Landmark ruling could prove costly

A landmark Court of Appeal ruling is likely to substantially increase the cost to the NHS and the insurance industry of settling catastrophic bodily injury claims, lawyers say.

The four conjoined appeals (Thompstone v Tameside & Glossop Acute Services NHS Trust; Corbett v South Yorkshire Strategic Health Authority; RH v United Bristol Healthcare NHS Trust; DeHass v South West London Strategic Health Authority) confirmed that courts have the power to apply a rate higher than the Retail Prices Index (RPI) when inflation-proofing periodical payments for future care costs.

The court upheld all the first instance decisions on the issue of whether and in what circumstances the court can depart from the RPI, set by the Damages Act 1996 (DA 1996), s 2(8), when inflation-proofing a periodical payments order in a personal injury claim that features a claim for future loss.

It ruled that DA 1996, s 2(9) empowers the court to apply a different measure for the indexation of future periodical payments.  It also approved, on the facts, the suitability of the Annual Survey of Hours and Earnings as an alternative indexation measure for the claimants’ future care needs.
Bond Pearce solicitor Nicholas Bevan says that although the ruling is likely to be appealed to the House of Lords, it has profound cost implications for the NHS Litigation Authority and for defendant insurers.

“Future loss claims compensated by periodical payments will now be far more expensive for defendants to fund. Claimants are likely to find that the advantages of periodical payments will decisively outweigh that of the traditional lump sum payment in high value claims,” he says.
Bevan says the ruling and the expert evidence adduced in these cases has exposed the inadequacy of the lump sum award—as a means of compensating future care needs in many long-term catastrophic injury cases—and that the discount rate (currently set at 2.5%) for lump sum awards under DA 1996,s 1 is set too high and thus under-compensates some claimants.

He stresses, however, that despite these significant rulings, not every catastrophic injury claim will be suited to a periodical payments order and many claimants will still prefer lump sum payments.