Periodical Payments And Case 'Parking'

When an individual recovers significant damages for personal injuries, the court must ensure that careful consideration is given to whether those damages are awarded as a conventional lump sum or as ongoing periodical payments.

Where a lump sum is paid - which requires an assessment of life expectancy - it should be invested with a view to maintaining the true value of the award and to providing sufficient income and/or capital growth to meet the individual's needs for the rest of his or her life.

When the lump sum is calculated, credit is given for the fact that some monies are being received by the individual to cover future needs and to reflect the returns that could be achieved on the money if it is invested.

One of the problems with lump sum awards is that estimating life expectancy entails a certain amount of crystal ball gazing. Doctors can only provide an educated guess based on their clinical judgement and any available statistical data. This means that there is a real chance that the lump sum will be insufficient to cover all of the individual's future needs if he or she lives longer than expected or conversely that the individual will be over compensated if he or she survives for a shorter time than anticipated.

Periodical payments were proposed as a potential solution, the idea being that an individual's annual ongoing needs would be assessed and then payments made each year for the rest of his or her life. In theory, this would avoid under or over payment as the funding would only continue as long as the individual needed the monies.

The difficulty, however, is dealing with inflationary increases in, for example, the cost of care, equipment and therapy fees. Traditionally, therefore, periodical payments have been linked to the Retail Prices Index (RPI) so that each year the next payment is increased in line with the RPI.

Care costs usually form the major part of future losses. However, research has indicated that wage cost inflation, and hence the cost of purchased care, has significantly exceeded the RPI for many years. If the differential is projected over a number of future years, it is clear that the annual amount paid to the individual would fall short of the actual sum needed and the situation would get worse as time went on. This has made periodical payments less attractive to claimants and they have often...