Ireland: Periodic Payment Orders – The Proposed Way Forward

Last Updated: 20 August 2015
Article by Donogh Crowley, Orla Keane and Katie Toher

Catastrophic injury award payment structures may change if proposed new legislation is introduced. Such legislation, if passed in current form, will give the courts the power to make periodic payments instead of lump-sum awards in such cases.

The proposals will be welcomed by practitioners who have, for years, acknowledged that lump sums can miss the mark of fair compensation and can fail to take into account a claimant's future personal circumstances, future investment returns and inflation rates.

The general scheme of the Civil Liability (Amendment) Bill 2015 recently published by the Department of Justice proposes giving the courts, in catastrophic injury cases, power to make periodic payment orders (PPOs) instead of the traditional lump sum.

When this becomes law, courts will be able to decide if claimants who have been catastrophically injured will get the cost of future care, treatment and medical costs in the form of index-linked annual payments.

The new proposals should address the claimant's concerns about inflation, investment returns and longevity. They should also reduce the risk for the defendant insurer of the claimant succumbing to their injuries earlier than expected with the resultant windfall to the claimant's estate.

THE KEY PROPOSALS:

1. The making of a PPO will be at the court's discretion

A PPO may be made if both parties consent, but must be approved by the court. If there is no agreement, the court can make an order if, after hearing the views of the parties, it is satisfied a PPO is in the claimant's best interests. Where a PPO is made for loss of future earnings, both parties must consent.

2. The court may make provision for a "stepped" PPO

The Court may provide for a "stepped" PPO, taking into account important foreseeable milestones in a claimant's life such as going to school, reaching the age of majority and anticipated changes in care needs. The court must specify when the "stepped" PPO is to come into effect and the amount of the increase or decrease at current value.

3. Payments must be secure

The draft legislation provides that a court may not make a PPO unless it is satisfied the continuity of payment is "reasonably secure". A PPO is considered reasonably secure where:

  • the defendant is a State authority and the payments are protected under a scheme of indemnity administered by the State; or
  • the court is satisfied that the PPO is eligible for payment from the Insurance Compensation Fund; or
  • the defendant can provide evidence that it can guarantee continuity of payment by some other means, or where the source of payments under the PPO is a State authority.

Where the court makes a PPO, the limits imposed by the Insurance Act 1964 on the maximum that may be paid from the Insurance Compensation Fund in the event of the liquidation of an insurance company will not apply.

4. Payments are to be linked to the Irish Harmonised Index of Consumer Prices

A PPO will be subject to an annual revision to cater for increases in costs. The rate attributable to indexation will be reviewed after an initial five-year period and, after that, every five years.

5. The Injuries Board will have power to make PPOs

The legislation proposes amending the Personal Injuries Board Assessment Act 2003 to give the Injuries Board power to award periodic payments. The Injuries Board will have to apply the same criteria as the courts.

THE FUTURE

The draft legislation should be seen as a positive change by both claimants and defendants.

However, it is inevitable that PPOs will not be welcomed by all. Lump-sum awards are conclusive and give the parties certainty. They allow the defendant's insurer to "close the book" on a claim.

Implementing the legislation is also likely to mean lengthy negotiations between medical and financial experts, on both sides, about the future prognosis and future care – it will never be an exact science.

PPOs may be more problematic when the courts rule there should be a reduction for contributory negligence, or a discount on liability.

As regards indexation, it is arguable that an earnings-related index, similar to the ASHE SOC 6115 index applied in the UK, and recommended by the High Court's Working Group on Medical Negligence and Periodic Payments, would have been a more appropriate yardstick.

For these reasons, the "clean break" of the lump sum may still be favoured by some. Yet, where a PPO is made, risks for the claimant, such as inflation, longevity and investment returns are minimised. For the defendant and the insurer, the risk of over-compensation is substantially reduced.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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