Mon 08 Oct 2018

Payment Protection Order or Lump Sum Compensation - Making the Right Choice

New legislation is expected to come into force in early 2019 which will give Courts the power to impose a Payment Protection Order (PPO) on parties, rather than awarding compensation as a lump sum payment. Whilst PPOs are already used in Scotland as a means to resolve cases, the new legislation will mean that a PPO can be put in place even where parties are opposed to it if the Court considers it is in the best interests of the injured person.

Traditionally, a Court would award an injured person a lump sum payment to compensate them for their loss. This sum would be calculated on the basis that it puts the pursuer - financially at least - in the position they would have been in had the accident or negligence not occurred.  The sum should compensate the injured person for their pain and suffering, any services they have required from their family and will require in the future, any loss of earnings and other expenses, including future care costs.  In some cases, a PPO may be more beneficial to the injured person.  A PPO allows for future losses to be paid annually, either for a set number of years or until the Pursuer's death.   This may be a better arrangement, particularly where the Pursuer is young and will require care for the rest of their life, but their future losses are uncertain due to the nature of their injuries and potential care needs.

Before making a decision, it is important for the Pursuer and their family to be informed of the advantages and disadvantages of a PPO, and each case will require to be considered on its own merits and facts.

A PPO takes away the need for medical experts to agree on the Pursuer's life expectancy, which is often an impossible task. It would ensure an annual tax free payment is made for the remainder of the Pursuer's life to cover ongoing care costs.  This payment would take account of inflation, thereby ensuring any future increases in care costs would be covered.  A major concern for families caring for loved ones who have suffered catastrophic injuries is who will provide for their loved one when they die.  If a lump sum payment was made, they may feel pressure from the responsibility of investing the funds to maximise the award and ensure that funds do not run out.  A PPO removes this stress as it puts in place a long term plan to take account of the injured person's care needs for as long as they require it.

However, there are drawbacks to this arrangement. Litigation is a stressful process and often clients want to conclude their claim, put it behind them and move on with their life.  A PPO would mean that the compensation requires to be regularly revisited and reconsidered.  This requires there to be a long term relationship with their solicitor and frequent contact with the Defender, albeit this would not be contentious. 

Consideration must also be given to the long term security of the payment.  If the compensation is payable as a result of medical negligence and the defender is the NHS, the payment is secure as it would be made from public funds. However, if the defender is an insurance company, there is a risk that they may default on the payment.  There is also the possibility that the payment may be varied or suspended for a period of time.

It is often the case that following the successful conclusion of their case, the injured party wishes to make a large initial outlay - perhaps to cover the cost of moving to more suitable accommodation.  A PPO is inflexible and would not make provision for an initial lump sum payment, although that is potentially something which could be negotiated with the defender.

Defenders are often keen to reach this type of arrangement as it means they can avoid paying a substantial one-off lump sum. It also avoids the risk of the over compensating if the Pursuer doesn't live as long as expected, resulting in a windfall payment to their beneficiaries.  

Every case is different and the advantages and disadvantages of a PPO need to be considered by taking into account the facts of the case and the individual's circumstances.  However, it is clear that Courts will soon have a more involved role in this process and where a lump sum is to be awarded, an Actuary will require to confirm that this is indeed in the injured person's best interests.   If it were the case that the Court was keen to enforce a PPO arrangement against parties' wishes, this may influence negotiations and encourage early settlement of the case.

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