THE LAW REFORM COMMISSION

AN COIMISIUN UM ATHCHOIRIU AN DLI (LRC 54–1996)

REPORT

ON

PERSONAL INJURIES:

PERIODIC PAYMENTS AND STRUCTURED SETTLEMENTS

IRELAND

The Law Reform Commission Ardilaun Centre, 111 St Stephen's Green, Dublin 2

© Copyright The Law Reform Commission 1996

First Published December 1996

ISSN 1393–3132

THE LAW REFORM COMMISSION

The Law Reform Commission was established by section 3 of the Law Reform Commission Act, 1975 on 20th October, 1975. It is an independent body consisting of a President and four other members appointed by the Government.

The Commissioners at present are:

The Hon. Anthony J. Hederman, former Judge of the Supreme Court, President; John F. Buckley, Esq., Judge of the Circuit Court;

William R. Duncan, Esq., M.A., F.T.C.D., Barrister-at-Law, Professor of Law and Jurisprudence, University of Dublin, Trinity College;

Ms. Maureen Gaffney, B.A., M.A. (Univ. of Chicago), Senior Lecturer in Psychology, University of Dublin, Trinity College;

Simon P. O'Leary, Esq., B.A., Barrister-at-Law.

John Quirke is Secretary to the Commission.

The Commission's programme of law reform, prepared in consultation with the Attorney General, was approved by the Government and copies were laid before both Houses of the Oireachtas on 4th January, 1977. The Commission has formulated and submitted to the Taoiseach or the Attorney General fifty three Reports containing proposals for the reform of the law. It has also published eleven Working Papers, ten Consultation Papers and Annual Reports. Details will be found on pp.178–183

The post of Research Counsellor to the Commission is vacant at present.

Ms. Deirdre Mulligan, LL.B., LL.M. (Edinburgh), Attorney-at-Law (State of New York), Ms. Lia O'Hegarty, B.C.L., LL.M. (Michigan), LL.M. (Harvard), Barrister-at-Law and Ms. Roisin Pillay, LL.B., LL.M (Cantab.) are Research Assistants.

Further information from:

The Secretary,

The Law Reform Commission,

Ardilaun Centre,

111 St. Stephen's Green,

Dublin 2.

Telephone: 671 5699.

Fax No: 671 5316

This Report was submitted on 16 December 1996 to the Attorney General, Mr Dermot Gleeson, S.C., under section 4(2)(c) of the Law Reform Commission Act, 1975. It embodies the result of an examination of and research into the law of Personal Injuries, Periodic Payments and Structured Settlements which was carried out by the Commission at the request of former Attorney General, Mr John Rogers, S.C. together with proposals for reform which the Commission were requested to formulate.

While these proposals are being considered in the relevant Government Departments the Attorney General has requested the Commission to make them available to the public, in the form of this Report, so as to enable informed comments or suggestions to be made to the said relevant Government Departments by persons or bodies with special knowledge of the subject.

CHAPTER 1: INTRODUCTION

The Reference

1.1

Pursuant to section 4(2)(c) of the Law Reform Commission Act, 1975, the then Attorney General, Mr. John Rogers, S.C., referred a number of topics to the Commission, with the request that the Commission formulate proposals for their reform. One of these topics was the law relating to compensation for personal injuries. The Commission was asked to examine two aspects of this topic. The first was the application of the Statute of Limitations to cases of latent personal injuries. This was addressed in the Commission's Report on The Statute of Limitations: Claims in respect of Latent Personal Injuries (LRC 21). The second aspect related to periodic payments and provisional awards of damages. This was first addressed in a Discussion Paper which the Commission circulated to persons and groups with a particular interest in the subject in August 1993. Having received the observations of these persons and groups the Commission held a meeting on the 9th December 1994 attended by experts in legal, insurance and administrative aspects of the topic. This Report contains our final recommendations.

The Commission is very grateful to those who furnished written submissions or attended the Commission's Seminar. It is particularly grateful to those who did both. Lists of those experts are to be found in Appendix II.

Approach Underlying This Report

1.2

This Report does not deal with the basis of liability in tort and the various rules of negligence but rather concerns itself with the way the tort system pays damages, irrespective of how that liability arises, and explores a number of different approaches that can be adopted in altering the common law practice of paying the plaintiff his or her damages in a once-off lump sum.

1.3

The practice of paying damages over a period of time has arisen, in the United States and in the United Kingdom, out of a method of settling cases which has made use of a special arrangement made with the revenue authorities. Legislation has been enacted which enables the courts to take a more active role in awarding structured settlements by putting these informal arrangements into statutory form.

1.4

It is necessary to include in this Report a brief discussion of how the courts calculate aspects of an award of damages for personal injuries, for two reasons.

1.5

Firstly, the Irish courts have adopted a different method of calculating damages awards for personal injuries, particularly with regard to that element of the award which represents future losses, from their English counterparts. In the context of introducing periodic payments it is the element of the award dealing with future losses that is relevant, since at the date of the trial the plaintiff is more likely to want to receive damages for pre-trial losses in a lump sum.¹ This approach is also more consistent with the aim of damages which is to put the plaintiff in the position he or she would have been in had the accident not occurred.

1.6

Secondly, if the courts are given a formal, statutory power to award structured settlements in certain circumstances, then the way in which they calculate certain aspects of the award could be determined by features of the legislation itself, e.g. provisions for inflation-proofing.

1.7

The principles and approach adopted by the Irish courts at present are very much conditioned by the fact that the plaintiff is only going to receive one lump sum payment. Consequently future losses must be reduced to present value by taking a complex variety of factors into account.² If provision is to be made for the awarding of a part of a personal injuries award in the form of a structured settlement then the extent to which this award is inflation-proofed and tax free may affect the way the courts will calculate that part of the award in the first place.

1.8

The arguments in favour of structured settlements³ can apply equally in fatal accident cases. In these cases, where the injured party dies, the nature of the future pecuniary loss to the estate or the dependents is often one of a periodic nature, i.e. the deceased's loss of future earnings. By the same token, similar policy objectives may ensure that the surviving dependants can avail of a guaranteed flow of periodic income such as is provided for by structured settlements. Consequently this Report also includes an outline of the provisions governing fatal accident cases.

1.9

We also propose to examine reforms that have been introduced in various other jurisdictions in this regard. This examination will focus on the way damages are paid in the common law personal injuries action.

SECTION I: IRELAND

CHAPTER 2: PERSONAL INJURIES ACTIONS

The Action For Damages

2.1

In many cases of accidental personal injury or death,¹ monetary compensation can be obtained if the injured party or estate can successfully bring a court action against a defendant who is either insured or who has the resources to be able to pay the compensation.²

2.2

An action can be brought in tort or contract or both depending on the circumstances of the accident. The vast majority of claims are made in tort. There is no reason, however, why an individual may not sue for damages for personal injuries suffered as a result of a breach of contract,³ although the extent of damages allowed will often be more limited.

2.3

An award of damages can only be made in the form of a lump sum.⁴ This contrasts with the payments made under the social welfare system for

workplace injuries⁵ and the various statutorily based compensation schemes for work or road accidents that exist in other countries, where some element of the compensation award is paid periodically. The fact that awards for damages for personal injury are made only in the form of a lump sum means that an assessment as to all losses both past and future, must be made at the trial. The plaintiff cannot recommence proceedings if his or her condition deteriorates or something occurs which was unforeseen at the time of the trial and yet drastically alters the position of the plaintiff. This is because the plaintiff's cause of action is merged in the initial judgment and therefore extinguished by it.

2.4

The purpose of the award of damages is to compensate the plaintiff for loss and injury suffered as a result of the negligent conduct of the defendant. Aggravated or exemplary damages may also be awarded in specific cases.⁶ However, the primary purpose of any award is to compensate the injured plaintiff.

2.5

While the injured party may have incurred many clearly ascertainable financial losses such as medical expenses and loss of earnings, calculating monetary compensation for the loss of a limb or mental impairment is less easy and involves the court in trying to estimate what monetary compensation is fair in all the circumstances of the case. Needless to say, that will frequently be decided by reference to previous, similar cases.

2.6

It should be stressed that the calculation of damages depends on the

plaintiff's condition and is independent of the basis of his or her claim. The emphasis is on the plaintiff's condition without regard to whether the injuries resulted from a car crash or a defective product.

2.7

Initially it is proposed to outline briefly the various circumstances in which a personal injuries or fatal accident action can be brought. Then it is proposed to examine in greater detail the method by which the compensation award is calculated, with particular reference to that part of the award which is for future losses.

Action In Tort

2.8

The law of torts operates to compensate an injured party for the losses suffered as a result of the wrongful conduct of another. In general the success of a claim depends on proving that damage was suffered and that this was caused by the tortious conduct of the defendant.

2.9

The tort that is most frequently met in the Irish Courts is that of negligence.

2.10

There is no all-encompassing test for establishing negligence, but in general, a plaintiff is required to prove that the defendant was in breach of a duty of care imposed on him or her by the law. Fault will be attributed where there has been a failure to take reasonable care in circumstances where the injuries were reasonably foreseeable. Lord Atkin, in Donoghue v Stevenson,⁷ stated the test thus:

2.11

The courts have applied this broad test to widely differing factual circumstances, including road accidents, medical treatment, accidents in the workplace, schools and on private premises.⁸

2.12

As well as negligence, a plaintiff may obtain compensation in tort for breach of statutory duty. Perhaps the most important context in which this operates in practice is in relation to accidents in factories, mines, quarries and other places of employment. Liability in this type of case is sometimes not

dependent on proof of carelessness by the defendant: a defendant entirely innocent of any fault may nonetheless be held strictly liable for the breach of the statutory provision if the court interprets it as encompassing a remedy in tort.⁹

2.13

Two other recent examples of strict liability without fault arise under the Control of Dogs Act 1986 and the Liability for Defective Products Act 1991.

2.14

As can be seen, there are a number of different tests for deciding liability in cases of personal injury and the principles governing liability are still evolving as the courts seek to come to grips with the sometimes arbitrary results a strict application of the common law fault rules produces.¹⁰

Assessment Of Compensation

2.15

Once liability is established, the amount of compensation then depends on the various criteria applied by the courts in awarding damages. Perhaps the most important factor in determining the amount of compensation is the purpose of the award.

2.16

The purpose of an award of damages is to try to restore the plaintiff to the position he or she would have been in before the accident. Since a monetary award cannot restore a plaintiff to his or her prior position where severe personal injuries have been sustained, the courts will try to award compensation that is “fair” in the circumstances of the case, usually by reference to the awards given in previous, similar cases.

2.17

Dr John White in his book, The Irish Law of Damages¹¹, says about awards in personal injuries cases:

2.18

The fixing of damages in proceedings in respect of personal injuries and wrongful death actions is now done in the High Court by the judge. The Courts Act, 1988, abolished juries in these actions in the High Court.

2.19

In rare cases aggravated or exemplary damages may be awarded in personal injuries cases, as for example where the plaintiff is the victim of a battery committed by the defendant, in particularly flagrant circumstances.

2.20

Compensatory damages are assessed under certain headings. The two most commonly referred to are general damages and special damages. Special damages usually refer to expenses incurred as a result of the tort up to the date of the trial. General damages cover the estimated cost of future medical and related expenses, as well as pain and suffering, prior to and subsequent to the making of the award and loss of amenities.

2.21

White characterises the assessment of damages by the courts by reference to the pecuniary and non-pecuniary losses of the plaintiff:

2.22

In assessing prospective pecuniary losses, the court will attempt to award a lump sum amount that at the date of the trial represents the future loss of income or expenses incurred as a result of the tort. As Hamilton J stated in Cooke v Walsh¹⁴:

2.23

However, it may be said that there are no clear guidelines consistently adopted by the courts and quite often the methodology adopted by the courts in arriving at an award will differ from case to case.¹⁵

2.24

For example, the courts have changed their view several times on the subject of whether or not the final award of damages should be the total of all the composite figures for the various types of damages or whether the final figure should reflect the case as a whole and not be rigidly restricted by the amounts for each separate heading of damages.

2.25

McMahon and Binchy in discussing this problem identify a number of changes in the courts approach in this regard.¹⁶ In the 1950s the courts seemed to favour the overall assessment approach. O'Dalaigh J in McMorrow v Knott¹⁷ stated:

2.26

However, in the 1960s the view seemed to change to one more in favour of a separation of the total award of damages into its constituent heads. Kingsmill Moore J in Sexton v O'Keefe¹⁸ stated:

2.27

The judge then added:

2.28

The preference for the awarding of damages on the basis of totalling the amounts under the various headings of damages seems to have made the task of analysing a jury's decision easier for the appeal court. However, in the early 1980s in the case of Reddy v Bates,²⁰ the Supreme Court by a two to one majority, endorsed the approach of calculating the award by looking at the overall circumstances of the case. Griffin J stated:

2.29

As McMahon & Binchy point out, this “appears to defy the mathematical principle that the whole is neither greater nor smaller than the sum of its parts”.²² However, it is interesting to note that the court felt that a valid consideration to be taken into account in determining the size of the award is the amount the award might yield if carefully and prudently invested. According to Griffin J in Reddy v Bates“the income which that capital sum would generate with reasonably careful and prudent investment is a factor which the jury, and this court on appeal, should take into consideration in arriving at a conclusion in this behalf”.²³

2.30

This is arguably a very uncertain factor to be introducing into the calculation of a compensation award. McCarthy J in Reddy v Bates disagreed with the majority that this should be a factor. He stated that:

2.31

White says, regarding this factor (that the award will yield an income if prudently invested), that “it is difficult to understand what justifications may ever be suggested in its support”.²⁵ While this approach may be, logically, an unsound way of calculating damages, since it may reduce damages for non-pecuniary losses by reference to the amount awarded for pecuniary losses, it nevertheless reflects a belief that, ultimately, the calculation of damages in a personal injury case is, to a degree, an impressionistic exercise. As McMahon & Binchy say, the “Supreme Court is opting for the supremacy of an intuitive resolution of the issue of compensation”.²⁶ This is not as drastic an outcome as it may seem in that monetary compensation for physical and mental injuries is, by its very nature, an inexact science.

2.32

Another important aspect of the calculation of the damages is the consideration whether or not other compensating benefits received by a plaintiff will be deducted in calculating the award of damages.

2.33

In general, at common law, benefits which accrue to a plaintiff due to his or her own efforts (e.g. private insurance) are not deductible. Similarly, ex gratia or charitable payments (other than from the defendant himself or herself) will not be deducted.²⁷

2.34

Much of the common law position was given statutory force by s2 of the Civil Liability (Amendment) Act, 1964:

2.35

Section 50 of the Civil Liability Act, 1961, makes similar provision as regards awards in wrongful death actions:

2.36

These sections apply to any of the benefits referred to, irrespective of their source. So, in Green v Russell,²⁸ the court held that a benefit paid by the liable employer to the deceased employee's estate was not deductible under the similar provision in the Fatal Accidents (Damages) Act, 1908.

2.37

Payments made under social welfare legislation are generally regarded as not being deductible. However, following the introduction of s68 of the Social Welfare (Consolidation) Act, 1981, payments of injury benefit or disability benefit paid to a plaintiff, in consequence of the injuries for which he is suing in tort, will be deductible from the element of the damages which is for loss of earnings or profits, past and future. The deduction applies to benefit that “will probably” be payable for a period of 5 years from the time the cause of action accrued. So while these benefits are paid periodically, the deduction from the tort award will amount to a reduction in the lump sum.²⁹

2.38

Section 306A of the 1981 Act, inserted by s12 of the Social Welfare Act, 1984, extends the above exception to the general rule of non deductibility to disability benefit (including any amount payable therewith by way of pay-related benefit) and invalidity pension in cases where the action arises out of the use of a motor vehicle, in circumstances where liability for such injuries is required to be covered by insurance. The Social Welfare Consolidation Act, 1993 incorporates these changes.

2.39

As regards other collateral benefits that may become available to the plaintiff, White argues that both benefits in kind, such as free health service and redundancy payments, are generally non-deductible.³⁰

Income Tax

2.40

The role taxation plays in the calculation of personal injury awards is

also very important from the point of view of structured settlements or periodic payments.

2.41

For tax purposes compensation awards in personal injuries cases are treated as capital, rather than income, receipts. However, s24(1)(c) of the Capital Gains Tax Act, 1975, expressly excludes damages for loss of earnings recovered in a personal injury award from capital gains tax. Consequently the actual lump sum award itself is not taxed in the hands of the recipient.

2.42

However, the fact that the plaintiff's lost earnings would have been subject to income tax is taken into account when the court calculates that component of the award, thereby reducing the overall size of the award. This rule of calculation for personal injuries awards is called the Gourley principle after the case in which it was first used.³¹ The Supreme Court, in Cooke v Walsh³² in 1983, confirmed the application of this principle to Irish personal injury awards, namely that an amount should be deducted from that element of the award for loss of earnings which would have been payable to the Revenue as income tax if the earnings had been earned in the normal way. The principle applies equally to the amount the income would have been reduced by social insurance contributions and any other state levies that would have been payable by the plaintiff had he or she earned the income in the ordinary course of events. This principle of deduction also applies to other forms of lost income other than earnings, such as lost income from a pension.³³

The Appropriate Rate

2.43

The next problem that arises in calculating the deduction to be made according to the Gourley principle is to decide what income tax rate should be used in calculating the size of the deduction. This can be problematic as the income tax rate in the future may be different, thus affecting the amount of lost future net earnings. If the income tax rate increases in the future, then the plaintiff will be overcompensated for loss of future earnings if the deduction made is based on the tax rate at the date of trial. On the other hand, if the income tax rate decreases in the future, then the plaintiff will not have been accurately compensated for his loss of future earnings. Initially the courts were reluctant to engage in speculation as to future tax rates, the approach being that the income tax rate at the date of trial was to be used in making the deduction in the plaintiff's award for loss of future earnings. In Gourley, Lord Goddard said he would direct a jury as follows:

2.44

However, in more recent times the courts have shown a greater willingness to consider the realistic possibility that income tax may decrease in the future and that to base the Gourley deduction on present income tax levels would be unfair to the plaintiff. Kenny J in Glover v BLN Ltd (No. 2)³⁵ stated that:

2.45

The position is not clear, however, and it seems that each case will depend on the circumstances, such as how far into the future the plaintiff will suffer a loss of earnings, the rate of taxation at the date of trial and whether a tax cut is proposed.³⁶ On this latter point, White states that “where there are firm government proposals for alterations in the rates of taxation, account should be taken of these.”³⁷

2.46

While the position as regards estimating future income tax rates is still uncertain, the Supreme Court, in Griffiths v Von Raaj,³⁸ has stated more clearly the approach to be taken to estimating future tax rates on income from an investment of the plaintiff's lump sum in an investment fund.

Exception

2.47

As was pointed out above, the capital lump sum is not taxed in the hands of the plaintiff. However, if this lump sum is invested, then the income produced by it will be taxed according to normal income tax rates. There is one important exception to this position. Section 5 of the Finance Act, 1990, provides that where the plaintiff is “permanently and totally incapacitated by reason of mental

or physical infirmity from maintaining himself” and the income from an investment of a lump sum for personal injuries is “the sole or main income” of the plaintiff, then the income will be exempt from income tax. According to Byrne and Binchy³⁹:

2.48

In any case where the requirements of section 5 are not met, the taxation of the income produced by an investment fund is important because, while the lump sum award is not taxed in the hands of the recipient, if the lump sum is invested by the recipient to produce a regular income, that income will be subject to income tax.

2.49

In Griffiths v Von Raaj, the Supreme Court acknowledged that the income tax that is payable on the income produced by an investment of the damages award should be taken into account when calculating the damages award and that therefore the size of this element of the award should be increased to compensate for this.⁴⁰ This is in line with the Gourley principle as regards future earnings. In terms of the tax rate to be used, however, Griffin J for the majority felt that it was excessive to award compensation on the basis of present tax levels since there was a high probability that this would not be continued, and therefore he reduced the overall amount. Griffin J stated:

2.50

Griffin J therefore reduced the amount of the award saying that “[h]aving regard to the assumptions on which the multiplier used in this case is based, that multiplier is in my view too high, and the damages of £350,000 awarded under this heading are therefore excessive.”⁴²

2.51

Griffin J therefore reduced the damages for care and attention from £350,000 to £290,000 and the damages for loss of earnings from £125,000 to £85,000.

2.52

McCarthy J, while agreeing that income tax on income from an investment fund should be taken into account, dissented from this approach on the grounds that such a reduction, based on the future possibility of changes in the tax position on income from such an investment fund, was arbitrary in the absence of specific evidence. He stated:

2.53

White argues that McCarthy J's approach is preferable on the grounds that the reduction made to an award because the taxation rate on income from an investment fund is likely to be reduced should apply with equal force to the reduction made to damages for loss of future earnings on the grounds that income tax may be reduced:

2.54

The approach of the courts to the liability to tax on income from an investment of the lump sum award is very important in the context of the

structured settlement debate. This is so because the income paid out periodically under a structured settlement arrangement in other jurisdictions is usually not taxed in the hands of the plaintiff. This raises the question whether if such an arrangement were arrived at in Ireland, the courts would simply reduce the lump sum amount on the grounds that the plaintiff would no longer be paying income tax on the income from the invested sum? This issue is one that clearly has to be addressed and resolved in any reform proposals.

2.55

Along with future taxation, inflation is also a very important factor in this context. Inflation and the devaluation of money were recognised as being valid factors to take into account when calculating damages for future losses by the Supreme Court in Donnelly v Browne.⁴⁵ The effect of taking inflation into account when calculating an award for future losses was clearly displayed in the case of Cooke v Walsh.⁴⁶

2.56

In that case Hamilton J in the High Court, in a judgment which was approved of by the Supreme Court, said that the real interest rate to be used for discounting the lump sum for loss of future earnings to present day values was to be calculated by reference to the current rate of inflation and the rate of interest from “safe easily realisable investments”.⁴⁷ In this particular case an investment in 15% Exchequer Bonds was possible at the date of trial and the rate of inflation was 12.5%. Consequently the real interest rate used by the court to discount the lump sum award was 2.5%. Hamilton J stated:

2.57

Griffin J in the Supreme Court upheld Hamilton J's approach and adoption of a discount rate of 2.5% stating:

2.58

The court did not take into account any tax payable on interest from the investment as, since the plaintiff was an infant, the High Court would determine the mode of investment of the fund for the plaintiff as a ward of court and a method was devised whereby the capital sum could be invested without attracting any income tax liability. This was done by investing the capital sum in short-dated securities, disposing of these before any dividend (income) became payable and re-investing the sum again in a similar security. This continuous re-investing of the capital profits as they arise avoids any liability to income tax until the plaintiff takes control of the funds. Presumably, if the scheme had attracted any income or capital gains tax, the court would have taken this into account and increased the award along the lines of the principles adopted in the Griffiths v Van Raaj case.

2.59

In conclusion, the Irish courts are willing to take future inflation rates into account in calculating what award to make. This can be a speculative process, particularly in times of fluctuating economic conditions.⁵⁰ It also contrasts with the approach of the English courts, who do not take inflation into account but effectively set off the interest on the investment of the lump sum against future inflation. Once again, if a structured settlement option were introduced the degree to which it would be inflation-proofed might impact on the way the courts calculate the lump sum in the first place. As the English courts do not consider inflation in determining the lump sum award, this is not a problem that has had to be addressed in England.

Contract⁵¹

2.60

In the vast majority of cases persons who are injured in an accident have no contractual relationship with the person they believe caused the accident. If they do, however, and if the accident may have been caused by a breach of contract, then damages may be obtainable by suing in contract.⁵² This may arise, for example, when a chauffeur drives in breach of the terms of his contract and injures his employer.

2.61

If damages are to be awarded for personal injuries (including mental

distress) under a contract, the test applied by the courts is whether or not the occurrence of the injuries as a result of the breach was within the contemplation of the parties at the time the contract was made.⁵³

2.62

Damages for mental distress caused by a breach of contract were allowed in Jarvis v Swan Tours Ltd⁵⁴ where Denning MR stated:

2.63

In Harte v Sheehy⁵⁵ Costello J refused to extend this to distress caused by the failure to complete a contract for the sale of land.⁵⁶

2.64

In McAuliffe v Moloney,⁵⁷ where a child was injured while playing on a gate, the Supreme Court was prepared to consider awarding damages for breach of a repairing covenant against the landlord in respect of the personal injuries suffered.⁵⁸

2.65

In Siney v Dublin Corporation⁵⁹ the Supreme Court allowed the plaintiff to recover damages for “physical inconvenience and discomfort” suffered as a result of the defendant's breach of contract in providing housing under the Housing Act, 1966, which was “unfit for human habitation”.

2.66

In view of the potential development of a practice of awarding damages for personal injuries suffered as a result of a breach of contract, this category of claim has to be included in any reform proposal. This will not, perhaps have as significant an impact as at first might be believed. The Civil Liability Act, 1961, which introduced radical changes in regard to aspects of civil liability, defines “wrong” as including a breach of contract. The change does not appear to have occasioned much judicial controversy or any real difficulty in practice.

Provisional and Interim Awards of Damages

2.67

There is no precedent in Irish law or practice for provisional awards of damages. While there is no provision in any Irish statute or rule of court for interim awards of damages, such awards are sometimes made in practice. For example, from time to time when a court has awarded damages to a plaintiff and the defendant appeals against the quantum of damages only, a court will order the defendant to pay out a substantial amount of the award for damages, which order may be appealed to the Supreme Court by the defendant before payment is made on foot of the award.

2.68

Provisional and interim awards will be examined in greater detail in Chapter 7 in the context of the law in the United Kingdom.

CHAPTER 3: FATAL ACCIDENT ACTIONS

Introduction

3.1

The issue of periodic payments can be a relevant one even in cases where the injured party dies either as a result of the accident or from some other cause, before any action arising out of the accident is completed. This is so because he or she may leave behind members of his or her family who may have been financially dependent on him or her.

3.2

Two types of action can arise after a wrongful death. The first is a wrongful death action; the second, a survival action.

3.3

The causes of action for personal injuries which survive death are of two distinct types. First, there are causes of action for personal injuries which are unrelated to the death. For example, the defendant negligently injures the deceased during the latter's lifetime but, before the deceased has prosecuted his or her cause of action for negligence to judgment, he or she dies from an independent cause. Here the cause of action survives for the benefit of the deceased's estate, but it has nothing to do with wrongful death. Secondly, there are causes of action for personal injuries in respect of the very torts which occasion death. Here again the cause of action survives but the survival action derives from the wrongful death.

The Wrongful Death Action

3.4

The House of Lords in 1808 in the case of Baker v Bolton¹ decided that the English common law did not contain such a rule. That position was remedied by legislation; a statutory wrongful death action in Ireland is currently governed by the Civil Liability Act, 1961.²

3.5

The first statutory remedy was provided in 1846 by the Fatal Accidents Act, 1846, commonly known as Lord Campbell's Act, which applied to both England and Ireland. This Act afforded a remedy to a limited class of family members by way of wrongful death action. This statute was repealed and replaced in this jurisdiction by the Fatal Injuries Act, 1956, which in turn has been

repealed and replaced by the fatal injuries provisions of Part IV of the Civil Liability Act, 1961, which provides the modern statutory remedy of a wrongful death action.³

Parties Entitled To Avail Of The Remedy

3.6

The remedy under Part IV of the 1961 Act is, by section 48(1), given to the “dependants” of the deceased. By section 47(1), “dependant” is defined as meaning “any member of the family of the deceased who suffers injury or mental distress” while “member of the family” is defined as meaning the spouse, parent, grandparent, stepparent, child, grandchild, stepchild, brother, sister, half-brother or half-sister of the deceased. Section 47(2) provided that, in deducing any relationship for the purpose of establishing title to sue for wrongful death, a person adopted under the Adoption Act, 1952, should be considered the legitimate offspring of the adopter or adopters and, subject to that provision, that an illegitimate person should be considered the legitimate offspring of his mother and reputed father. It also provides that in deducing such title to sue, “a person in loco parentis to another shall be considered the parent of that other”.⁴

3.7

The Status of Children Act 1987, which introduced a general principle of equality as beteeen children, regardless of the marital status of their parents, encourages the removal of language referring to children whose parents are not married as “illegitimate”. It does not appear to have affected the substance of Section 47 of the 1961 Act.

The Basis Of Liability Under Part IV Of The 1961 Act

3.8

The basis of liability is covered by section 48 of the Act. Section 48(1) of the Act of 1961 gives the remedy for wrongful death. It provides:

3.9

Section 2(1) of the 1961 Act defines “act” to include “default or other

omission” and “wrong” is defined to mean “a tort, breach of contract or breach of trust, whether the act is committed by the person to whom the wrong is attributed or by one for whose acts he is responsible, and whether or not the act is also a crime, and whether or not the wrong is intentional”.

3.10

The condition precedent to liability under Part IV of the Act of 1961 is that the fatal injuries must have been caused by the wrongful act, default or other omission of the defendant so that the deceased could notionally have successfully sued the defendant or his estate in respect thereof at the time when he sustained the injuries. This requirement of an actionable wrong to the deceased as the basis of liability clearly follows from the wording of the statute. As White⁵ points out, there is scope for controversy concerning whether, given an actionable wrong to the deceased at the time when the fatal injuries were sustained, the wrong must also have been actionable at the suit of the deceased at the time of his death. There appears to be no reported Irish decision where the point in issue has been considered.

Recovery By Dependants For Pecuniary Loss

3.11

Section 49(1)(a)(i) of the Civil Liability Act, 1961, as amended by section 4 of the Courts Act, 1988, provides that the damages recoverable for wrongful death under Part IV of the 1961 Act shall include:

3.12

Recovery may be had in respect of the loss of money or services⁶ even though the deceased may not have been under any legal obligation to support the claimants.⁷ Even if the deceased did not contribute to the support of the claimants at the date of death, or make any contributions to the claimants prior to his death, the claimants can still recover provided they can show a reasonable expectation of pecuniary benefit from the continued existence of the deceased.⁸

3.13

The dependants cannot claim for pecuniary gains which are deemed at law to have accrued to them in consequence of the death of the deceased unless the statute otherwise specifically provides. In other words, recovery is allowed in respect of the balance of pecuniary losses over gains resulting from the death.⁹

3.14

Consequently the burden of proof is upon the plaintiff to show that the dependants have sustained a net pecuniary loss.¹⁰

What Is The Basis Of Assessment Of Dependency?

3.15

The occurrence of future happenings, such as the continuation of a life or the prospect of promotion, cannot be determined on the balance of probabilities as facts. With regard to the occurrence of future events, all that can be done is for the court to assess the chance of such events occurring on the basis of the evidence available, i.e. on the basis of facts proved on the balance of probabilities.¹¹

3.16

This issue was analysed in the former leading case of Horgan v Buckley (No. 1),¹² a decision of the former Supreme Court. In this case Meredith J, discussing the nature of the chance valuation enquiry involved in those cases where the issue of the claimants' having sustained pecuniary loss depends on what he described as “double contingencies” (i.e. what the deceased would have earned in the future and would have contributed to the support of the claimants had he survived) stated:

3.17

In Horgan's case, in finding that there was evidence from which a jury could properly find that the claimants had a reasonable expectation of pecuniary benefit from the deceased, had he lived, Sullivan CJ observed that the man had at an earlier time shown himself to be industrious, that the uncontradicted evidence was that he had been looking for a farm and that the inference could be drawn that he was preserving the deposit for the purpose of buying a farm which would have enabled him to support his wife and children.

3.18

Cases involving claims by parents in respect of the deaths of young children will frequently raise the further contingency, namely, whether the parents would at some time in the future be in need of support as a result of a deterioration in their financial position so that the issue becomes one of the valuation of the chances that the deceased would have earned and would have contributed in the event of the parents being in need. Indeed, in modern times this is the most likely basis of the parents' dependency – the loss of the element of security which is provided by having an adult son or daughter upon whom they

can rely for assistance in the event of their needing it in their old age. The loss of this element of security is a proper subject of recovery notwithstanding that it depends on multiple contingencies for, as Meredith J observed in Horgan's case, “the product of the chances in the latter case may show a higher degree of probability than in the case of a single more remote contingency”.¹⁵

The Calculation Of Future Losses

3.19

For the purposes of periodic payments the important element of the damages award is that part which represents future losses. In a wrongful death action, future (i.e. post-trial) losses are determined by ascertaining the weekly or annual value of the dependency of the claimants and the post-trial period during which the dependency would have continued to exist, from which may be deduced the gross financial loss of the dependants in respect of this period.

3.20

As with future losses in a personal injuries action, the calculation of the actuarial multiplier to be used to calculate what sum to pay the dependants at the date of trial is all important. The calculation of this multiplier depends principally on four factors, namely, the anticipated period of post-trial loss, the appropriate discount rate in respect of interest which will be earned by the capital investment fund of damages during that period, the adjustment to that discount rate to offset the impact of future taxation on such interest and the impact of future cost inflation.

Period of loss

3.21

The period of loss is determined by ascertaining the number of years during which it is likely that the deceased would have contributed to the dependants' support. The life expectation not only of the deceased but also of the dependants is relevant to this enquiry. The expectation of life of the dependants is determined as of the date of death for there is no guarantee that, but for the wrongfully occasioned death, the deceased would have survived to the date of trial. From the ascertained total period of anticipated loss is deducted the period between the date of death and date of trial, which will have been included in the calculation of pre-trial losses. The balance of years of lost support, if any, forms the basis of the actuarial multiplier. Where the loss has been determined to be likely to continue to a given age of the deceased and a dependant, allowance will be made for the contingency of an earlier than average death by the actuary in the multiplier which he or she proposes. Likewise, where the loss has been determined to be likely to continue for the life of the deceased

(had he or she not been tortiously killed) or the life of a dependant, the actuarial multiplier proposed by the actuary will allow for the chance of departure, either way, from the average represented by the period of the expectation of the relevant life or lives derived from mortality tables. In other words, the probability of survival of the deceased and the dependants to a given age is built into the actuarial multiplier.

The discount rate

3.22

The question of the appropriate discount rate to be applied to effect a reduction to present value is no longer determined solely by the relevant market interest rates available for investments. It also depends upon the anticipated impact of income taxation on the interest from such fund and the impact of future cost inflation upon the value of interest from the investment fund. What is relevant is the net rate of return which is capable of being obtained when the capital fund is invested in the relevant mode, i.e. from safe, easily realisable investments at the date of the judgment.¹⁶ We have seen earlier that the Irish Courts have taken the view that where future income taxation is required to be taken into account, the proper course is first to reduce the available market interest rate obtainable on investment of the damages in the relevant mode to take account of such future taxation and then to reduce the resultant rate of interest by the relevant inflation rate to give the net real rate of return, which gives the final discount rate to be adopted in the calculation.

Allowance for taxation of interest from investment fund

3.23

Allowance for the impact of taxation upon the deceased's earnings will reduce his or her assessed disposable income and consequently the dependants' damages awards for pecuniary loss. This allowance must necessarily be made, for what is relevant is the deceased's contribution to the dependants from his income. If, however, no further allowance is made for the impact of taxation on income from an investment fund, then the result will be that the dependants will not enjoy the full value of the assessed damages for loss of dependency. This is because the interest from such damages when invested will be subject to income tax. The damages must therefore be increased to allow for the impact of such taxation on interest from the capital fund.

3.24

On this point, Lord Reid in the House of Lords in Taylor v O'Connor¹⁷ stated that:

3.25

In Griffiths v Van Raaj¹⁸ the Supreme Court recognised the propriety of making allowance for the impact of taxation on interest from the investment fund in the assessment of damages for pecuniary loss in personal injury actions – although the extent of the allowance sanctioned by the Court in that case may be criticised as inadequate – and there is no doubt but that the same principle applies in the context of the assessment of pecuniary loss in wrongful death actions. Expert evidence must be adduced to deal with the projected impact of taxation on interest from the capital fund. Allowance for this factor is properly made in the calculation by an adjustment of the discount rate employed for reduction to present value with consequent adjustment of the actuarial multiplier.

Allowance for impact of inflation

3.26

The Irish courts, unlike their English counterparts,¹⁹ make a direct allowance in the calculation of damages for future pecuniary loss for the future impact of cost inflation.²⁰ The matter has been considered in the context of the assessment of future pecuniary loss in personal injury actions, but the same principle applies to the assessment of such loss in wrongful death actions. The established approach in personal injury actions, which is of equal application in wrongful death actions, is to seek to protect the damages award when invested from the impact of such future inflation. This is done by adjusting the discount rate employed in reducing the lump sum award to present value. The market interest rates available at the date of judgment for safe, easily reliable investments, after having first been reduced to allow for the impact of income taxation on interest from the investment fund, are further reduced to allow for the future rate of inflation. The resulting interest rate, representing the net real rate of return is employed in discounting the award for future pecuniary loss to present value. If legislation introducing periodic payments or structured settlements were introduced and this contained provisions for these payments to be treated in a special way for tax purposes, then this might affect the way the courts calculate the damages in the first place.

The Survival Action

3.27

At common law the rule was that a cause of action in tort which was vested in a deceased person before his death abated with his death. The rule applied to prevent the estate of a deceased tort victim from pursuing to judgment both a cause of action vested in the deceased before his death in respect of a tort which resulted in his death and also a cause of action vested in the deceased before his death in respect of a tort which arose independently of the circumstances which occasioned his death. Where the tort resulted in the deceased's death, his dependants were, until the enactment of the Fatal Accidents Act, 1846, likewise without a remedy because of the complementary rule of the English common law,²¹ which has also been assumed to form part of Irish Law,²² that the death of a human being was not something which could be complained of in a civil court.

3.28

Part II of the Civil Liability Act, 1961, abolished the general rule in this jurisdiction (as did the Law Reform (Miscellaneous Provisions) Act, 1934, in England) and provided, subject to certain exceptions, for the survival of causes of action for the benefit of, or against, a deceased's estate. The effect of this is that a cause of action for personal injuries, which is vested in the deceased before death, survives the death of the deceased for the benefit of the estate, and may be prosecuted by the personal representative on behalf of the estate in what is called a survival action. However, claims for damages for non-pecuniary loss which are competent in a personal injury action when maintained by the injured person are not competent where the action is maintained for the benefit of the estate after the death of the deceased. Where, therefore, a wrongful death action on behalf of the deceased's dependants under Part IV of the 1961 Act is competent, a survival action in respect of the tort which occasioned the death may also be maintained on behalf of the deceased's estate, if the deceased suffered damage of a kind which is compensatable in such a survival action, or if the estate incurred funeral expenses in respect of the death of the deceased. If such losses have been sustained, then a survival action will be competent and may be maintained in addition to any wrongful death action which may be competent under Part IV of the 1961 Act. Sometimes, however, because of the scope of the statutory wrongful death action²³ and its interrelationship with the survival action, no advantage will be gained from also bringing such a survival action.

3.29

There can be circumstances where both actions should be brought, such as where the deceased has suffered a loss of earnings occasioned by the tort in the period between the accident and his or her death. The family cannot recover for such a loss of earnings in an action under Part IV of the Act of 1961, which compensates only for loss of dependency consequent on death. Therefore, if the family are to recover in respect of this loss, they can only do so by participation in the deceased's estate as increased by recovery in a survival action in respect of such lost earnings.

3.30

Section 7(1) of the 1961 Act abolishes the general common law rule that a cause of action for tort vested in a person before the death does not survive that person's death. Section 7(1) provides that:

3.31

The effect of this provision is that a cause of action for personal injuries which is vested in a person before death is, on death, transmitted to the estate and may be prosecuted by the personal representative on behalf of the estate.²⁴

The Nature Of Damages Recoverable

3.32

The cause of action transmitted to the estate is the same as that which the victim would have had, had he or she survived. Recovery is not allowed in a survival action, however, in respect of all of the elements of damages which are recoverable in a personal injury action. Section 7(2) of the 1961 Act precludes recovery by the estate in a survival action of damages in respect of non-pecuniary loss, i.e., for pain and suffering, loss of amenities of life and loss of expectation of life. Nor can exemplary damages be recovered.

3.33

Recovery is, therefore, limited in a survival action to: (i) funeral expenses which are expressly made recoverable by section 7(3) where the tort which is the subject of the action has occasioned the death (and would not otherwise be recoverable since the deceased could not have maintained a claim in respect of the same during his or her lifetime except on the basis of the loss represented by the acceleration of the incidence of such expenses by reason of anticipated premature death); and (ii) the deceased's pecuniary loss resulting from the tort which includes: (a) expenses incurred by the deceased before

death as a result of the tort; (b) the deceased's loss of earnings and other pecuniary benefits between the date of the accident and the date of death; and, it is submitted, (c) the deceased's loss of earnings and other pecuniary benefits which would have accrued to him or her during the last years, i.e., the years after the date of death during which he or she would have been alive and earning and in receipt of such other pecuniary benefits were it not for the tort. The issue of recovery under this latter head requires further consideration and is dealt with below.

3.34

Any losses or gains to the estate which occur due to the death are irrelevant to the damages recoverable under the survival action. This is because of section 7(3) which provides that, in a survival action brought on behalf of the estate of a deceased person in respect of a wrong which has occasioned the death of the deceased, losses and gains to the estate consequent on the death cannot be taken into account in the damages calculation.

3.35

Damages for loss of earnings and other pecuniary benefits in the lost years are calculated in the same fashion as those in a wrongful death action.

The Relationship Between Survival Actions And Wrongful Death Actions

3.36

The action on behalf of the estate under section 7(1) of the Civil Liability Act, 1961, is completely unaffected by recovery of damages in a wrongful death action brought by the dependants under Part IV of the 1961 Act. Section 7(4) of the Act expressly provides that:

3.37

However, wrongful death damages may be affected by a survival award. This is so because where there is a claim made in a wrongful death action under Part IV of the 1961 Act by the dependants and a claim made in a survival action by the estate, a defendant has an interest in the allocation among the various dependants of the total sum assessed in respect of the dependants' dependencies in the wrongful death action. The amount adjudged due to a particular dependant may be reduced or extinguished by that dependant's succession to the whole or part of the victim's estate with consequent reduction in the sum payable by the defendant in the wrongful death action, and if the apportionment of damages in the wrongful death action among the dependants differs from the distribution of the estate among the dependants under the rules of testate or intestate succession, there will be an increased liability imposed upon the

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defendant.

3.38

White argues that there are four important limitations on the rule of deduction from wrongful death damages.²⁵

3.39

First, no deduction ought to be made in respect of that part of the damages awarded in a survival action and subsequently received by the dependants, which is referable to the victim's loss of earnings between the date of the accident and the date of death, and which would have been expended by the victim on the maintenance of the dependants had the victim not been tortiously injured.

3.40

Secondly, no deduction ought to be made in respect of that part of the damages recovered by the estate and subsequently received by a dependant which is referable to funeral or medical or other expenses of the deceased which that dependant has paid or is liable to pay.

3.41

Thirdly, White argues, any sum recovered by the dependants in respect of mental distress resulting from the death in an action under Part IV of the 1961 Act cannot be affected by any amount received by the dependants as a result of the estate's action. Like can only be set off against like. The justification for reducing or eliminating the dependants' wrongful death award in respect of their financial loss is that the dependants have suffered less or no financial loss as a result of the death because of their succession to the deceased's estate as increased by the amount recovered in the survival action. The dependants' mental distress consequent on the death cannot, however, be in any way affected by the reduction of their financial loss as a result of their succession to the deceased's estate and, therefore, the damages for mental distress should not be affected by any amount received by the defendants from the estate of the deceased either as a result of the survival action or otherwise.

3.42

Finally, White argues that where a deduction falls to be made from the wrongful death damages for loss of financial dependency, such deduction is only properly made in respect of the net pecuniary benefit to the dependants from the award made in the survival claim.

3.43

One final point worth noting is that a judgment in either a survival action or wrongful death action is not a bar to bringing a subsequent action in the other. This can occasionally cause problems as White points out:

CHAPTER 4: EXISTING PROPOSALS FOR REFORM

4.1

A number of different reform options have been floated from time to time in Ireland. In this section it is proposed to look at some of them.

The O'Connor Report, 1972

4.2

In 1972, a Committee under the chairmanship of John O'Connor produced a Report on Motor Insurance¹ having investigated the insurance industry in Ireland.

4.3

The report examined the motor insurance industry in Ireland in some detail. The legal environment in which the motor insurance industry operates was also examined. In this context the Committee looked at the many different proposals and reforms that had been made to the legal environment for motor insurance and road accident compensation in other countries.² Eleven proposals were examined in detail and a further nine proposals given a brief examination.

4.4

The Committee noted that all twenty proposals had a recurring theme which was that problems with motor insurance systems stemmed from “the dependence of the motor insurance system on the law of tort for providing compensation in respect of the damages caused by traffic accidents, in particular the proof of negligence or fault on the part of the wrong-doer”.³

4.5

The Committee, therefore, decided to examine the merits and demerits of the fault principle. They took the view that:

4.6

While the Committee felt that there were serious anomalies in the fault system, they were agreed that they did not want to see it eliminated completely in the context of traffic accident compensation.

4.7

They made a number of recommendations which were designed to reduce the role of negligence in the determination of compensation for personal injuries and damage in road accident cases.⁵ There was unanimous agreement among the members of the Committee on the recommendations. A minority of the members, however, felt that these recommendations did not go far enough, and they made further recommendations in an addendum to the Report.⁶ The unanimously accepted recommendations include:

4.8

Apart from recommendation (iv) above, the Committee did not make any specific recommendation on the way compensation should be paid. However, making comment on lump sums earlier in the Report they state:

4.9

The report does not, however, go into any further detail about how a system of regular payments might be set up.

4.10

The minority recommended that, in addition to the unanimously accepted recommendations of the Committee, a form of no-fault compensation system be set up. The benefits under this scheme would be paid periodically. The minority state:

4.11

This proposal was intended to be supplementary to, rather than in replacement of, the recommendations in the main report. It is also clear that a plaintiff could still sue in tort for damages, but these would be reduced by the amount of scheduled benefits the plaintiff would receive under the new scheme.

The MacLiam Report, 1982

4.12

The MacLiam Report was the product of an enquiry into the costs and methods of providing motor insurance and was concluded in 1982.¹⁰ In this report the Committee's main concern was with the costs of the motor insurance industry and the concern over rapidly rising motor insurance premiums.

4.13

The costs of claims for compensation were examined and the Committee

looked into the option of having awards paid periodically. In this context the Committee discussed several problems that the payment of compensation in a lump sum award can create. The Medical Director of the National Medical Rehabilitation Centre gave evidence that the making of large lump sum awards in cases of very serious personal injury could often be very unsuitable. The report describes his evidence:

4.14

The Committee acknowledged that a system which allowed the compensation award to be paid periodically would help solve this problem. However they felt that in the context of their own report there was no evidence to suggest that such a scheme would alter the cost of motor insurance. They state that a problem with such a scheme would be that the nature of the motor insurance business “is incompatible with the acceptance of such long-term obligations”.¹¹ However they also state:

4.15

The Committee recommended that the relevant government departments discuss the possibility of setting up such an arrangement with the insurance industry. The Committee then concluded that while such a system would allow compensation to be more finely tuned to suit the purpose for which it was intended “there is no reason at present to suppose that it would prove particularly more or less costly to insurers than the present system”.¹³

The Barrington Report, 1983

4.16

The Barrington Report was the product of a Commission of Inquiry's research into the area of “Safety, Health and Welfare at Work”. The Report examines the area of compensation for accidents at work in the context of the contribution the compensation schemes make to accident prevention.¹⁴

4.17

In this context the Commission of Inquiry stated seven reasons why they believed the tort system of compensation, despite being based on fault, was counter productive to the work of accident and disease prevention:¹⁵

4.18

The Commission then acknowledged that there were some advantages to the tort system of compensation. A tort action can draw attention to defects in safety in the place of work. There was also an argument that the concept of individual responsibility operated more strongly within the tort system than it would in a no-fault system.

4.19

The Commission then briefly considered the option of a no-fault system in the context of accident prevention. They acknowledged that there were certain advantages to a no-fault system. For example, since fault is not an issue, the job of investigation is not impeded and accident prevention is thus enhanced.

4.20

Compensation in a no-fault system also tended to be less of a lottery with the injured worker being virtually guaranteed compensation. On the other hand they recognised that there might be certain disadvantages in a no-fault system. A no-fault system could be counter-productive as far as accident prevention is concerned in that, since compensation is automatic, there might be less of an incentive for employers to take care in providing a safe place of work.

4.21

In the end, however, the Commission felt that the issue demanded a lot more analysis that went beyond the scope of their reference. They concluded that, while a no-fault system had advantages and disadvantages for accident prevention, “we find it difficult to come to a reasoned conclusion on whether such a fundamental change in the present system would be justified on that basis alone.”¹⁶

4.22

They stated further that “whether a no-fault system is better than that of tort, turns on considerations of costs, benefits, equity and effectiveness of alternative systems, considerations which were beyond our mandate and resources.”¹⁷ The Commission then concluded: “Our uneasiness about the present system prompts us to recommend that such a major inquiry should be carried out as early as possible.”¹⁸ The Commission however did not examine the merits or demerits of the way the tort system pays its compensation awards in lump sum amounts.

SECTION II: THE UNITED KINGDOM

CHAPTER 5: PERSONAL INJURIES ACTIONS

5.1

The basic principles of tort which are the basis for compensation for personal injuries in the United Kingdom are similar to those applied in Ireland. However, there are a number of interesting and significant differences in the way damages are calculated and paid that merit examination.

The Calculation Of The Award

5.2

The rules for calculating the compensation award in a personal injuries action in England are somewhat different to those in Ireland. In terms of the way damages are calculated in England the major differences are:

5.3

As in Ireland the lump sum must be calculated to represent the present value of any future loss.⁵ By and large this is done by the use of two figures, a multiplier and a multiplicand. The multiplicand is an annual sum that represents the plaintiff's loss of earnings or expenses at the date of trial. This figure is then multiplied by the multiplier, a figure based not on actuarial evidence,⁶ as in Ireland, but one calculated by reference to previous cases and which reflects what the court believes is a balanced assessment of the plaintiff's loss. All contingencies have to be taken into account. In the case of future loss of earnings, these include mortality, sickness, unemployment, promotion and all other factors that would have affected the plaintiff's earnings if he had not been injured; in the case of future expenses, these include mortality and the prospect that in the future more expensive arrangements may have to be made for the plaintiff's care.

5.4

In this regard there are four important differences in the approach adopted by the English courts as compared to those in Ireland:

5.5

As the issue of future inflation is an important one in the debate over periodic payments, it is proposed briefly to look at the rationale behind the difference in the English approach in this regard.

5.6

The English courts have adopted the approach to inflation advocated by Lord Diplock in Mallet v McMonagle⁹:

5.7

It also appears that, in cases where tax on income from an investment of the award will reduce the income from the assumed 4% or 5% rate, the courts will take this into account in the discounting process.¹⁰ In practice, therefore, depending on the factors affecting the particular plaintiff's tax liability, the effective discounting rate can be between 2% and 3%. Lord Scarman describes the approach in Lim Poh Choo v Camden and Islington Health Authority:¹¹

5.8

As with the calculation of lump sum awards in Ireland, this system of calculation may lead to inappropriate compensation. This is because before applying the rules for calculating compensation for future loss, a judge has to make findings on the evidence before him or her of certain facts such as the plaintiff's life expectancy, the timing and extent of any deterioration in the disability, the likelihood and timing of future surgery, and the necessity for professional care or residential care. Inevitably, there will often be conflicts in the evidence presented to the court over these issues increasing the likelihood of a wrong choice, which will result inevitably in either under or over-compensation.

The Payment Of The Award

5.9

Prior to 1981 and the introduction of provisional damages and interim awards, the way damages were paid in the United Kingdom was broadly similar to that in Ireland. Damages could only be awarded in the form of a once-off lump sum, although, as we have seen, the criteria for calculating that lump sum were different in certain respects.

5.10

The reason why only a lump sum could be awarded is because, at common law, judgments awarding damages for personal injuries extinguished the plaintiff's cause of action. Thus, if the plaintiff, after judgment, suffered a serious deterioration in health, or developed a serious disease caused by the defendant's fault, he or she was bound by the judgment. There could be no second action for further damages, no matter how serious the later complications, nor how modest the original injury.¹³

5.11

These common law principles still apply unless a claim for provisional damages is made.¹⁴

5.12

The once-off lump sum approach contains a risk of injustice. For example, where a plaintiff, who was said at trial to be at risk of future epilepsy,

was compensated in proportion to the degree of risk and eventually suffered the onset of grand mal epilepsy, he could not claim further damages.

5.13

The financial consequences could be very significant. A standard authority on the range of damages in epilepsy cases in England is Jones v Griffith.¹⁵ The Court of Appeal, in 1968, suggested a range of £10,000–£11,000 for damages for pain, suffering and loss of amenity for grand mal epilepsy. The updated value of that award is £55,000–£60,000.

5.14

Herbert v GLC¹⁶ provides an example of a specific award to reflect the risk of epilepsy. A 10–20% risk for a 63 year old plaintiff led to an award of £4,000 which was upheld in the Court of Appeal. If the plaintiff did not go on to develop epilepsy, he was enriched by £4,000; if he did, he was undercompensated by something in the region of £50,000.

5.15

Brennan in his book on provisional damages¹⁷ gives an example of how the previous law operated in practice in an epilepsy case:

5.16

Brennan then comments:

CHAPTER 6: FATAL ACCIDENT ACTIONS

Introduction

6.1

In the United Kingdom, as in Ireland, there are two separate actions that may be brought if the victim of an accident dies. The first is the survival action under the Law Reform (Miscellaneous Provisions) Act, 1934 and the second is a wrongful death action under the Fatal Accidents Act, 1976.

The Survival Action

6.2

In the case of causes of action accruing after 1 January 1983 the damages recoverable in fatal cases are limited to financial loss suffered before death, to damages for pain and suffering sustained by the deceased before death and to funeral expenses. In the many cases where death is instantaneous or almost instantaneous there will of course be no award for pain and suffering.¹

The Wrongful Death Action

6.3

The second, and more important, cause of action that English law now allows on death is the independent cause of action given to the near relatives of the deceased who have been deprived of support or services. This is the remedy provided by the Fatal Accidents Act, 1976.

6.4

At common law the relatives had no cause of action when they suffered loss in consequence of a tortiously inflicted death. Such a cause of action was first introduced by the 1846 Act. The present provisions are contained in the Fatal Accidents Act, 1976.

6.5

Section 1(1) provides that if death is caused by any wrongful act, neglect or default such as would, if death had not ensued, have entitled the person injured to maintain an action and recover damages, the person who would have been liable if death had not ensued is liable to an action for damages, notwithstanding the death of the person injured.

6.6

It is to be noted that the right of action created by the Fatal Accidents Act, 1976, is for damages suffered, not by the deceased, but by the deceased's family after his or her death. It is, of course, a pre-condition under the Act that the deceased would have been entitled to maintain an action on his or her own behalf and recover damages if he or she had survived. Furthermore, damages recoverable by dependants are reduced if the deceased contributed to the accident by his or her own negligence (section 5).

(i) Who can claim?

6.7

This is dealt with by section 1 of the Act. Section 1(2) provides that every such action shall be for the benefit of the dependants of the deceased. Section 1(3) defines “dependant” as (a) the wife or husband of the deceased; (b) any person who is a parent or grandparent of the deceased; (c) any person who is a child or grandchild of the deceased; (d) any person who is, or is the issue of, a brother, sister, uncle or aunt of the deceased.

6.8

In practice, most claims under the Fatal Accidents Act, 1976, are brought by a widow or widower on behalf of herself or himself and their children, or sometimes by the parents of an unmarried son or daughter who is contributing to their support. It goes without saying that even if a person falls within the definition of “dependant” provided in the Act, he or she will still have to prove loss arising from the death of the deceased, and in practice many relatives have no claim at all.

(ii) How are damages assessed?

6.9

Section 3(1) of the Fatal Accidents Act, 1976, deals with the assessment of damages and consolidates the Fatal Accidents Acts. It provides that such damages can be awarded as are proportioned to the injury resulting from the death to the dependants respectively. This is in similar, but not identical, terms to section 2 of the 1846 Act.

6.10

The effect of section 3 is that there is no statutory limitation on the damages to be awarded. The law developed in practice over the years, and it became settled that damages were awarded for financial loss only. Save as provided by section 3 of the Administration of Justice Act, 1982, in the case of causes of action accruing after 1 January 1983, no sum can be awarded to relatives under the Act for their own mental distress or for the loss of society of the deceased.

6.11

The purpose of the award of damages in a wrongful death action and the mode of assessing damages in these cases were set out by Lord Diplock in Mallet v McMonagle²:

6.12

The purpose of the award is not to give the dependants such sums as would give them an annual income equal to the dependency. This would clearly be unfair on the defendant because at the end of the period of the dependency the whole of the capital sum would remain. Lord Pearson expressed the way in which the courts approach this aspect very clearly in Taylor v O'Connor⁴ when he said:

6.13

On the question of what multiplier to use in calculating the damages, Thomas Gaunt states:

6.14

The most important factor to take into account when considering which multiplier to apply is, of course, the age and probable working life of the deceased and the expectation of life of the dependants. If the deceased has good prospects, the multiplier will be higher.

6.15

There must also be a discount for the uncertainties of life: the fact that the deceased might have been run over by a bus on the following day or that he or she was involved in a particularly hazardous occupation. Discount must also be made for the fact that the dependants will receive an accelerated benefit in the form of a lump sum down rather than smaller benefits over a number of years. Because of these uncertainties the appropriate time for selecting the multiplier is at the time of death, and the number of pre-trial years for which special damages are awarded should then be deducted from the multiplier.⁷

CHAPTER 7: STRUCTURED SETTLEMENTS AND OTHER REFORMS

7.1

The various problems with the once-off lump sum system were addressed in two studies carried out in the 1970s in England, by the Law Commission in 1973 and Pearson Commission in 1978.¹ The problem has again been addressed by the Law Commission in their recent Report on Structured Settlements and Interim and Provisional Damages.²

(i) The proposals of the Law Commission

(a) The 1973 Report

7.2

The Law Commission recommended legislation to institute a right to seek provisional damages and thereafter additional damages if the plaintiff developed a serious disease or suffered some serious deterioration in his or her physical or mental condition.

7.3

Clause 6 of their draft Bill set out their proposals (pp.108–111 of the Report).³ The essential contents of Clause 6(1) were embodied in Section 32A(1) of the Supreme Court Act, 1981, as enacted by Section 6 of the Administration of Justice

Act, 1982.

7.4

The Law Commission also made recommendations on the calculation of awards of damages for future losses. The Commission considered the speeches of the House of Lords in Taylor v O'Connor.⁴ In the light of this case and that of Mitchell v Mulholland (No 2)⁵ they concluded that the view of the courts was that:

7.5

The Law Commission considered that this position was unsatisfactory and recommended that legislation should be introduced to allow parties in these cases to rely on actuarial evidence and that the courts should be allowed refer to actuarial tables.⁶

7.6

Following the Law Commission's recommendation, the Government Actuary's Department published the Actuarial Tables with Explanatory Notes for use in Personal Injury and Fatal Accident Cases, often referred to as “the Ogden Tables”. In the absence of any statutory reform or of agreement between the

parties, an actuary has, in fact, to be called to prove the Ogden Tables if they are to be used in evidence as they constitute hearsay evidence.

7.7

The Law Commission also considered the option of giving the courts the power to order periodic payments of awards but decided against such a proposal. They felt that the experience in the jurisdictions they examined, Western Australia and Germany, showed that periodic payments were by and large not popular with either plaintiffs or defendants.⁷ They concluded, however, that the only worthwhile system of periodic payments would be one “devised to apply as widely and comprehensively as possible” and which “would be used by a significant number of litigants”.⁸ These criteria meant that they considered only a reviewable system of periodic payments, i.e. one in which the periodic payment could be altered in the light of changed circumstances. This proposal was floated in the working paper⁹ and met with almost universal opposition. In their final report they noted that “the introduction of a system of periodic payments would meet with vehement opposition from almost every person or organisation actually concerned with personal injury litigation”.¹⁰ They therefore decided not to recommend any system of periodic payments.

(b) The 1994 Report

7.8

Twenty one years after their 1973 Report on the Assessment of Damages in Personal Injury Cases referred to above, the Law Commission reported again on the topic in the context of their examination of damages as a remedy. The Report was preceded by a Consultation Paper which noted the deficiencies of lump sum damages and considered whether the development of voluntary structured settlements and the existing provisions for interim and provisional payments usefully corrected such deficiencies.

7.9

Noting that their recommendation on the admissability of actuarial evidence in the 1973 Report had not been implemented, the Commission in 1994 recommended, inter alia:

We will refer to other conclusions of the Law Commission as they arise later in this Report.

(ii) The proposals of the Pearson Commission

7.10

In 1973 the British Government set up a Royal Commission on Civil Liability and Compensation for Personal Injury to be chaired by Lord Pearson. The Commission's terms of reference were broad¹¹ and included examining the question of whether or not the tort system was an appropriate mechanism for awarding compensation to accident victims.

7.11

The Commission was in favour of retaining tort as a basis for compensation. However, it examined the question of whether or not damages should be paid in a once-off lump sum.

7.12

The Commission commented on the problems of the traditional method of calculating the damages for future losses:

7.13

The Commission felt that this method of calculating and awarding damages involved many potential inaccuracies with the result that the compensation awards often proved inadequate. Consequently, the majority decided that the courts should be given the power to award periodic payments of the damages for future loss, and that, in cases of serious injury, the courts should be obliged to so award the damages unless the plaintiff could show that a lump sum would be more appropriate in the circumstances of his or her case.¹³

7.14

On the subject of periodic payments the majority's recommendations can be summarised as follows:

7.15

The minority did not favour the introduction of such a system of periodic payments. Their reasons can be summarised as follows:

7.16

The majority's recommendations on periodic payments were not implemented.

7.17

The following is a constructive critique of the Pearson Commission's proposals by J H Prevett:¹⁴

7.18

While the Commission's recommendations on periodic payments were never specifically implemented, their findings did influence the debate on the topic.

7.19

Reform in one area finally came in 1981 with the introduction of a procedure for obtaining interim awards. Ultimately, three major alterations to the way damages are awarded for personal injuries have been made to the tort system in England which differentiate it, in terms of specific statutory provisions, from the system in Ireland. As well as interim awards, provision for provisional damages was introduced in 1982 (although the provisions only came into effect in 1985),¹⁶ and then in 1987 the Inland Revenue and the Association of British Insurers came to an agreement which made structured settlements possible.¹⁷

Interim Awards

7.20

Two procedural devices have enabled the final award to be delayed until the medical prognosis is clear:

(a) Interim payments¹⁸

Under s32 of the Supreme Court Act, 1981, and the Rules of the Supreme Court, order 29, rr9–17, the court has power to order an interim payment of damages if liability is admitted or otherwise clear and the defendant is a public authority or is covered by insurance or has other sufficient resources.¹⁹

7.21

Munkman says that this procedure “is suitable where the injuries are serious and it will take time to assess the ultimate damages but in the meantime expenses have to be met. In such cases the mere existence of the procedure is likely to result in an agreement”.²⁰

(b) The split trial²¹

7.22

This approach separates the resolution of liability from the assessment of damages. An order for the interim payment of damages can be made after a finding of liability.

Provisional Damages

7.23

One of the problems with the interim awards procedure was the difficulty in assessing the quantum where there was a risk of some serious disability supervening at a later stage, though the chance of this was quite small and would not justify a large award if assessed immediately.

7.24

Section 6 of the Administration of Justice Act, 1982, was introduced to

deal with this problem.²² It introduced a new power (put into operation by rules of court) to allow damages to be assessed in two stages if:

7.25

Munkman describes the operation of the section as being that “the stated risk will be ignored when damages are assessed in the first place (they will be assessed “on the assumption” that the disease or deterioration will not occur) but if eventually it does occur, further damages will be assessed”.²⁴ The typical case where this power could be used is epilepsy, which may appear for the first time several years after a head injury takes place.

7.26

While neither the word “chance” nor “serious” was defined or qualified by the legislation, the reasoning behind the legislation was that the provisional damages procedure should only be used in exceptional cases.

7.27

This was certainly the intention of the English Law Commission when they prepared their draft Bill on the subject. Whilst clause 6 of their draft Bill did not define the word “chance” or otherwise limit the scope of an award for provisional damages, they clearly intended that the provisional damages claim should be exceptional.

7.27

Note 2 to clause 2 of the draft Bill emphasises this:

7.28

Further, by note 7 to clause 6 of the draft Bill the Commission underlined the power of the court's “full discretion to grant or refuse” an application for provisional damages.

7.29

It was the Commission's “expectation” that provisional damages awards would only be made in the sort of case they describe in paragraph 232 of their report. Such cases were those with a risk of future “catastrophe such as epilepsy, cancer or total blindness”, where “medical prognosis cannot say whether the catastrophe will or will not occur.”

7.30

The Law Commission concluded that provisional damages should be restricted to those cases where the onset of some future catastrophic condition was foreseen. However, section 32A of the draft Bill uses the adjective “serious” to describe the future condition – which arguably has in contemplation something less than catastrophic.

7.31

The provisional damages rules were introduced by the Rules of the Supreme Court (Amendment No. 2), 1985, paragraphs 2, 3 and 4 – amending order 18 r8(3) and adding rr7–10 to order 37.²⁵ They came into force on 1 July, 1985. These rules provide that a claim for a provisional damages award can only be made by the plaintiff.²⁶ Consequently a defendant has no right to seek such an award. An award of provisional damages can only be made by the court. There is no provision for such an award by private settlement – settlements must lead to a court order.

7.33

An award for provisional damages can be made against an uninsured person despite the Law Commission's recommendation that it be restricted to actions against public authorities, insured persons and persons covered by the requirements of Part VI and section 143 of the Road Traffic Act, 1972 (“the insurer concerned”).

7.34

There are three important rules which cover the making of a provisional

damages award. They are order 37 r8(1), r8(2) and r8(4).²⁷ A number of consequences flow from these three provisions. First, the Court has a discretion. Both provisions state that the court may make an award. According to Brennan²⁸ the relevant factors in exercising that discretion are:

7.36

Secondly, they mean that the court can only make an award if the plaintiff has pleaded a provisional damages claim and if the court is satisfied that it is a section 32A case (i.e. that it is a chance case and that the chance condition is serious).

7.37

Thirdly, the court may make an award in respect of one or more chance conditions and, if appropriate, for a different period in respect of different conditions.

7.38

Fourthly, the terms of an award may be such as the court thinks just. As Brennan points out this can be an area of contention. He states:

739

Finally the order must be precise. This is so because of order 37 r8(2) which requires the court to “specify” the disease or type of deterioration in respect of which further damages can be claimed and to specify the time period within which a further damages application can be made “unless the court otherwise determines”. There may of course be different specified periods for different chance conditions.

Structured Settlements

7.40

Despite these reforms, many of the problems that had been identified with the once-off lump sum awards still remained. It was against this background of dissatisfaction that the Inland Revenue in Britain and the Association of British Insurers, the ABI, came to an agreement to allow the use of structured settlements.³¹

7.41

Awarding a structured settlement in a case means that, instead of the traditional lump sum payment made to plaintiffs, they receive a guaranteed income or pension derived from an annuity bought by the insurer and held for the benefit of the injured person. In contrast to the lump sum award the income payments can be varied and “structured” over a period of time. Structured settlements are now used in a number of countries.³²

7.42

The agreement between the Inland Revenue and the ABI provided that plaintiffs could receive guaranteed periodic payments of their compensation award, tax free, by means of the purchase, by the defendant's insurers, of an annuity. These “structured” settlements were only possible if both parties agreed out of court to the arrangement. The financial arrangements had to satisfy one of the model agreements drawn up in the agreement.

7.43

The case of Dott v Brown,³³ which decided that deferred payments of a debt could be treated as capital and not income, provided the legal basis for the Inland Revenue allowing the periodic payments of the award in the form of an annuity not to be taxable in the hands of the plaintiff.

7.44

The concept of structured settlements allows plaintiffs to receive whatever proportion of their damages they wish in the form of a series of future annual payments, linked to the life and projected future cash requirements of the plaintiff. The balance of the damages is paid in the manner of the traditional lump sum.

7.45

The general philosophy behind the structure is that once a plaintiff in a large personal injury or fatal accident case has been provided with his or her setup costs, e.g. home, equipment and car, and also has a reasonable contingency cash fund, the balance of the lump sum is normally used as a means to provide an annual income.

7.46

What happens in practice is that the amount of money that is used to fund the settlement is used by the defendant's insurer to purchase an annuity in order to fund the regular payments that it has to make to the plaintiff as damages by instalments. Effectively the arrangements are back-to-back. The important point from a tax point of view is that there are two very distinct contractual relationships involved. Thus, first, the insurer has an obligation to pay damages by instalments to the plaintiff and secondly, by the purchase of an annuity, the insurer has a right to receive a series of future payments which are linked to the life of the plaintiff.

7.47

While there is a good deal of flexibility in the way the annuity can be established in the beginning,³⁴ once the structure is established it cannot be varied. Hence the need for an adequate contingency cash fund.³⁵

7.48

The mechanics are that the general insurer will pay out to the plaintiffs damages by instalments which may be index-linked and last for the life of the plaintiff or for a specified number of years, if longer. In turn, the general insurer purchases an annuity from a life office in order to fund the series of payments as determined above. Under present UK tax legislation the life office will pay to the general insurer the required annuity after deduction of income tax. The general insurer has to pay to the plaintiff the gross equivalent of the annuity, but he can write this amount off against his corporation tax liability. There will thus be a loss in cash-flow to the general insurer, but overall the whole arrangement is fiscally neutral.

7.49

The fiscal consequences of these transactions are as follows:

7.50

Under existing tax legislation, the annuity purchased by the general insurer must be received after deduction of tax. The general insurer has to pay the equivalent of the gross amount to the plaintiff. This makes the concept of structures less attractive to the insurance industry because of the loss in cash-flow and the requirement to maintain an administrative record of the payments.

7.51

However, while the insurers will have to meet a cost in the loss of cash flow and some administration, this is to be set against the advantages of a reduced cost to the insurer in the overall settlement of the case. There is a reduced cost to the insurer because the plaintiff does not have to pay any tax on the annual instalments.

7.52

The Inland Revenue and the ABI have drafted and agreed model agreements.³⁶ The Revenue has advised that if an agreement is made between the parties which complies with one of the model agreements, then the receipt by the plaintiff of the regular monies will be tax free.

7.53

While the courts in England have no powers to order a structured settlement award, they have set down guidelines to be adopted in cases where the parties agree to use the mechanism. The guidelines were set out by Potter J in Kelly v Dawes³⁷, the first case where a structured settlement was used.

7.54

Potter J set out a six point plan to be followed in cases where it is proposed to arrange a structured settlement:

7.55

On the 12 February 1992, the High Court in England issued a Practice Note on the obtaining of court approval for structured settlements.³⁹ This practice note is primarily based on Potter J's guidelines.

7.56

In practice there are four different types of annuity available to a plaintiff. They are:

7.57

Some degree of flexibility is allowed and the Inland Revenue have indicated that a number of variations on the type or types of annuity provided are allowed so long as certain minimum requirements are met. John Frenkel refers to three in particular:⁴⁰

7.58

Unlike the position in some states of the United States,⁴¹ the courts in England have not been given any power to impose a structured settlement on the parties. So far, there has been only one attempt to persuade a Court that it has power to impose an order for periodic payments upon a defendant. In Burke v Tower Hamlets Health Authority,⁴² Mr Justice Drake refused to make an order that the cost of future care for the plaintiff should be paid directly by the defendants for the rest of the plaintiff's life. The judge took the view that defendants were entitled to close their files; that continuing payments were an oppressive lingering financial burden; and that it was in the public interest that litigation should come to an end.

7.59

A solicitor with experience in the field, Keith Popperwell, has commented:

7.60

While structured settlements have yet to be used in England in fatal accident cases (as they have been in North America), commentators have expressed the view that they will have a useful role to play.

7.61

Pickering, commenting on the potential use of structured settlements in fatal accident cases says:

7.62

It is also worth noting that structured settlements can provide added security for dependents of surviving plaintiffs. This is because the annuity can be guaranteed for a minimum number of years. If the plaintiff dies before this period of time has elapsed then the payments will go to the beneficiaries of his or her estate. However, because the contractual nexus is broken, they must pay tax. The general insurer can therefore direct payments to be made direct by the life company to the beneficiaries as nothing is lost. The guarantee period does not therefore affect the general insurer.

7.63

Initially the opportunity to structure large awards in this way was not often used; there was only one such settlement agreed in the first two years since the agreement. However, while statistics are not available, it does appear that “structured” settlements are being more frequently agreed in some of the more serious cases.⁴⁵

7.64

Editorial comment in the New Law Journal in January, 1990⁴⁶ noted that the advantages of the structured settlement arrangement had been perfectly demonstrated by the Kelly case where a structured settlement was approved, and that the increased use of the facility was probably dependant on practitioners getting used to the idea:

7.65

Richard Lewis states that the new system has advantages:

7.66

Lewis then points out that there are two limits to this system. First, judges have no power to order the structuring of their award of damages – it is up to the parties to arrange this. However, he points out that this is not too much of a problem since only a tiny percentage of cases proceed to judgment. Secondly, it can only apply when there is going to be significant financial loss in the future. Lewis, relying on statistics derived from the Pearson Commission Report, points out that only 7 1/2% of tort cases involve any future financial loss.⁴⁹

7.67

There have also been some teething problems with the use of structured settlements. The incentive for the defendant insurer is that, by being able to write off the payments they make to the plaintiff, they can reduce their tax liability. This created a problem where the defendant insurer was a non-trading insurer and consequently had no investment income in respect of which to make use of the write-off.⁵⁰ This problem initially applied to two types of insurers, namely mutual insurers and health authorities.

(i) Mutual insurers

7.68

Such insurance companies do not pay tax on any of the trading profits that they make because trading effectively takes place with their own members and in tax terms it is not possible to make a profit on dealing with oneself. Thus, the insurance company would have to pay tax on the annuity that it receives from the life office as it is treated as investment income. However, it would not get the corresponding write-off for the payments that it makes to the plaintiff as this could not be set against the investment income of the company. This means that the insurer would have to bear the cost of the taxation and therefore would need to appraise a structured settlement differently as compared to a normal trading (i.e. Schedule D, Case I) insurer.

7.69

The Law Commission in their Consultation Paper conclude, provisionally, that a mutual insurer should be able to pay instalments of damages direct to the plaintiff, and that this solution should go hand in hand with an extension of the tax status currently given to settlements which conform to the model agreements.⁵¹

(ii) Medical negligence cases

7.70

The initial understanding regarding structured settlement claims for medical negligence was that they could not be implemented as effectively as for a normal trading insurance company. However, in January 1990, the Crown Indemnity rules were changed to make the Department of Health ultimately responsible for paying damages in these cases.

7.71

The future for structured settlements in medical negligence cases now looks more promising. John Frenkel has commented:

7.72

Further advantages and disadvantages of structured settlements will be discussed in Chapter 16. However, what seems clear at this stage is that their use, which only occurs with the agreement of both parties, is on the increase as more plaintiffs and practitioners become aware of their advantages. One way of facilitating a wider use of this arrangement could be to allow the courts to award

payment of compensation in the form of a structured settlement, thereby encouraging precedents of their use to become a regular feature of the system more quickly than under the present situation whereby the courts can only approve settlements devised by the parties which they do not have the power to award themselves. The question then arises as to whether and in what circumstances the courts might be given the power to award compensation under a structured settlement in the absence of full agreement between both parties. This subject is discussed further in Chapter 16.

SECTION III: THE UNITED STATES OF AMERICA

CHAPTER 8: PERSONAL INJURIES ACTIONS

8.1

The legal systems in the United States have several different methods of awarding compensation for personal injuries. Many states have no-fault statutory schemes for road accidents and injuries to workers. These states do not however preclude the taking of a tort claim except in the case of injuries at work, although the existence of the statutory scheme will affect how often a tort claim will be made.¹

8.2

The principles of tort have been altered by legislation in many states with regard to cases of personal injury. Special rules for products liability, medical malpractice and occupiers' liability are common in many states.

8.3

Our concern, however, is with the way the award is calculated and how it is paid as opposed to when and in what circumstances liability will be held to attach.

8.4

In this context, it is therefore proposed to look at the approach United States courts take to calculating damages, in particular for future losses, and the account taken of inflation and taxation. This will be done in the context of fatal accident cases² as well as personal injury actions. Then it is proposed to look at the practice of structuring awards and at the various laws enacted in different states to allow courts to order periodic payments of certain elements of personal injury awards.³

The Calculation Of The Award

8.5

As in Ireland and the United Kingdom, the rules for calculating damages for personal injury are independent of the basis of the claim. The emphasis is upon the plaintiff's condition without regard to whether the injuries resulted from a car crash or a defective product.

8.6

For the purpose of assessing the merits or demerits of a system of periodic payments it is helpful to distinguish between past (pre-trial) losses and future losses, if any. In the United States most states, as in Ireland and the United Kingdom, require future losses to be reduced to their present value so that the damages can be awarded in the form of a once-off lump sum.

8.7

As before, the critical factors that need to be taken into account are those related to future taxation and inflation rates.

8.8

An adjustment to the damages awarded is necessary to take into consideration the amount of interest that an investment of the lump sum itself will earn over time. The trier of fact has to fix a figure which, when placed in safe investments at the date of judgment, will earn interest equal to the projected loss of wages. Certain factors should be taken into account in fixing the final figure for damages.

8.9

The determination of the percentage rate to be used for discounting the damages has evoked considerable controversy among courts, commentators, and experts. A high discount rate works to the defendant's advantage by lowering the total liability; conversely, the plaintiff benefits from applying the lowest possible percentage rate.

8.10

No consensus has developed as to whether, and to what extent, the impact of inflation should be looked at when calculating the projected earning scheme. Proponents of its inclusion as an adjustment factor contend that, unless the damages award reflects estimated future inflationary trends, a plaintiff will be undercompensated because inflation will erode the purchasing power of the substituted wages. Critics of adjusting damages for inflation argue that predicting future inflation is akin to crystal ball gazing; it is too speculative and unreliable to be fairly applied. Moreover, forecasting such trends is too complex for accurate assessment by jurors, even with the aid of expert testimony.

Inflation

8.11

The inflation factor must be distinguished from other factors which may affect the computation of damages. For example, apart from inflation, estimated wage increases may be entirely attributable to projected job promotions or industry growth.

8.12

Courts have employed numerous methods to evaluate the respective roles of the discount rate and future inflation rate. One approach acknowledges that

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both the discount and inflation factors are relevant, yet not susceptible of being accurately predicted. Therefore, both factors are simply offset and cancel each other out. Another method allows the introduction of expert testimony with respect to each factor, leaving the trier of fact to evaluate the evidence and make any adjustments as deemed appropriate. Other courts have disregarded inflation, but have adjusted the damages award downward by some discount rate. Many courts are now following the lead of the United States Supreme Court with a varied offset approach. Under this method courts discount the damages award only by the “real” rate of interest. This method considers that market interest rates include two components: an estimate of anticipated inflation and the desired real return on investment. The first element concerning inflation is offset against projected future inflation. The real interest rate, which essentially remains constant over time (between 1 and 3%), is then applied to reduce the damages award into present value.

8.13

Some courts have taken a “real interest rate” approach which has been adopted in Australia.⁴ They have endorsed the economic theory suggesting that market interest rates include two components – an estimate of anticipated inflation, and a desired “real” rate of return on investment – and that the latter component is essentially constant over time. They have concluded that the inflationary increase in the estimated lost stream of future earnings will therefore be perfectly “offset” by all but the “real” component of the market interest rate.

8.14

Still other courts have preferred to continue relying on market interest rates. To avoid undercompensation, they have shown at least tentative willingness to permit evidence of predicted future price inflation in estimating the lost stream of future income.

8.15

In the leading case of Jones & Laughlin Steel Corporation v Pfeiffer⁵ the US Supreme Court noted three different methods that various courts have used to adjust damages to take account of wage and price inflation:

8.16

The difficulties in this area were clearly outlined by Justice Stevens in the US Supreme Court in Pfeiffer. Stevens stated:

8.17

The Supreme Court concluded that it should not establish one method as the exclusive federal rule for use in federal causes of action in federal courts. The Court observed that there are two stages in calculating damages (estimation of the lost stream of income and selection of an appropriate discount rate), and found that inflation should be included in both stages.

8.18

It noted that, in the early 1980s, two Federal Courts of Appeals decided to allow litigants a choice of methods. The Court of Appeals for the Fifth

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Circuit in Culver v Slater Boat Co⁶ overruled its prior decision in Johnson v Penrod Drilling Co,⁷ and held it acceptable either to exclude evidence of future price inflation and discount by a “real” interest rate, or to attempt to predict the effects of future price inflation on future wages and then discount by the market interest rate. A panel of the Court of Appeals for the Seventh Circuit took a substantially similar position in O'Shea v Riverway Towing Co.⁸

8.19

These decisions were noted by the court in Pfeiffer, but it declined to establish any one method as the federal rule, although it did note the attractiveness of the total offset method.

8.20

Finally, some courts have applied a number of techniques that have loosely been termed “total offset” methods. What these methods have in common is that they presume that the ideal discount rate – the after-tax market interest rate on a safe investment – is, to a legally tolerable degree of precision, completely offset by certain elements in the ideal computation of the estimated lost stream of future income. They all assume that the effects of future price inflation on wages are part of what offsets the market interest rate.

Taxation⁹

8.21

With respect to tax rates, the United States Supreme Court held in Norfolk & Western R Co v Liepelt¹⁰, decided prior to Pfeiffer, that the lost stream of income in a Federal Employers' Liability Act (FELA) case should be estimated in after-tax dollars and that the discount rate should also represent the after-tax rate of return to the injured worker.

8.22

The position as regards federal income tax is that the plaintiff's award for personal injuries is not subject to the federal income tax. Under s104(a)(2) of the Internal Revenue Code of 1986, a tort victim can exclude from gross income the amount of compensatory or punitive damages he or she received on account of personal injuries. Punitive damages in libel and slander suits, however, are considered income. In most states, the rule regarding compensatory and punitive damages is usually the same. It seems clear that the single fact that

a tort award is or is not subject to income tax should not in itself be sufficient to affect the amount of the award. A problem arises when the award, or a part of it, is to compensate for the loss of benefits that would have been subject to the tax if they had been received. The primary instance is compensation for lost wages. If no reduction is made in the award, the injured plaintiff receives more for wages than if he or she had not been injured. For this reason, some courts have held that the absence of income taxes must be taken into account in setting the amount of the award.¹¹

8.23

Most courts have been concerned about the speculative character of the amount of a potential deduction, at least insofar as it applies to future earnings. There is no way of telling what the tax rates will be in the future, nor what exemptions, deductions and other income the plaintiff would have, so as to determine what tax bracket he or she would have been in; and the whole matter is affected by possible future inflation. For these reasons, the federal courts and most state courts have been inclined toward the position that, in the case of the average taxpayer, no deduction should be made, but that the other imponderables in the calculation would take care of the problem.

8.24

A separate problem is that of what should be said to the jury. Trial courts often find the whole matter frustrating and say nothing about it; and appellate courts usually find this within the discretion of the trial court. Other courts say that the jury should be told only that the award is not subject to income tax. The Supreme Court in Norfolk & Western Ry Co v Liepelt¹² ruled that, in cases brought under the Federal Employers' Liability Act, evidence may be offered to show the effect of income taxes on the deceased's estimated future earnings, and the court may instruct juries that awards are tax-exempt and jurors should not consider such taxes in fixing the amount of the award. The Court found reasonable cause for concern that tax-conscious juries would not be aware of the special statutory exception for personal injury awards contained in the Internal Revenue Code.¹³

Miscellaneous Other Factors

8.25

Three other factors are commonly acknowledged in the United States as being relevant to the adjustment of damages for future losses. They are:

8.26

Judge Posner explained this problem in O'Shea v Riverway Towing Co:

Conclusion

8.27

The uncertainties surrounding this area have led to some suggestions that these damage adjustment issues would be better resolved by the legislature rather than the courts or, alternatively, that this element of the damages award would be better paid by means of periodic payments.¹⁷

8.28

In the final analysis, predicting future inflationary trends, future market interest rates, and future industrial trends is an inexact science. The final lump sum damages award almost certainly will, in hindsight, turn out to be either overcompensation or undercompensation. Consequently, there is a growing interest in periodic payment of damages in a series of instalments rather than in a lump sum. The various reforms that have been introduced in some states of the United States are discussed in Chapter 10.

CHAPTER 9: FATAL ACCIDENT ACTIONS

9.1

Wrongful death and survival actions are almost exclusively statutory actions with limited damages. There is little agreement among jurisdictions on appropriate damages when a tortfeasor's conduct results in death rather than personal injury short of death.

9.2

The same common law rules that led to the legislation in Ireland and the United Kingdom also explain the present state of the law in the United States.¹ First, the death of a person was not considered an actionable injury. Second, personal tort actions died with the plaintiff. The result of these rules was harsh for dependants who consequently had no claim for the tortious death of a family member. In the United States these rules have been changed, usually by statute. The odd patchwork of the current law is attributable to this history.

9.3

Most state legislatures now have provided Survival Acts that allow the deceased's estate to bring at least some tort actions. Many jurisdictions allow the victim's personal injury claims to survive under these Acts. The orientation of these actions is upon the deceased's losses rather than upon the family's losses. The estate recovers the damages and distribution is by will or intestacy.

9.4

Many state and federal statutes provide for wrongful death actions in addition to, or as an alternative to, the survival of personal injury claims. A typical wrongful death statute names specific beneficiaries with some relationship to the deceased who may sue and limits the types of recoverable damages, such as to “pecuniary” losses sustained by the statutory beneficiaries. Jurisdictions with both a Survival Act and a Wrongful Death Act allow both actions and use rules such as collateral estoppel to avoid double recovery by family members.

9.5

Damages in the survival or wrongful death actions vary by jurisdiction. Some or all of the following elements may be permitted: loss of future income, loss of child's services in minority and support of parents in their elderly years, the child's pain and suffering before death, medical expenses, funeral expenses, loss of society with the child, and parents' grief.

The Wrongful Death Action

9.6

The damages provisions in Wrongful Death Acts are generally one of three types: (1) the all-inclusive type lists particular elements of damages; (2) the pecuniary loss type restricts recoveries to economic losses; and (3) the general loss type provides for damages in a vague way, e.g. such “damages as are just”.

9.7

Commentators have harshly criticised the jurisdictions that limit recoveries to pecuniary loss.²

9.8

In wrongful death actions, the beneficiaries can recover the value of the deceased's support and services in the home. Evidence of the deceased's work history, if any, and contribution to the household is relevant. Such contributions can include wages from work outside the home, performance of routine household tasks, and advice, counsel, or guidance for other family members, especially children. The amount that would have been spent from earnings toward the personal support of the deceased is deducted.³

9.9

The “pecuniary loss” or “actual loss” limitation in many Wrongful Death Acts has posed a problem in claims of mental anguish and grief by surviving family members. Such limitations create particular problems with the death of a child, because the value of a child's services and support to family is usually low. Although solace damages, often called solatium, are allowed in many civil law countries, the influence of Lord Campbell's Act made such recovery rare in common law jurisdictions. The modern trend has been to reconsider this exclusion, as the principal case reflects.

9.10

Mental suffering is distinguished from loss of society in many jurisdictions following the modern trend. Reform by statute or judicial interpretation has liberalized recovery for intangible losses, but mental anguish and grief is often excluded as an element of damages. Some jurisdictions that allow recovery for loss of society, comfort and affection nonetheless prohibit grief damages as likely to produce unjustifiably high awards. Other jurisdictions allow the mental element because it is no less intangible than other non-economic

losses.⁴

9.11

The orientation of the death statute toward the survivors or the deceased also affects intangible losses. For example, New Hampshire refused to allow parents to recover for loss of society with an injured or deceased child. The court in Sicilano v Capital City Shows, Inc⁵ reasoned that the state's wrongful death statute is not based on loss to survivors but focuses on losses suffered by the deceased. The court further invoked public policy reasons: (1) the emotional nature of intangible, nonpecuniary losses could lead to disproportionate awards; (2) multiple claims hinder settlements; and (3) consortium claims increase expenses ultimately to be borne by the public through increased insurance premiums.

Survival Actions

9.12

Some jurisdictions allow damages for the deceased's pain and suffering in survival actions. The usual requirement is that the victim be conscious and in pain before death.⁶

9.13

One noteworthy case involving pre-death mental and physical suffering is Delong v Erie County⁷ A woman who heard a prowler outside called the police 911 emergency number, but the operator negligently dispatched the nearby patrol car to the wrong address. She died of multiple knife wounds in a savage attack. The court upheld a $200,000 pain and suffering award.

9.14

In terms of the deceased's loss of the pleasure of life as an element in survival actions equivalent to such elements in personal injury actions, a few jurisdictions have recognised these damages which are sometimes called hedonic damages. For example in Sherrod v Berry⁸ the court awarded $850,000 for the loss of the pleasure of life supported by an expert witness who testified on the measurable value of life apart from the $300,000 in lost earnings. In Katsetos v Nolan⁹ the court awarded $400,000 for loss of ability to enjoy life's activities, pain and suffering, and lost future earnings.

CHAPTER 10: STRUCTURED SETTLEMENTS AND OTHER REFORMS

10.1

Structured settlements akin to those used in the United Kingdom began to be used in the United States in the early 1970s. Various states have introduced legislation giving various powers to the courts to order periodic payments of awards in certain circumstances.

Structured Settlements¹

10.2

Structured settlements were first utilised in the United States about twenty five years ago. Initially only very substantial claims were structured. Today virtually any claim can be structured depending on the needs of the parties.

10.3

Structured settlements are legal in all states and under federal law. Juries, however, are not empowered to structure their awards. They have been utilised for many types of damages awards, including cases of personal injury, property damage, workers' compensation, toxic waste clean-up and first party property claims.

10.4

They are tailored to meet the specific needs of the claimant and take the form of a financial package providing the claimant with periodic payments, either for a fixed term of years or, more usually, for the life of the claimant. In most cases the claimant will also receive a capital sum in respect of special damages.

10.5

US income tax legislation generally exempts the proceeds of structured settlements from tax liability as long as the beneficiary is not the owner of the annuity. In other words, payments from most settlements are tax free provided the carrier (i.e. the defendant's insurance company) retains ownership of the policy.

10.6

As with structured settlements in the United Kingdom, there are several

practical advantages to the plaintiff. First, the plaintiff does not have the responsibility of arranging investment to insure that the income will last for the required time. Secondly, there is a tax advantage to the plaintiff because under a conventional award, although he or she would not have to pay income tax on the lump-sum amount, he or she would have to pay the tax on income from the investment of that lump sum. This contrasts with periodic payments under a structured settlement which are not taxed on receipt by the plaintiff. In Processes of Dispute Resolution,² the authors comment:

10.7

These savings to the plaintiff can lead to a settlement which is also attractive to the defendant, and sometimes also to the plaintiff's lawyer, because of the way lawyers are paid in personal injury actions (i.e. generally receiving between 25–35% of the damages award). The lawyer negotiating the structured settlement may be able to structure his or her fee over some or all of the payment period, thereby avoiding the tax consequences of a large increase in income in any one year.⁴

10.8

Several commentators in the United States have noted how the growing use of structured settlements has increased the opportunity for parties to reach settlements in circumstances where negotiations over a conventional lump sum have failed to produce an agreement.⁵

10.9

An excellent example of the way structured settlements operate in practice and of how their mutual advantages can lead to a settlement of a cause of action is described as follows:⁶

10.10

However, once a structure is “bought”, it cannot be varied, and unless it has a built-in contingency fund,⁸ a structured settlement may not be appropriate for an injured plaintiff whose health is unpredictable or whose needs are highly variable. The advantages and disadvantages of structured settlements are discussed further in chapter 16.

Periodic Payments⁹

10.11

As structured settlements became more popular and widely used, many states began to enact legislation to permit, or in some instances require, periodic payment of damages.¹⁰ The Uniform Laws Commissioners in the United States prepared a model Periodic Payment of Judgments Act in 1981.¹¹ This provided a model for many states introducing their own periodic payments laws.

10.12

The following US states have legislation which permits court-awarded periodic payment of damages awards in the context of medical malpractice: Alabama, Alaska, California¹², Delaware, Florida,¹³ Illinois, Kansas, Louisiana, Maryland, New Mexico, New York,¹⁴ Oregon, South Dakota, Utah, Washington and Wisconsin. South Dakota and Washington make periodic payment of damages available in all actions for personal injury and totally disabling personal injury, respectively.¹⁵

10.13

In 1986, the State of New York introduced legislation to allow for periodic payments to be ordered by the courts in cases of medical malpractice. Explaining the reasoning behind the legislation, the legislature stated:

Constitutionality Of Legislation Providing For Periodic Payments

10.14

The constitutionality of legislation providing for periodic payments has been tested in many state courts. For example, the California legislation providing for periodic payments in medical malpractice actions¹⁷ was challenged for breaching the due process and equal protection principles in the United States Constitution. The courts have consistently held its provisions to be constitutional.

10.15

During the 1970s, a number of states enacted statutes providing special procedures and rules for recovery in medical malpractice actions. One such special rule adopted in some jurisdictions provided for the periodic payment of future damages in such actions. In determining the constitutional validity of these provisions, the courts have dealt with issues of whether state or federal constitutional provisions for due process of law, equal protection of the laws, or the right to trial by jury were violated thereby. The leading case in this regard is American Bank & Trust Co v Community Hospital.¹⁸

10.16

In this case it was held that a state statute providing for periodic payment of future damages in medical malpractice actions was constitutionally valid in that it did not deny “due process of law”, “equal protection of the law”, or “trial by jury”, as alleged by opponents of such statutes.

10.17

The Court rejected attacks on the constitutional validity, under both federal and state constitutions, of a statutory provision for the periodic payment of future damages in medical malpractice actions.¹⁹ Rejecting the claim that the statute violated due process by reducing the rights of a class – victims of medical malpractice – without a corresponding quid pro quo, the Court observed that a plaintiff has no vested property right in a particular measure of damages, and that the legislature has broad authority to modify the scope and nature of such damages.

10.18

As to the plaintiff's argument that the legislation was not “rationally related” to the ends sought – reducing “skyrocketing” medical malpractice premiums which increased health care costs, as well as assuring the availability of funds to the victim of malpractice when they were needed – the Court declared

that although reasonable persons might disagree as to the wisdom of the legislative approach to the problem, it was clearly not irrational.

10.19

The Court pointed out that the argument that the statute's failure to contain malpractice insurance costs was based on unsubstantiated doubts, and thus had never been given a fair trial in practice. In any event, the Court said, “rationality” is not determined by success. Responding to an argument that the statute violated equal protection of the laws, the Court declared that equal protection was not violated by the statute through the creation of a privileged class of tort defendants. The statute was a reform measure and the equal protection clause does not prohibit the legislature from implementing reform “one step at a time”. The Court noted the existence of sentiment to the effect that all future tort damage should eventually become subject to the “periodic payments” formula.

10.20

Finding the statute ambiguous on the issue whether the amount of future damages so to be paid was a matter for judge or jury, the Court declared that, in any event, the provision for the Court to determine the actual amount of each periodic payment was not an unconstitutional interference with the right to jury trial, such right being protected so long as there is no impairment of the substantial features of a jury trial by improper interference with the jury's decision.

10.21

The Court concluded by finding the statute not to be vague, and therefore not unconstitutional, notwithstanding its leaving unsolved the problem of actual formulation of such periodic payments. Trial courts would deal with such issues as they had in time-honoured fashion, and appellate courts would remain available to aid in the familiar task of filling in statutory gaps.

10.22

A statutory provision in Wisconsin for payment into a “future medical expenses fund” of medical malpractice awards exceeding $25,000, such amounts to be disbursed in periodic payments for such expenses until the amount was exhausted or the patient should die, was held by the Court in State ex rel Strykowski v Wilkie²⁰ to be a valid legislative enactment which could not be said to be unreasonable or to deny equal protection of the law. Refusing to apply a strict scrutiny to the statute, which in its view involved no suspect classifications and affected no “fundamental” rights, the Court declared that the procedure in question was obviously intended for the benefit of a claimant with substantial injuries requiring long-term treatment. The Court would not concern itself with the wisdom or correctness of the legislative determination, but only with whether there was a reasonable basis upon which the legislature might have acted.

10.23

In North Dakota, the Court in Arneson v Olson²¹, although holding invalid as a whole a medical malpractice statute on the basis of state constitutional inadequacies (irrelevant to this particular issue), obliquely considered the issue of a provision for periodic payment of future damages, declaring that it found no constitutional objection to the last sentence of the section providing for such payments, whereby a judgment so entered might be subject to modification or termination on the basis of specified contingencies. The Court construed the modification provision as relating only to periodic rather than lump-sum payments, and the contingencies in question to be those stated in advance in the original judgment itself. By considering and declaring constitutional a particular aspect of the periodic payments provision, it might be argued, the Court may have indicated that it would give favourable consideration to the provision itself were it to come before the Court as part of a statute otherwise constitutional.

10.24

However, not all state legislation has succeeded in avoiding some element of unconstitutionality in its provisions. For example, the Court in Carson v Maurer²² held that statutory provisions for periodic payment of future damages in medical malpractice actions were unconstitutional as violating “equal protection” provisions.

10.25

The Court held that the right to recover for medical malpractice fell within an “equal protection” evaluation category lying somewhere between those matters requiring fulfilment of a “compelling state interest” for validity and those requiring only a “rational basis”. The Court held invalid under the test adopted –“a fair and substantial relation to the object of the legislation”– a statute providing, inter alia, for periodic payment of future damages exceeding $50,000 in medical malpractice actions. The Court noted that the purpose of the provision relating to periodic payments in such instances was to reduce medical reparations system costs by eliminating a bonus element, consisting of the payment of portions of the award no longer required to compensate a malpractice victim who dies before the expiration of his or her actuarial life expectancy.

10.26

The Court declared that, regardless of whether the provision substantially furthered that purpose, it unreasonably discriminated in favour of health care defendants, while unduly burdening seriously injured malpractice plaintiffs. Noting further that this provision was apparently designed to insure that the claimant with substantial injuries requiring long-term treatment would have money available to pay for future medical care, the Court found this a questionable benefit, particularly the denial of a plaintiff's right to dispose of the property obtained in a judgment as and when he or she pleased. The Court

pointed out that, although the statute prevented the injured party's distributees from gaining a windfall through the victim's premature death, by the same token it created a windfall in such event for the tortfeasor's insurer. Finally, the Court said, a statute singling out seriously injured malpractice victims with over $50,000 in future damages offended basic notions of fairness and justice by requiring one class to shoulder the burden inherent in a periodic payment scheme from which the general public benefited, so that the statute in question constituted an unreasonable exercise of the legislature's police power violating the state's equal protection guarantee.²³

SECTION IV: CANADA

CHAPTER 11: THE PERSONAL INJURIES ACTION

11.1

As the Canadian legal system is a common law system, the civil action for damages for personal injury is based on similar principles of tort to those applied in Ireland and England. In examining the application of these principles in Canada, it must be remembered that all the provinces in Canada have enacted some form of statutory no-fault compensation schemes for work and road injuries.¹

11.2

As in Ireland and England, damages in a civil action can only be awarded in the form of a lump sum which must include a final estimate of losses incurred before the trial and future losses. The Canadian courts have no power to order periodic payments. This was the express finding of the Canadian Supreme Court in Watkins v Olafson² where it was held that, in the absence of legislation, the Court had no power to award the periodic payment of damages. McLachlin J explained the Court's reasoning:

11.3

As to the question whether to assess damages for personal injury in

terms of a global sum or to allocate amounts to the separate heads of damages, the Canadian courts have only recently come down in favour of the latter approach.⁴

11.4

The significance of the courts' choice of approach is that if legislation introducing a power to award periodic payments is enacted but this power is restricted to certain “heads” of damages (e.g. only future losses, as in many US states), then the impact that the new legislation will have will be easier to assess, and the legislation will be less complex, if the courts are in the habit of assessing personal injuries damages awards under separate headings.

11.5

In the Andrews⁵ case Dickson J stated:

11.6

In Arnold v Teno,⁶ Spence J approved the following dictum of Zuber J in the court below:⁷

11.7

The fourfold classification of damages awards approved by the Supreme Court involves a division of the heads as follows:

11.8

So far as the three heads of pecuniary loss are concerned, the arithmetical approach to assessment will require further itemization, and may thus involve sub-categorisation within those heads. However, despite a well-recognised subdivision of the head of non-pecuniary loss,⁸ it was the view of the Supreme Court that damages under that head should be awarded globally, because of the clear overlap between its subdivisions. Dickson J in the Andrews case explained this view as follows:

11.9

As to whether or not these cases were intended to set down an approach to be adopted by courts in all personal injury actions, Cooper-Stephenson and Saunders¹⁰ comment that:

11.10

In terms of the legislative reforms that have been introduced in Canada with respect to periodic payments, it is interesting to note the approach the Canadian courts have taken to the effect that (i) taxation and (ii) inflation and interest should have on the assessment of a damages award.

(i) Taxation

11.11

The position adopted by the Canadian courts in relation to what effect future income tax rates should have on the calculation of an award for loss of future earnings is different to that adopted in Ireland and the United Kingdom.

11.12

Dickson J, in the Andrews¹⁵ case, summarised the position as follows:

11.13

This approach has been criticised as tending to over-compensate the accident victim.¹⁷ It also, interestingly, contrasts with the position in fatal accident cases.¹⁸ Explaining the reasoning behind this difference, Dickson J stated:

(ii) Inflation and interest

11.14

In this regard, the approach of the Canadian courts has more in common with the approach in Ireland than with that adopted in the United Kingdom. As has been seen,¹⁹ the English courts decided, effectively, to ignore both considerations of inflation and interest rates on the grounds that these factors generally tended to cancel each other out and were in any event too speculative. While fluctuating economic conditions tend to lend support to the latter argument, the Canadian courts have chosen to include the variables of inflation and interest rates when calculating the lump sum amount to a plaintiff for future losses.

11.15

Once again, the position was definitively stated in the Andrews case, where Dickson J stated:

11.16

According to Cooper-Stephenson and Saunders “[t]here is little doubt that emphasis on the average expected differential between inflation and interest rates will do greater justice to personal injury victims”.²¹ They then refer to research carried out by Gibson²² who looked at inflation and interest rate figures for Canada for the period 1965–77.

11.17

Gibson observed:

11.18

Interestingly, Cooper-Stephenson and Saunders in their conclusions argue for an approach, and a discount rate, which would produce very similar results to those achieved in Ireland in the Griffiths v Von Raaj case (where the discount rate settled on was 2.5%).²⁴ They state:

11.19

As to how the problems presented by these uncertainties could be resolved, they comment:

CHAPTER 12: FATAL ACCIDENT ACTIONS

12.1

As in Ireland there are two types of action possible in Canada where the victim in an accident dies. They are a survival action and a fatal accident claim.

The Survival Action

12.2

With one exception, actions for personal injury everywhere in Canada survive for the benefit of the injured party's estate, regardless of whether death was due to the conduct of the defendant or independently caused. The lone exception is Saskatchewan, where actions are preserved only in the case of injuries “not resulting in death”. However, as a general proposition, the modern law does not create a new cause of action based on the death; it merely extends to the personal representative the existing rights of the injured party. As Furlong CJ stated in Anthony v Fleming.¹

12.3

It should be noted that survival actions are in addition to and not in derogation of any rights under the Fatal Accidents Acts, though damages received by way of a survival action may be taken into account in a fatal accident claim.²

12.4

In terms of the measure of damages recoverable in a survival action, the injured party's estate is restricted by the fact that only such rights as were vested in the deceased immediately before he or she died are preserved.

12.5

Consequently, the general rule is that an estate can recover in respect of all the losses for which the injured party would have been compensated had he or she survived to pursue the claim, subject only to the effect of the death on the substance of those losses. However, most jurisdictions have legislatively modified the rule, in one or both of two ways: (a) by excluding some damages normally allowed, e.g. damages for non-pecuniary loss, and (b) by allowing some damages normally excluded, e.g. funeral expenses. In the result, the measure of damages in a survival action is the above-stated general rule as amended, if at all,

by the statute in question.

12.6

In terms of damages specifically for loss of future earnings, most Canadian provinces exclude any damages for future earnings or profit.³ Cooper-Stephenson and Saunders comment that:

12.7

Most statutes expressly prohibit recovery under this head. Most explicit of all is the British Columbia legislation, which precludes “damages in respect of expectancy of earnings subsequent to the death of the deceased which might have been sustained if the deceased had not died”. Less explicit, though equally effective it seems, are those Acts which limit compensation to “actual financial loss”. As for the remaining legislation, however, the denial of prospective pecuniary loss is difficult to justify on the wording. This includes the Manitoba statute, even though it provides that “damages shall be calculated without reference to any loss or gain to the estate consequent on his death”.

12.8

Derived from an English statute,⁵ this oddly-phrased provision⁶ was at first thought to bar recovery of future loss,⁷ but the predominant view now⁸ is that it excludes only those items which in the nature of things the deceased could never have gained or lost while alive.⁹ Insurance money due on death is an example of such a gain, while funeral expenses and annuities ceasing on death are examples of such a loss.¹⁰ So, in Manitoba, the Northwest Territories, Ontario and the Yukon, damages for future loss seem in practice to be refused when in law they are arguably recoverable, on the ground that they are not statutorily prohibited. At the same time, to deny lost earnings or profits may well achieve the preferable result, which, as one commentator has pointed out,¹¹

would not be the first time that a mistaken view of the law has provided the correct solution.

The Fatal Accident Action

12.9

Every province in Canada has now enacted, in some form or other, legislation to allow family members and dependents to bring fatal accident claims.¹² Fatal accident claims are separate from survival actions, though damages received by way of a survival action may be taken into account in a fatal accident claim.

12.10

For the most part only relatives are protected. These typically include the wife, husband, parents, children, grandparents, grandchildren, step-parents and step-children. Brothers and sisters are sometimes included, while certain statutes also accord rights of suit as a result of so-called “illegitimate” and adoptive relationships, including de facto adoptive relationships. By far the longest list of beneficiaries can be found in the recent law of Prince Edward Island. There, protection is expressly furnished, to a child en ventre sa mere, “a spouse of a child, grandchild or parent of the deceased”, and, in prescribed circumstances, a divorced spouse and the surviving partner of unmarried cohabitation, the latter having gained some standing also in Ontario. Prince Edward Island even affords rights to “any other person who for a period of at least three years immediately prior to the death of the deceased was dependent upon the deceased for maintenance and support”.

12.11

The limitation period for a fatal accident suit is usually either one or two years, with time commencing to run from death. Only one action lies and, regardless of the nominal plaintiff, every action is deemed to be for the benefit of all dependants who have suffered actionable loss. The claim should be brought by the executor or administrator of the deceased's estate, not however as representative of the deceased but as fiduciary for the beneficiaries. Where there is no executor or administrator, or no action is brought by him or her within a designated time, any or all of the beneficiaries can commence proceedings themselves. And should it happen that the wrongdoer dies before

the victim, the latter's dependants can still sue.

12.12

The effect of taxation on the assessment of damages in fatal accident cases is different to that in personal injuries actions. The Supreme Court in R v Jennings¹³ had set out the position in relation to personal injuries actions, namely, that damages for loss of future earnings were to replace a “lost capital asset of earning capacity” and therefore were not to be reduced by taking future income tax on those earnings into account.

12.13

Initially, the courts were in doubt as to whether the decision in Jennings applied to fatal accident cases. For, traditionally, the value of lost dependency has been calculated on the basis of a proportion of the deceased's earnings after tax. The courts, in general, took the view that fatal accident cases were distinguishable on the theoretical basis that the value of a dependency necessarily required that the deceased's after-tax income be considered, and that lost dependency could not be constructed as the loss of a capital asset. However, in Gehrmann v Lavoie,¹⁴ the Supreme Court of Canada decided to bring fatal accident cases into line with cases for personal injuries, and applied the Jennings case to an action under the British Columbia Families' Compensation Act.¹⁵ Compensation for lost dependency was to be based on the deceased's gross earnings. Then, in 1978, the Supreme Court reversed itself in Keizer v Hanna,¹⁶ a decision of the full Court. The leading judgment of de Grandpre J made reference to the general attitude of the legal profession over the years¹⁷ to the number of fatal accident cases based on the deceased's net earnings,¹⁸ to the views of various writers¹⁹ and to the “fundamental” theoretical distinction between a claim for lost dependency and a claim for loss of earning capacity by a personal injury victim.²⁰

12.14

There was also initial uncertainty in Canada as regards the allowance to be made for interest rates and inflation. The position was clarified in the case of Lavis v Todd²¹ where Dickson J explained:

12.15

This is much the same approach as that adopted in personal injuries actions. Once again it draws some criticism from Cooper-Stephenson and Saunders, who argue: