Payment of damages by instalments recommended

COURTS should be able to award damages for personal injuries by instalments as well as in lump sums, the Law Reform Commission has recommended.

In its report on personal injuries published today, the Commission recommends new compensation payments, including interim payments, provisional awards and structured settlements.

Currently, damages for personal injuries are paid as a one off lump sum, usually calculated by estimating a person's future needs and state of health. The advantages are that the insurance company can close its book on the case and the injured person gets a large sum with the freedom to invest it.

However, the Commission calls the calculation an "inexact science", saying "the final lump sum damages award almost certainly will turn out to be either overcompensation or under compensation".

The report cites two cases where the system had failed. One man had been given what the court believed was enough money to keep him at a certain level of comfort for the rest of his life. However the money ran out years before he died.

In the second case a child suffered serious injuries in a car driven by her father. He was judged negligent and his insurance company paid her a large sum. Not long afterwards the child died and the money was given to her father, against whom the payment had been made.

Another risk was that people who are not used to dealing with large sums of money might "fritter away" their compensation windfall. An Australian survey of 263 accident victims found that nearly half of them were "financially vulnerable" after seven years, the report says.

A Canadian study found that 50 per cent of people had spent their award in a year, 70 per cent in two years and 90 per cent had nothing left after five years. The Commission said there was "little hard evidence of what happens to large awards in Ireland".

A provision for interim damages means a court could order an immediate payment to cover costs like medical expenses or loss of earnings. However, it could only be awarded where the defendant admits liability.

The law in Britain was changed in the 1980s to allow interim awards in serious injury cases. The immediate payment then allows the court time to assess the ultimate damages.

A provisional award would allow for the possibility of a second award in the future, if the person develops a serious illness as a result of the injury. The court would have to specify this possible disability when it made a provisional award.

The Commission described a third option off structured settlements as a highly appropriate way of compensating plaintiffs for future loss, pain and suffering." The system was introduced in the US about 25 years ago. A lump sum is usually awarded and the balance is invested in a life assurance policy to provide a regular income.

The Commission said all plaintiffs should be entitled to opt for a structured settlement, regardless of their injuries. It should also be available to the families of fatal accident victims.

The lump sum paid out under a structured settlement should cover what the plaintiff had already lost. And future payments would relate to future losses.

Under current law a lump sum award is not taxed, but the interest from this sum is taxed. An exception to this rule is when the plaintiff is "permanently and totally incapacitated" and this income is their "sole or main income". The report recommends that payments under structured settlements should be subject to tax relief.

The report, commissioned by the former Attorney General, Mr John Rogers SC, was submitted to the Attorney General, Mr Dermot Gleeson, in December.