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Home > Publications > Forms & Guidance > Guidance for professionals > Variation of Periodical Payment Orders and Settlements in Personal Injury Cases

Variation of Periodical Payment Orders and Settlements in Personal Injury Cases

Partial Regulatory Impact Assessment

April 2004

This consultation closed on 30 June 2004.

Introduction

In March 2002, the Lord Chancellor published a Consultation Paper: "Damages for future loss: Giving the courts the power to order periodical payments for future loss and care costs in personal injury cases", which sought views on the use of periodical payments in personal injury cases. A clear majority of responses agreed that courts should have the power to order periodical payments without the parties' consent (under the present law, the court can only make such an order where both parties consent). The majority also supported some form of variation of periodical payment orders. The proposals contained in the consultation paper were taken forward in sections 100 and 101 of the Courts Act 2003. (Further information on the background to the proposals is contained in the 2002 consultation paper, and in the consultation responses.

The paper also consulted on a partial Regulatory Impact Assessment on the periodical payments proposals and sought data on the potential impact of variation. However, the Government was unable to obtain sufficient information to develop a full analysis of variation. The final Regulatory Impact Assessment, published in November 2002, therefore focused on the power to order periodical payments, and the Government undertook to develop a second Regulatory Impact Assessment specifically to assess the costs and benefits of the Order for variation which it proposed. This paper sets out for consultation the further partial Regulatory Impact Assessment. It seeks further information to be used in the assessment of the impact of allowing the courts to vary periodical payments orders and agreements in the specified circumstances set out in section 1 of the assessment. The power for the courts to do this would be contained in an Order by the Lord Chancellor under section 2B of the Damages Act 1996 (inserted by Section 100 of the Courts Act 2003).

The consultation is aimed at claimants, defendants, insurers, medical defence organisations and others who are involved in personal injury claims in England, Wales and Northern Ireland. This consultation is being conducted in line with the Code of Practice on Written Consultation issued by the Cabinet Office. It falls within the scope of the Code. The Code criteria set out at the end of this document have been followed.

This partial impact assessment indicates that a range of individuals and organisations are likely to be affected including claimants, defendants, insurers, medical defence organisations, and taxpayers. It also indicates that the proposals for variation are likely to be cost neutral overall for businesses, charities and the voluntary sector. However, in order to inform our final Regulatory Impact Assessment this paper seeks further information on the costs and benefits of our proposals for variation. We would therefore welcome any data consultees are able to provide in respect of the questions set out in this paper, or any other information that they think might be helpful to our assessment.

Copies of this document are being sent, amongst others, to:

How to respond

Please send your response by 30th June 2004 to:

Tom Brown
Southside Room 3S4
105 Victoria Street
London, SW1A 6QT
Tel: 0207 210 1234
E-mail: Tom Brown

Representative groups are asked to give a summary of the people and organisations they represent when they respond.


The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.

Further copies of this partial impact assessment can be obtained from Tom Brown at the above address or by phoning 0207 210 1234.

Partial Regulatory Impact Assessment

1. Purpose and intended effect of measure

Objective
This partial impact assessment considers the impact of exercising the Lord Chancellor's power, under new section 2B of The Damages Act 1996 (inserted by Section 100 of the Courts Act 2003), to make an Order enabling courts to vary periodical payment orders and agreements in specified circumstances.

Following on from the consultation in 2002, the Government has indicated that it intends to allow only limited scope for variation. An application for variation will be allowed only where it can be foreseen at the time of the original agreement or court order that there is a chance that at some time in the future the claimant will develop a serious disease, suffer serious deterioration, or enjoy significant improvement in his or her medical condition, and where it is explicitly provided for in that order or agreement. It is intended that all applications to vary payments will be subject to the permission of the court.

Devolution
The Order will apply to England, Wales and Northern Ireland.

The background
At present, where periodical payments are agreed, part of the settlement usually takes the form of a lump sum known as a "contingency fund". The purpose of the "fund" is to provide for future needs, the extent of which cannot be calculated at the time of the original settlement (e.g. the likelihood of developing a serious disease as a consequence of the original injury). Because the amount of the award has to be calculated at the time of settlement, such funds invariably over or under estimate the costs of uncertain future needs. In addition, the award often compensates for the chance that a future need may arise, rather than the need itself. If, for example, there is a 20% chance of a significant medical deterioration occurring and it never occurs, the defendant or insurer would have made a payment unnecessarily. If the deterioration does occur, the claimant will be seriously under-compensated because they will only have received 20% of the compensation required to meet their needs.

Therefore, in cases where there are real difficulties in assessing the likelihood of a claimant developing a particular medical condition or overcoming a particular medical disability at the time the periodical payments order is made, an order which will allow future flexibility in specific circumstances can provide the best solution.

The current system of provisional damages already provides some flexibility in respect of lump sum awards, although most lump sums are ordered or agreed to on a "once and for all" basis. Section 32A of the Supreme Courts Act 1981 provides that provisional damages can be awarded "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 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". The provisional damages will be assessed on the basis that the claimant will not develop the disease or suffer the deterioration, but if this does occur the claimant can then return to court to seek further damages.

The proposed scope of variable periodical payments is no more than is provided for by this system of provisional damages, except that it will allow for significant medical improvement as well as deterioration. It will also allow defendants to apply - at present only claimants can do so.

Risk assessment
In principle, periodical payments made as the needs arise provide a more appropriate means of compensating claimants than lump sums. However, if there is no scope for variation the full benefits of periodical payments will not be realised. Where it is impossible to assess the extent or likelihood of a claimant developing a certain medical condition at the time of trial or settlement, the deficiencies of the current system would continue. Insurers would still have to make substantial contingency payments for events which might never occur and claimants would continue to be over or under compensated. Allowing variation in the limited circumstances outlined above is intended to address this risk.

Scaling the Issue
The possibility of variation will only apply to damages which are to be paid by way of periodical payments, and then will only be appropriate in a limited number of cases.

In most cases involving periodical payments, a non-variable award will be appropriate. Many foreseeable changes can be, and some are already, built into an annuity. The annuity can be used in a flexible way to reflect anticipated changes in the claimant's needs and there is no reason why that should not continue. The number of cases in which variation will be appropriate is likely to be similar to those in which provisional damages are used now, which we understand to be few. Figures provided by the Compensation Recovery Unit show that of a total of 1,955,279 personal injury settlements recorded between 2000 and 2003, only 459 were provisional damage settlements. This is less than 0.03% of the total settlements recorded.

Even where variable orders are made, we do not expect that there will be many applications to vary payments made under those orders. The circumstances in which variation will be allowed are limited and, as is the case with provisional damages now, the original court order or agreement will have to specify the nature of deterioration or improvement for which parties can apply for variation. The proportion of parties returning to court seeking to vary payments is expected to be similar to those applying for further damages in provisional damages cases. We have been unable to obtain precise estimates of how many claimants seek further damages in such cases but, anecdotally, we understand that it is only a small number of those receiving provisional damages awards (which as noted above is a minute proportion of overall settlements).

The experience of the Criminal Injuries Compensation Scheme also suggests that awards which theoretically can be revisited rarely are in practice. Damages awarded by the Criminal Injuries Compensation Authority (CICA) are usually regarded as final. However, a case can be re-opened where there has been such a material change in the victim's medical condition that injustice would occur if the original assessment of compensation were allowed to stand, or where the victim has since died of the injury. The grounds for re-opening a case are therefore similar to those in which it is intended that parties will be able to apply to vary periodical payments made under a variable order or agreement (i.e. a significant change in medical condition). CICA have reported that over the past 5 years there have been a total of 386,253 cases, of which only 811 have been medically reopened. This amounts to less than 0.2% of those cases.

2. Options

Option 1 - Do not exercise the Lord Chancellor's power - i.e. periodical payments without the power to vary. Following public consultation and Parliamentary debate during the course of the Courts Bill, it was decided that this option should not be pursued.

Option 2 - Allow courts to vary the level of periodical payments in the circumstances set out above.

3. Sectors Affected

The following groups have been identified with an interest in the Order:

4. Benefits

The following benefits of the proposed Order for variation have been identified:

Claimants

Defendants/Insurers and the NHS

Taxpayers and Others

There may be savings to the taxpayer if variation makes it less likely that claimants will require state benefits and additional care as a result of deterioration in their condition.

5. Costs

The following costs of the proposed Order allowing variation have been identified:

Defendants/Insurers and the NHS

Taxpayers and others

6. Equity and fairness

Allowing variation in the limited circumstances outlined above provides the fairest system of compensation for both claimants and defendants. The additional flexibility to meet claimants' future needs that it offers is an important element in realising the full benefit of periodical payments. The proposals will ensure that if a specified improvement or deterioration in the claimant's condition does occur, the claimant will receive increased payments to meet any increase in need; but that defendants and their insurers will not have to make payments for contingencies which never occur or for care which is no longer needed.

7. Compliance

The issue of compliance does not arise here as it does with a classic regulatory proposal. The underlying impact of tort liability is unaffected. It will be for the court to decide whether variation is suitable in a particular case.

8. Consultation with Small Business

We have consulted the Small Business Service in preparation of this partial RIA. Where small businesses take out insurance (for example motor insurance or employer's liability) they will be affected, along with others, in so far as these proposals may lead to changes in insurance premiums.

9. Costs for a typical business

We believe that this proposal should be broadly cost neutral for a typical business. Business would only be affected in so far as the proposal for variation led to any changes in insurance premiums and, as the costs for insurers appear to be offset by the potential savings, premiums should not be affected.

10. Competition assessment

The competition filter undertaken as part of the Competition Assessment suggests that there is unlikely to be a negative impact on competition if the courts can vary the level of periodical payments in specified circumstances.

11. Monitoring and Review

We are considering what monitoring systems would best be put in place, and will include our plans in this area in the final RIA.

12. Consultation

There has been full public consultation and consultation within Government on the proposals leading to this RIA. The issues have also been fully debated in Parliament during passage of the Courts Act 2003. The responses to the consultation are also available.

Declaration

I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs.

Signed............................................(This remains blank until the legislation is to be sent to Parliament. It then becomes a final RIA).

Date

Minister's name, title, department

Contact point:

Tom Brown
Southside Room 3S4
105 Victoria Street
London, SW1A 6QT
Tel: 0207 210 1234
E-mail: Tom Brown

Questionnaire

In order to assess the impact of the proposed Lord Chancellor's Order for variation, we would welcome responses to the following questions set out in this consultation paper.

  1. In how many cases are provisional damages awarded?

  2. In what proportion of cases where provisional damages are awarded do the claimants return to court for further damages?

  3. If a case is reviewed and further damages are awarded, on average what are the amounts involved on an increase or decrease?

  4. What are the average additional administrative costs arising from provisional damages?

  5. What are the average additional legal costs arising from provisional damages?

  6. Do you agree with the assumptions made in this partial assessment?

  7. Do you have any further information which could help inform this RIA?

Name:

Organisation:

Address:

If you are a representative group please give a summary of the people and organisations you represent.

Please send your completed response by 30th June 2004 to:

Contact point:

Tom Brown
Southside Room 3S4
105 Victoria Street
London, SW1A 6QT
Tel: 0207 210 1234
E-mail: Tom Brown

Consultation Co-ordinator

If you have any complaints or comments about the consultation process, you should contact the Department for Constitutional Affairs consultation co-ordinator, Laurence Fiddler, on 020 7210 2622 or email him at Laurence Fiddler. Alternatively, you may wish to write to the address below:

Laurence Fiddler
Consultation Co-ordinator,
5th Floor open plan
Department for Constitutional Affairs
Selborne House
54-60 Victoria Street
London SW1E 6QW

General principles of consultation

The consultation is being conducted in line with the Code of Practice on Consultation. The Criteria are listed below. The full version can be accessed at www.cabinet-office.gov.uk/regulation/Consultation/Code.htm

The Six Consultation Criteria

  1. Consult widely throughout the process, allowing a minimum of 12 weeks for written consultation at least once during the development of the policy.

  2. Be clear about what your proposals are, who may be affected, what questions are being asked, and the timescale for response.

  3. Ensure that your consultation is clear, concise and widely accessible.

  4. Give feedback regarding the responses received and how the consultation process influenced the policy.

  5. Monitor your department's effectiveness at consultation, including through the use of a designated consultation coordinator.

  6. Ensure your consultation follows better regulation best practice, including carrying out a Regulatory Impact Assessment (RIA) if appropriate.

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