False dawn for catastrophically injured plaintiffs?

The recently published Civil Liability Amendment Bill 2015 relating to Periodic Payment Orders has been eagerly awaited by many practitioners since the publication of the first report of the Judicial Working Group on Medical Negligence in 2010.

However, the proposed legislation is unlikely to meet approval from plaintiff practitioners and is unlikely to address the fundamental problem that exists, namely, linking of future annual payments to an appropriate inflation index of future care costs.

Few would disagree that compensating a seriously injured plaintiff for a lifetime of care costs on a once-off lump-sum basis is an inaccurate exercise prone to error. It is doubtful, however, if the proposed new scheme as set out in the heads of Bill will make the situation any better.

The origin of the problem is in the index of future inflation that is proposed to be adopted and used in the proposed statutory scheme. It is worth recalling what was proposed in the first report in October 2010. The group was made up of senior judges along with stakeholders from all of the concerned parties, including senior representatives of the insurance industry, senior civil servants, the State Claims Agency, the Bar Council, the Law Society, the Society of Actuaries and patient advocates.

It unanimously recommended that: “Provision within the legislation must be made for adequate and appropriate indexation of periodic payments as an essential prerequisite for their introduction as an appropriate form of compensation.

“In particular, the group recommends the introduction of earnings and cost-related indices which will allow periodic payments to be index-linked to the levels of earnings of treatment and care personnel and to changes in costs of medical and assisted aids and appliances. This will ensure that plaintiffs will be able to afford the cost of treatment and care into the future.”

However, rather than follow the advice of the judicial working group, the Government has decided to introduce an inferior indexation of future payments. The draft heads of Bill states: “The index used to calculate the revision shall be the annual rate of Irish Harmonised Index of Consumer Prices (HICP) index as published by the Central Statistics Office.”

A further head of the Bill states: “The rate attributable to indexation under this part shall be subject to an initial review within five years after coming into operation of this Act and thereafter every five years. Any changes to be prospective only and not retrospective.”

It would appear the Government has decided to reject the advice of the working group in favour of its own internal departmental advice based apparently on an internal report prepared for it by Towers Watson Actuaries.

Put simply, the index the Government has decided to use will measure prices over a broad range of consumer goods and will not accurately reflect the likely greater increase in wage inflation for carers’ salaries or for medical services. This is precisely the opposite of what the working group recommended and is ignoring the unanimous recommendation made.

This will leave open the entire problem of the difference between general increases in consumer prices compared to the much greater increase in wage costs. It is conventional economic wisdom that in the long term over a period of decades’ wages will inevitably rise at a rate greater than the increase in consumer prices. Thus the plaintiff will face over time a gradual erosion in their ability to pay for vital care, so that at the end of three decades, they would have the funds to pay for only approximately two-thirds of the vital care needed. Surely this would be an unjust result?

It is hard to imagine the Government is not aware of the problem it is potentially creating. All of these issues were fully canvassed in the working group’s report. The question must be asked as to why the Government is deciding to ignore the unanimous recommendations of the report. Surely it would be more appropriate to link the annual payment to the CSO’s index of average household earnings. Is it possible that the powerful insurance lobby has had its say and brought about a change in the proposed legislation?

If the Government introduces the legislation as outlined in the draft Bill, it is my view that most plaintiffs will still seek to recover lump-sum compensation. A lump sum is likely to be more attractive, more flexible and allow plaintiffs to pursue an investment strategy that might enable them to meet inflation in future earnings or care costs.

It is very regrettable that the Government has spurned the opportunity to provide certainty for catastrophically injured plaintiffs and has rejected the best option for achieving accurate and equitable compensation which would be an annual payment for life index linked to inflation in earnings and care costs.

Hopefully the Government will have a change of heart.

Michael Boylan is a partner and head of the medical negligence department at Augustus Cullen Law