based system of compensation. The rules regarding liability are not affected and the method of calculating the award is only slightly altered to accommodate changes made to tax legislation to allow for the use of structured settlements. Change is found only in the way compensation for losses (usually just future losses) in cases of serious personal injury is paid.

35 Report op cit. paras 5.7, 5.8.

 

 

(i) Advantages of Structured Settlements

16.46

A structured settlement guarantees an inflation-proofed tax free income to the plaintiff for the rest of his or her life and/or for a minimum period of years. The management and responsibility for the investment is also catered for. In this, albeit somewhat limited respect, structured settlements provide a solution to many of the problems of the once-off lump sum award.

16.47

It is often considered socially desirable that plaintiffs in severe personal injury cases should have a guaranteed income for the duration of their lives. Indeed, this strikes at the very heart of the rationale of the annual loss and multiplier approach to the traditional assessment of damages whereby the lump sum is intended to be fully exhausted at the end of the plaintiff's life. As there are so many uncertainties and difficulties for plaintiffs to face, there will either be too much damages over at the end of the plaintiff's life, which might mean that as a result of being excessively prudent the plaintiff has gone without certain care. Alternatively, the damages will be extinguished before the plaintiff has died, in which case the plaintiff will become a burden to the family and more likely to the social services system. Both of these scenarios are far from ideal. The advantage of an income secured for life is of particular benefit in impaired life cases where the projected life expectancy is uncertain. Consequently, structured settlements can have a wide application for most types of personal injury and fatal accident cases.

16.48

Plaintiffs are protected from any temptation to dissipate the lump sum and are spared some of the financial pressure that can arise with the management of large sums of money.

16.49

There can be significant savings in the costs of administration of the fund, not all of which can be recovered in the action but which would nevertheless have to be borne by the plaintiff.

16.50

Apart the tangible and intangible savings and benefits accruing to the plaintiff, the defendant can see substantial cash savings in the payment of damages arising as a result of savings in taxation on the income and in the costs of administering the fund that would otherwise have been generated by the lump sum.

 

 

(ii) Disadvantages

16.51

There is a potential loss of flexibility for the plaintiff once the structure is established. This problem can be overcome by the careful planning of the plaintiff's changing requirements at an early stage and also in allowing for an appropriate contingency fund at the outset. Indeed, it could be argued that prior to the accident the plaintiff probably had very little flexibility in the way he or she conducted his or her lifestyle in that he or she would have had to work to pay for regular outgoings and would not have had the opportunities available to people with capital.

16.52

We noted that structured settlements in Britain must be organised by the life office which pays the general insurer who then pays the plaintiff. This is so because, to avail itself of the taxation agreement, the life office cannot pay the plaintiff directly. Rather the funds must be channelled through the defendant insurer who will then pay the plaintiff a gross sum.

16.53

This is not the position in North America where, under current legislation in Canada and the United States, there is provision for annuities which relate to personal injury or fatal accident cases to be paid directly by the life office as agent of the insurer to the claimant without deduction of tax, on the condition that such an annuity is non-transferable, non-commutable and non-assignable.

16.54

This arrangement in Britain places the burden on the defendant insurer. As Frenkel comments:

16.55

On the same point Keith Popperwell argues that:

16.56

When a settlement is structured under the UK system, a file will remain open for the plaintiff's lifetime. The administration problems are not too

 

 

complex as payments are made by standing order, but the payments made by the life company to the general insurer are subject to deduction of tax at the standard rate. The general insurer has contracted with the plaintiff for the gross amount of the annuity and therefore has to gross up the monthly payments. However, as has been explained before, the whole transaction is tax neutral as these payments can be set off against general income tax liability.

16.57

Another potential problem is that of security. Again, McLachlin J. in Watkins v. Olafson in the Canadian Supreme Court comments:

16.58

However, problems as to security can be met by the purchasing of a life policy from a registered life office and in practice this does not seem to have presented much of a problem in the United Kingdom.

16.59

One of the initial problems in the United Kingdom was the irregular use of these settlements, with only one taking place in the first two years. However, as publicity grew and more professionals became aware of the technique involved and the benefits of structured settlements, the frequency of their use increased greatly.

16.60

On the basis of experience in North America and the United Kingdom, where structured settlements have become increasingly popular on a consensual basis, we recommend that provision be made for the use of structured settlements.

The Commission's Approach

16.61

The Commission is satisfied that a structured settlement is a highly

appropriate way of compensating plaintiffs for future loss, pain and suffering, particularly in serious cases where awards are large. We are also satisfied that plaintiffs should be encouraged to the greatest possible extent to enter into structured settlements in these cases. The most important question to be considered is whether or not a court should have power to compel either or both parties to an action to enter into such an arrangement. But before we decide on that question, we will explore ways to encourage the periodic payment of damages without having resort to compulsion by the Courts.

16.62

We will first examine what can be done by way of adjustment of the tax regime.

16.63

There are two main pillars in the State's approach to tax and structured settlements:

16.64

The Commission is not going to recommend a change in the Gourley principle itself. The lump sum might be taxed as a capital gain but as tax is already deducted under the Gourley principle this would amount to double taxation and would be unfair.

16.65

It follows that the only way the tax system might encourage the use of structured settlements would be “to use the carrot rather than the stick”. An attractive option would be to extend the availability of tax relief under Section 5 of the Finance Act, 1990 to all cases in which an award or part of an award of damages for personal injuries is structured. We recommend that tax relief be so extended.

16.66

Furthermore, in view of the problems encountered in England outlined in paras. 16.50 to 16.53 above, we recommend that provision be made to allow the life office pay awards directly to plaintiffs as tax free income, in their hands, that interest being unassignable.

36 Discussed above at para 2.45 et seq.

 

 

16.67

Given that the present approach of the Commission is to encourage the use of structured settlements in appropriate cases rather than to have them imposed, the Commission notes the similarity between this approach and the approach to the encouragement of reconciliation or mediation in the context of judicial separation. We note in particular the obligation placed on a solicitor, by Section 5 of the Judicial Separation Act, 1989, to discuss the possibility of reconciliation or mediation with an applicant for judicial separation. We recommend that a similar obligation to discuss a structured settlement be placed on the plaintiff's solicitor in appropriate cases.

16.68

We considered whether or not provisions should be introduced to regulate the way damages are calculated by the courts, particularly in terms of damages for future losses. Clearly new tax provisions regarding income from structured settlements could affect the way a court calculated the size of the award, if the court knew that both parties were consenting to a structured settlement. However, to legislate for these calculations could unduly restrict the courts and create confusion amongst practitioners as to the basis upon which settlements would be negotiated.

16.69

It is best for the courts to adapt their approach to the facts of each case. So at this stage such legislation may not be necessary. Therefore, in terms of whether or not provisions should be introduced to regulate the way damages are calculated, particularly in terms of damages for future losses, we would not recommend that provisions be introduced to alter the way the courts calculate damages awards.

The Imposition of Structured Settlements

16.70

The most important question to be addressed is whether the court should have power to authorise a structured settlement against the wishes of any party to the litigation. It is useful to examine how the English Law Commission approached this question.

16.71

The English Law Commission was not impressed with arguments against structured settlements based on paternalism. In its Report, it noted that:

16.72

In favour of structuring, the English Law Commission suggested that:

16.73

Having rejected arguments based on principle, the English Law Commission turned to practical considerations. Noting the discount secured by the defendant in purchasing an annuity, it was very concerned as to what might happen to it if a judicial power to impose structuring were created. Structured settlements “are creatures of negotiation” born of agreement. Cases proceed to judgment because of disagreement. The Law Commission question how a judicial power could retain the flexibility of the existing regime, one element in this flexibility being the discount, which reflects the bargaining power of the parties.

16.74

In addition to the problems relating to the discount, the English Law Commission saw problems arising from the right to appeal on imposed structuring. It suggested that this could sabotage an offer of an annuity which would have to be taken up in a limited time.

16.75

The English Law Commission's consultations on the imposition of structuring disclosed that:

37 Report op cit. para 3.52.

 

 

Conclusion of the English Law Commission

16.76

A recurring and important theme in their Report is that the law on structuring is still developing and that the statutory reform should help it “settle in”. The Commission was satisfied that it was too soon to legislate to give the courts power to impose a structure. Reform should be confined to rationalising and building on the voluntary system, for example, by providing that a life office could pay periodic payments directly and tax free to the plaintiff.

Our Conclusions

16.77

Similar considerations informed our deliberations as informed those of the English Law Commission. Some of us were more impressed than others by their arguments in favour of court-imposed structured settlements.

16.78

There is no absolute right under the Irish Constitution to have one's damages paid in a lump sum. Assuming that the Irish Courts would adopt, as

38 Report op cit. para 3.48.

 

 

a constitutional principle, the common law doctrine of restitutio in integrum i.e. of putting the plaintiff (to the extent that damages can do so) back in his pre-injury situation, the periodic payment of damages would fall comfortably within that principle. There can be no constitutional right to insist on a lump sum instead of a structured settlement once the settlement has a secure actuarial and medical basis.

16.79

The State would have a legitimate interest inter alia as the paymaster of Social Welfare, in “delimiting”, under Article 43, any 'right' to squander damages or in ensuring that compensation was not squandered by the family of a helpless plaintiff. The exigencies of the common good would include the objective that the availability of compensation for future suffering or loss would endure.

16.80

Despite these considerations the Commission is, nonetheless, reluctant to rush headlong into a paternalistic recommendation which could interfere with a person's right to do as he wishes with his own property – a person's right to do wrong. While we can envisage a right to impose a structured settlement, we find it extremely difficult to set out criteria which a Court, having discretion to insist on a structured settlement, might follow. Unless a decision could be based on some obvious condition such as alcoholism or mental incapacity, it would be difficult to avoid basing such a power on educational or social criteria. Such criteria would be questionable, to say the least.

16.81

Our own consultations disclosed a majority in favour of court-imposed structuring of awards for future loss of earnings and for future care with a division of opinion on whether the part of an award for future pain and suffering should be structured. However, among those in favour of structuring, Mr. Justice Keane and Patrick Connelly S.C. were also of the opinion that a structured settlement ought to be reviewable, in a manner akin to the review procedures which used to arise under the Workman's Compensation Code. This view was opposed, strongly, by Dr. Gregg of the National Rehabilitation Board, who suggested that it constituted “an incentive to deteriorate”.

16.82

The Commission is of the view that, whatever the theoretical arguments in favour of a court imposed structured settlement may be, it would be preferable to take matters one step at a time and to move to a system of structured settlements without this controversial element. Once the system has been operating successfully for a time, there may be merit in reconsideration of this issue. Accordingly, the Commission recommends that the court should not have power to authorise a structured settlement against the wishes of any party to the litigation. This decision should be reviewed by the Commission in five years time. To enable such a review to be grounded on relevant data the Commission recommends that it be given responsibility to develop an appropriate research programme.

 

 

16.83

The next question to be considered is whether the entitlement to have resort to the structured settlement scheme should be limited to plaintiffs with particular kinds of injuries, such as paraplegia, for example. We think that it would not be wise to introduce any such specific limitation. The strong likelihood is that the structured settlement scheme will appeal to plaintiffs who have sustained certain kinds of injury which are usually associated with high awards but it seems to us that there is no need to exclude other, possibly rare, kinds of injuries. Nothing in particular would be gained by doing so. Accordingly, we recommend that the possibility of resort to the structured settlement scheme should not be limited to plaintiffs with particular categories of injury.

16.84

As to fatal accident claims, we see no reason why they should be excluded and accordingly we recommend that the structured settlement scheme should extend to fatal accident litigation.

16.85

It is also necessary to consider whether it should be permissible for a structured settlement scheme to operate in cases where provisional damages can be awarded. We consider that there is no reason in principle why it should not, although we concede that this factor of uncertainty complicates the calculations. If the parties can agree on how the settlement is to take account of this factor, we do not see why they should be denied access to the structured settlement scheme. Accordingly we recommend that it should be permissible for a structured settlement scheme to operate in cases where provisional damages can be awarded.

16.86

We see no reason in principle why the possibility of a structured settlement should be excluded in cases involving self-insurers or the Motor Insurers Bureau of Ireland scheme. Again, the detail of this arrangement is a matter for discussion between the Minister and other interested parties rather than for legislative prescription. We therefore recommend that consideration be given to extending the structured settlement scheme to (a) self-insurers and (b) cases involving the Motor Insurers Bureau of Ireland.

16.87

The next question is whether the plaintiff should be permitted to commute his or her pension into a lump sum if the court gives its approval. Undoubtedly, such a possibility would be attractive to plaintiffs contemplating entering into structured settlement schemes. We can see no fundamental objection. The courts' role would ensure that this entitlement would not operate oppressively. Accordingly we recommend that the plaintiff should be permitted to commute his or her pension into a lump sum if the court gives its approval.

16.88

Where a plaintiff dies shortly after a structured settlement has come into operation it is difficult to prescribe any solution that will do full justice to the

 

 

parties' expectations as well as to the desideratum of finality. Any solution may be criticised for failing to deal effectively with all possible outcomes. After much thought and discussion, we have concluded, and so recommend, that, where the plaintiff dies in these circumstances, provision should be made for the payment of one year's annuity to the next-of-kin.

16.89

A plaintiff who obtains an award of damages for injury, pain and suffering and economic loss to date should be entitled to receive that sum immediately, rather than have it made part of a structured settlement. In our view, the structured settlement process should apply only to future injury and loss. A plaintiff who has suffered, say, £100,000 worth of injury and loss up to the time of the award and who is estimated as being likely to suffer a further £200,000 of injury and loss in the future should be entitled to receive £100,000 immediately. It is always possible that he or she could die in six months' time. If the £100,000 were made part of the structured settlement, there is a concern that the plaintiff and his or her estate would receive under-payment in the event of such early death. Moreover, as a matter of principle, it is hard to justify not giving to the plaintiff at the time of the judgment full compensation for what he or she has already lost. Accordingly, we recommend that the structured settlement process should apply only to future injury and loss.

 

 

CHAPTER 17: SUMMARY OF RECOMMENDATIONS

1.

Provision should be made for the interim award of damages:

2.

It should be possible to make provisional awards of damages in cases where a chance of serious deterioration in the plaintiff's health exists as a result of the wrong. (Para. 16.42)

3.

Provision should be made for the use of structured settlements. (Para. 16.60)

4.

Tax relief under Section 5 of the Finance Act, 1990 should be extended to all structured settlements. (Para. 16.65)

5.

It should be made possible for life assurance offices to pay awards under structured settlements directly to plaintiffs. (Para. 16.66)

6.

Where an award appropriate for structuring is made to a plaintiff, that plaintiff's solicitor should be obliged to discuss the advisability of structuring the settlement with the plaintiff. (Para. 16.67)

7.

We recommend no change in the way awards of damages are calculated by the courts. (Para. 16.69)

8.

The court should not have power to authorise a structured settlement against the wishes of any party to the litigation. This decision should be reviewed by the Commission in five years time. To enable such a review to be grounded on relevant data, the Commission recommends that it be given responsibility to develop an appropriate research programme. (Para. 16.82)

9.

Resort to a structured settlement should not be limited to plaintiffs with particular categories of injury. (Para. 16.83)

 

 

10.

The structured settlement scheme should be available in fatal accident litigation. (Para. 16.84)

11.

It should be permissible for a structured settlement scheme to operate in cases where provisional damages can be awarded. (Para. 16.85)

12.

Consideration should be given to extending the structured settlement scheme to (a) self-insurers and (b) cases involving the Motor Insurers Bureau of Ireland. (Para. 16.85)

13.

A plaintiff should be permitted to commute his or her pension into a lump sum if the court gives its approval. (Para. 16.87)

14.

Where a plaintiff dies shortly after a structured settlement has come into operation, provision should be made for the payment of one year's annuity to the next-of-kin. (Para. 16.88)

15.

The structured settlement process should apply only to future injury and loss. (Para. 16.89)

 

 

APPENDIX 1

Law Commission Report Draft Bill (pages 108–111)

Law Reform (Personal Injuries etc) Bill

6

– (1) If, in an action for damages for personal injuries in which judgment is given in the High Court, there is proved or admitted to be a chance that at some definite or indefinite time in the future the injured person will, as a result of the act or omission which gives rise to the cause of action, develop some serious disease or suffer some serious deterioration in his physical or mental condition, the following provisions of this section shall have effect in relation to the action.

(2) In the following provisions of this section –

(3) Subject to subsection (5) below, the court on the application of the plaintiff may, if it thinks fit, award the injured person provisional damages in respect of matters falling within any of such one or more of paragraphs 7 to 12 of Schedule 1 to this Act as may be specified in the application.

(4) If the relevant event occurs at any time after an award of provisional damages has been made in respect of any such matters, the court may on the application of the plaintiff award the injured person such additional damages in respect of those matters as are appropriate in all the circumstances:

Provided that if in giving judgment for the provisional damages (with or without any other damages) the court has fixed a period running from the date of that judgment within which any application under this subsection must be made, such an application shall not, without the permission of the court, be made after the end of that period.

(5) An award of provisional damages shall not be made under this section unless the defendant or, if judgment has been or is to be given against two or more defendants, at least one of those defendants falls within at least one of the following descriptions, namely –

 

 

In this subsection 'motor vehicle' and 'road' have the same meanings as in the Road Traffic Act, 1972, and 'public authority' includes the Crown.

(6) If in the action there is proved or admitted to be a chance that two or more such events as are mentioned in subsection (1) above will occur, subsections (2) to (5) above shall apply with such modifications as may be necessary to enable the court, on the application of the plaintiff, to award the injured person provisional damages assessed on the assumption that such one or more of those events as may be specified in the application will not occur and to enable the plaintiff, where more than one of those events is so specified, to make separate applications under subsection (4) above in respect of different events so specified (with power for the court to fix different periods under subsection (4) in relation to different events).

(7) The foregoing provisions of this section shall not prejudice any duty of the court under any enactment or rule of law or arising from any contract to reduce or limit the total damages which would have been recoverable apart from any such duty; and where judgment is given for damages consisting of or including provisional damages under this section, or consisting of additional damages under subsection (4) above, any such duty of the court to reduce the damages recoverable shall apply notwithstanding that the damages recoverable on that occasion may not be or are not the only damages recoverable in the action.

 

 

Clause 6

1.

This clause implements the recommendations with regard to provisional awards in paragraphs 239–243 of the Report.

2.

The provisions in this clause are aimed at enabling the court to do justice in a strictly limited type of case, namely that in which the plaintiff can prove that there is a chance, but no more than a chance, that as a result of his injuries serious consequences may occur in the future.

3.

In such a case the clause provides that the plaintiff may receive an award in respect of all heads of damage, proved or admitted, but not in respect of the chance of the serious consequences and the award will be assessed on the assumption that the chance will not materialise. The clause goes on to provide that if and when the serious consequences manifest themselves the plaintiff may then return to court and claim additional damages for this further loss.

4.

In order to restrict the powers conferred by the clause to those cases where their use will be appropriate the clause provides that:

5.

Subsection (1) lays down the basic condition which must obtain if there is to be any award of 'provisional damages' namely that there must be a chance that at some time in the future the injured person will, as a result of the act or omission giving rise to the cause of action, develop some serious disease or suffer some serious deterioration in his physical or mental condition.

6.

Subsection (2) labels the event of which there is thus a chance 'the relevant event', and defines 'provisional damages' as damages assessed on the assumption that this event will not occur. Thus an award of 'provisional damages' will always be smaller than an award of full damages, since the latter would include something for the possibility that the relevant event might one day occur.

 

 

7.

Subsection (3) further restricts the circumstances in which 'provisional damages' can be awarded by providing that such an award may only be made on the application of the plaintiff, and goes on to give the court full discretion to grant or refuse such an application – the expectation being that the courts will award provisional damages only in cases of the sort described in paragraph 232 as 'chance' cases.

8.

The reference in subsection (3) to such one or more of paragraphs 7 to 12 of Schedule 1 as may be specified in the application means that a plaintiff applying for an award of 'provisional damages' can choose whether to apply for them in respect of non-pecuniary loss and all heads of future pecuniary loss, or only in respect of some of those heads. Thus a plaintiff may wish to take his full damages for loss of earnings but may wish his damages for pain and suffering and future expenses to be assessed in the first instance on the assumption that his condition will not seriously deteriorate later on, with the possibility of coming back for an additional award in respect of these heads (but not for loss of earnings) if the relevant event occurs.

9.

Subsection (4) enables a plaintiff who has been awarded 'provisional damages' on the assumption that the 'relevant event' in question will not occur to come back to the court for additional damages if that event does in fact occur. Any additional damages awarded will be limited to those heads of damages in respect of which provisional (as opposed to full) damages were awarded in the first instance, and will be assessed at whatever amount is appropriate in all the circumstances.

10.

As stated in paragraph 240 of the Report, only defendants who are insured or who can properly be treated as if they were insured should have an uncertain liability hanging over them indefinitely and accordingly subsection (5) provides that an award of 'provisional damages' cannot be made unless

11.

Subsection (6) makes the procedure for obtaining an award of 'provisional damages' available in cases where there is a chance of more than one relevant event occurring in the future.

 

 

12.

Subsection (7) contains a saving similar to the saving in clause 2(3) – see the note on that subsection. Subsection (7) additionally makes it clear that where, for example, the plaintiff's damages are liable to reduction because of his contributory negligence, this reduction must be applied both to the award of 'provisional damages' and to any subsequent award of additional damages.

 

 

APPENDIX 2

INLAND REVENUE AND ABI

Structured Settlement

Model Agreement

PARTIES: (1)

(“the Claimant”)

(2)

(“the Insurer”)

WHEREAS:

AGREED:

1

The Insurer shall be substituted for the Insured to the extent that any liability of the Insured to the Claimant in respect of the claim shall attach to and be the sole responsibility of the Insurer and that the Insured shall be discharged from any such liability.

2

By way of settlement of the claim the Insurer shall pay or procure to be paid to the Claimant the sum of £........ and the Claimant shall accept such sum in full and final settlement of the claim, which is discharged.

3

Subject to the Claimant complying with Clause 4 to the satisfaction of the Insurer, the debt of £....... arising under Clause 2 shall be discharged by payments by the Insurer to the Claimant in accordance with the Schedule.

4.1

The Claimant shall forthwith take all necessary steps to discontinue any proceedings which have been begun or threatened against the Insurer or the Insured in connection with the Claim.

4.2

The Claimant shall not institute any proceedings against the Insurer or the Insured in connection with the claim.

DATED:–– SIGNED:

(1)–– (the Claimant)

(2)––(for the Insurer)

 

 

APPENDIX 3

The New Rules of the Supreme Court relating to Provisional Damages

1985 No. 846 (L8)

SUPREME COURT OF ENGLAND AND WALES

The Rules of the Supreme Court (Amendment No. 2) 1985

2.

The Arrangement of Orders at the beginning of the rules of the Supreme Court 1965 shall be amended by substituting for the title to Order 37 the words 'Damages: assessment after judgment and orders for provisional damages'.

3.

Order 18 rule 8(3) shall be amended by inserting, after the words 'claim for exemplary damages', the words 'or for provisional damages'.

4.

Order 37 shall be amended as follows:–

Application and interpretation

7.

Order for provisional damages

8.

39 S32A inserted by S6 of the Administration of Justice Act 1982 (c53).

 

 

Offer to submit an award

9.

Application for award of further damages

10.

 

 

APPENDIX 4

Florida Statutes 1991

Title XLV Torts

Chapter 768 Negligence

Part II Damages

S.768.78 Alternative methods of payment of damage awards

(1)(a) In any action to which this part applies in which the trier of fact makes an award to compensate the claimant for future economic losses which exceed $250,000, payment of amounts intended to compensate the claimant for these losses shall be made by one of the following means, unless an alternative method of payment of damages is provided in this section:

(b) In entering a judgment ordering the payment of such future damages by periodic payments, the court shall make a specific finding of the dollar amount of periodic payments which will compensate the judgment creditor for these future damages after offset for collateral sources. The total dollar amount of the periodic payments shall equal the dollar amount of all such future damages before any reduction to present value, less any attorney's fees payable from future damages in accordance with paragraph (f). The period of time over which the periodic payments shall be made is the period of years determined by the trier of fact in arriving at its itemised verdict and shall not be extended if the plaintiff lives beyond the determined period. If the claimant has been awarded damages to be discharged by periodic payments and the claimant dies prior to the termination of the period of years during which periodic payments are to be made, the remaining liability of the defendant, reduced to present value, shall be paid into the estate of the claimant in a lump sum. The court may order that the payments be equal or vary in amount, depending upon the need of the claimant.

(c) As a condition to authorising periodic payments of future

damages, the court shall require the defendant to post a bond or security or otherwise to assure full payment of these damages awarded by the judgment. A bond is not adequate unless it is written by a company authorised to do business in this state and is rated A =1= by Best's. If the defendant is unable to adequately assure full payment of the damages, the court shall order that all damages be paid to the claimant in a lump sum pursuant to the verdict. No bond may be cancelled or be subject to cancellation unless at least 60 days' advance written notice is filed with the court and the judgment creditor. Upon termination of periodic payments the court shall order the return of the security, or so much as remains, to the judgment debtor.

(d)(1) In the event that the court finds that the judgment debtor has exhibited a continuing pattern of failing to timely make the required periodic payments the court shall:

(2) If it appears that the judgment debtor may be insolvent or that there is a substantial risk that the judgment debtor may not have the financial responsibility to pay all amounts due and owing the judgment creditor, the court may:

(2)(a) In any action for damages based on personal injury or wrongful death arising out of medical malpractice, whether in tort or contract, in which the trier of fact makes an award to compensate the claimant for future economic losses, payment of amounts intended to compensate the claimant for these losses shall be made by one of the following means:

(b) For purposes of this subsection, “periodic payment” means provision for the spreading of future economic damage payments, in whole or in part, over a period of time, as follows:

 

 

APPENDIX 5

New York Consolidated Laws Service (1992)

Civil Practise Law and Rules

Article 50-B. Periodic Payment of Judgments in Personal Injury, Injury to Property and Wrongful Death Actions

S.5041

(e) With respect to awards of future damages in excess of two hundred fifty thousand dollars in an action to recover damages for personal injury, injury to property or wrongful death, the court shall enter judgment as follows:

After making any adjustment prescribed by subdivisions (b), (c) and (d) of this section, the court shall enter a judgment for the amount of the present value of an annuity contract that will provide for the payment of the remaining amounts of future damages in periodic instalments. The present value of such contract shall be determined in accordance with generally accepted actuarial practices by applying the discount rate in effect at the time of the award of the full amount of the remaining future damages, as calculated pursuant to this subdivision. The period of time over which such periodic payments shall be made and the period of time used to calculate the present value of the annuity contract shall be the period of years determined by the trier of fact in arriving at the itemised verdict; provided, however, that the period of time over which such periodic payments shall be made and the period of time used to calculate the present value for damages attributable to pain and suffering shall be ten years or the period of time determined by the trier of fact, whichever is less. The court, as part of its judgment, shall direct that the defendants and their insurance carriers shall be required to offer and to guarantee the purchase and payment of such an annuity contract. Such annuity contract shall provide for the payment of the annual payments of such remaining future damages over the period of time determined pursuant to this subdivision. The annual payment for the first year shall be calculated by dividing the remaining amount of future damages by the number of years over which such payments shall be made and the payment due in each succeeding year shall be computed by adding four per cent to the previous year's payment. Where payment of a portion of the future damages terminates in accordance with the provisions of this article, the four per cent added payment shall be based only upon that portion of the damages that remains subject to continued payment. Unless otherwise agreed, the annual sum arrived at shall be paid in equal monthly instalments and in advance.

(f) With the consent of the claimant and any party liable, in whole

 

 

or in part, for the judgment, the court shall enter judgment for the amount found for future damages attributable to said party as such are determinable without regard to the provisions of this article.

S.5045

Effect of death of judgment creditor

S.5046

Adjustment of payments

S.5047

Settlements

Nothing in this article shall be construed to limit the right of a plaintiff, defendant or defendants and any insurer to settle property damage, personal injury or wrongful death claims as they consider appropriate and in their complete discretion.

 

 

APPENDIX 6

Deering's California Codes Annotated

The Code of Civil Procedure

Part 2. Civil Actions

Title 8. Trial and Judgment in Civil Actions

Chapter 8. Manner of Giving and Entering Judgment

Cal. Code Civ. Proc

S.667.7 (1992) Medical Negligence Actions

(a) In any action for injury or damages against a provider of health care services, a superior court shall, at the request of either party, enter a judgment ordering that money damages or its equivalent for future damages of the judgment creditor be paid in whole or in part by periodic payments rather than by a lump-sum payment if the award equals or exceeds fifty thousand dollars ($50,000) in future damages. In entering a judgment ordering the payment of future damages by periodic payments, the court shall make a specific finding as to the dollar amount of periodic payments which will compensate the judgment creditor for such future damages. As a condition to authorising periodic payments of future damages, the court shall require the judgment debtor who is not adequately insured to post security adequate to assure full payment of such damages awarded by the judgment. Upon termination of periodic payments of future damages, the court shall order the return of this security, or so much as remains, to the judgment debtor.

(b)(1) The judgment ordering the payment of future damages by periodic payments shall specify the recipient or recipients of the payments, the dollar amount of the payments, the interval between payments, and the number of payments or the period of time over which payments shall be made. Such payments shall only be subject to modification in the event of the death of the judgment creditor.

(2) In the event that the court finds that the judgment debtor has exhibited a continuing pattern of failing to make the payments, as specified in paragraph (1), the court shall find the judgment debtor in contempt of court and, in addition to the required periodic payments, shall order the judgment debtor to pay the judgment creditor all damages caused by the failure to make such periodic payments, including court costs and attorney's fees.

(1) “Future damages” includes damages for future medical treatment, care or custody, loss of future earnings, loss of bodily function, or future pain and suffering of the judgment creditor.

(2) “Periodic payments” means the payment of money or delivery of other property to the judgment creditor at regular intervals.

(3) “Health care provider” means any person licensed or certified pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, or licensed pursuant to the Osteopathic Initiative Act, or the Chiropractic Initiative Act, or licensed pursuant to Chapter 2.5 (commencing with Section 1440) of Division 2 of the Health and Safety Code; and any clinic, health dispensary, or health facility, licensed pursuant to Division 2 (commencing with Section 1200) of the Health and Safety Code. “Health care provider” includes the legal representatives of a health care provider.

(4) “Professional negligence” means a negligent act or omission to act by a health care provider in the rendering of professional services, which act or omission is the proximate cause of a personal injury or wrongful death, provided that such services are within the scope of services for which the provider is licensed and which are not within any restriction imposed by the licensing agency or licensed hospital.

(f) It is the intent of the Legislature in enacting this section to authorise the entry of judgments in malpractice actions against health care providers which provide for the payment of future damages through periodic payments rather than lump-sum payments. By authorising periodic payment judgments, it is the further intent of the Legislature that the courts will utilise such judgments to provide compensation sufficient to meet the needs of an injured plaintiff and those persons who are dependent on the plaintiff for whatever recovery which was intended to provide for the care of an injured plaintiff over an extended period who then dies shortly after the judgment is paid, leaving the balance of the judgment award to persons and purposes for which it was not intended. It is also the intent of the Legislature that all

elements of the periodic payment program be specified with certainty in the judgment ordering such payments and that the judgment not be subject to modification at some future time which might alter the specifications of the original judgment.

 

 

APPENDIX 7

Cal Code Civ Proc S. 666.7 (1992)

SUGGESTED FORMS

JUDGMENT AUTHORISING PERIODIC PAYMENTS OF PROSPECTIVE DAMAGES IN MEDICAL MALPRACTICE ACTION

[Title of Court and Cause]

The above-entitled cause came on for hearing before this court on ––, 19 [with a jury]. –– appeared as attorney for ––, and –– as attorney for ––. Oral and documentary evidence was duly presented and the jury was properly instructed following arguments by counsel.

The jury awarded judgment in favour of the plaintiff and against defendant as hereinafter set forth:

––[Specify damages to date of trial].

––[Specify prospective damages].

A request was made by –– [plaintiff or defendant] that the award of prospective damages be made in the form of periodic payments of $–– per ––[month or as the case may be] until such judgment is satisfied.

It is therefore ordered that the judgment for prospective damages in the sum total of $–– be made to –– in –– [number] instalments of $ ––, on the –– of each –– [month or as the case may be], –– [beginning on ––, 19––, or within thirty (30) days after the judgment becomes final].

––[Set forth further provisions pertaining to the posting of security by defendant and the return of any surplus to defendant once judgment is satisfied].

––[Set forth further provisions pertaining to assessments for failure of defendant to comply with periodic payment schedule].

Dated ––, 19––.

[Signature]

 

 

APPENDIX 8

Canada/Ontario

Courts of Justice Act, R.S.O. 1990, C.43

116.–(1) In a proceeding where damages are claimed for personal injuries or under Part V of the Family Law Act for loss resulting from the injury to or death of a person, the court,

(2) An order under clause (1)(b) shall not be made if the parties otherwise consent or if the court is of the opinion that the order would not be in the best interests of the plaintiff, having regard to all the circumstances of the case.

(3) In considering the best interests of the plaintiff, the court shall take into account,

(4) In an order made under this section, the court may, with the consent of all the affected parties, order that the award be subject to future review and revision in such circumstances and on such terms as the court considers just.

(5) If the court does not make an order for periodic payment under subsection (1), it shall make an award for damages that shall include an amount to offset liability for income tax on income for investment of the award. 1989, c.67, s.3.

 

 

APPENDIX 9

THE PERIODIC PAYMENT OF DAMAGES ACT

Her Majesty, by and with the advice and consent of the Legislative Assembly of Manitoba, enacts as follows:

Definitions

1. In this Act

Periodic payments permitted

2. In a proceeding where damages are claimed for personal injuries, for the death of a person, or pursuant to The Fatal Accidents Act, the court may, in its discretion, order that damages be paid in whole or in part by periodic payments.

Contents of judgment

3. Where a court orders that damages be paid by periodic payments, the judgment shall conform with the following:

Security required

4(1) Unless the court orders otherwise, every judgment which orders that damages be paid by periodic payments is conditional upon the judgment debtor filing with the court, within 30 days of the judgment being rendered or such other time fixed by the court, security to assure the payment of the full amount of the judgment satisfactory to the court.

Form of security

4(2) Such security shall be in the from of an annuity contract issued by a life insurer satisfactory to the court or in any other form of security satisfactory to the court.

Effect of posting security

5(1) Where security is not posted and approved in accordance with section 4, the court shall, upon the request of any party, vacate those portions of the judgment in which periodic payments were awarded and substitute therefore a lump sum award or awards.

Effect of death

6 Where a judgment creditor dies prior to the termination date specified for a head of damage in a judgment in accordance with clause 3(c)(iii),

the remaining periodic payments for the head of damage shall continue to be paid to the estate of the judgment creditor until the applicable termination date.

Provision for inflation

7 A court which delivers a judgment providing for the periodic payment of damages shall, in calculating the amount of the periodic payments, make provision for the annual increase of such payments by – per cent, which is hereby deemed to be the rate of long-term general price inflation.

Commutation prohibited

8 Except as provided in subsection 5(2), no award for periodic payment of damages shall be commuted into lump sum.

Garnishment limited

9 Periodic payments for damages for loss of future earnings are exempt from garnishment, attachment, execution and any other process or claim to the extent that wages or earnings are exempt under any applicable law.

Assignment of periodic payments

10 Any assignment of or agreement to assign any right to periodic payments identified in a judgment as being in respect of future care cost is void and unenforceable except as to amounts assigned to a provider of care for the cost of products, services or accommodations provided or to be provided by the assignee for such care.

Crown bound

11 The Crown is bound by this Act.

Reference in Continuing Consolidation

 

 

12 This Act may be referred to as chapter p32.3 of the Continuing Consolidation of the Statutes of Manitoba.

Commencement of Act

13 This Act comes into force on a day fixed by proclamation.

 

 

APPENDIX 10

REPORT OF THE JUSTICE REFORM COMMITTEE OF BRITISH COLUMBIA, 1988

Supreme Court Act

When a court awards damages in an action, normally the damages are payable in a lump sum. In some cases, however, that is not considered appropriate. For example, if a person has suffered catastrophic injuries in a car accident, possibly including brain damage, he or she will have special needs for a very long time. In those cases it may be more appropriate for the money to be used to buy an annuity. This will provide income and guarantee security for the injured person.

This type of arrangement is known as a 'structured settlement' and it is being used more and more often, usually by agreement. Some judges feel that they do not now have the authority to order payment of an award by way of structured settlement.

Recommendations 180

The Supreme Court Act, s42, should be amended to clearly give a judge the authority to order an award of damages to be satisfied by way of a structured settlement.

 

 

APPENDIX 11

List of Persons who furnished written submissions

Mr J. Comerford, Registrar of the Supreme Court

Mr Colm Condon, Senior Counsel

Mr Patrick Connolly, Senior Counsel

Mr John Daly, Department of Enterprise and Employment

Mr J.C. Delahunty, Chief Registrar of the High Court

Mr Dermot Gleeson, Senior Counsel

Mr Justice Ronan Keane, Judge of the High Court

Mr Frank Mullen, Revenue Commissioners

Mr James Nugent, Senior Counsel

Mr Pies Seagrave-Daly, Actuary

List of Persons who attended the Commission's Seminar

Mr Patrick Connolly, Senior Counsel

Mr John Dalton, Registrar of Wards of Court

Mr John A. Daly, Insurance Reform Unit – Dept. of Enterprise and Employment

Mr John Delahunty, Chief Registrar, High Court

Mr Thomas M. Gregg, Consultant, National Rehabilitation Board

Mr Henry Hickey, Senior Counsel

Mr Marcel Jacques, Office of the Revenue Commissioners

Mr Justice Ronan Keane, High Court

Ms Nuala McLoughlin, Assistant Registrar of Wards of Court

Mr Eamonn O'Dea, Office of the Revenue Commissioners

 

 

Mr Eugene O'Sullivan, Family Law Committee, Law Society

Mr Noel T. Smith, Solicitor

 

 

THE LAW REFORM COMMISSION

Ardilaun Centre

111 St Stephen's Green

Dublin 2

Telephone: 671 5699

Fax No.: 671 5316

LIST OF LAW REFORM COMMISSION'S PUBLICATIONS

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