Damages for personal injury - What is compensation for?
The language that sometimes surrounds compensation awards – “payout”, “bonanza”, “jackpot” – can make accident claims sound a bit like winning the lottery. Had an injury? Lucky you!
Of course the reality is different. Whilst in some countries, notably America, compensation awards can sound extremely high, in this country they are more modest.
The reason for differences between countries is often explained by what each country sees as the purpose of paying damages to injured people. In the United States awards are much more often designed to punish the wrongdoer, in order to make them change their ways and hopefully to improve safety standards.
For example, if someone has an accident in an American McDonald’s, if the claim aimed only to reflect the injured person’s losses it might be a few thousand Dollars – nothing to a huge company like that. On the other hand if an award of ‘punitive damages’ of a few hundred thousand or even a few million Dollars were made, even McDonald’s would sit up and take notice. It might then take steps to ensure nothing similar happens again.
In this country the other approach is adopted. The principle is that compensation is just that, it compensates someone for what they have lost. It is not a bonus or a reward. A personal injury claim aims, so far as money can, to put someone back into the position in which they would have had if the accident never happened.
So what can compensation cover?
‘General damages’ for injuries
This is an amount of money to say sorry for the injuries. There is no fixed figure for any given injury because the same injury can affect different people in different ways. There is no right or wrong amount of money that can be said to represent a particular injury.
However, courts need to be consistent in the amount of compensation they award in order to be fair to injured people and to defendants. They cannot just pick an amount of money at random. They will therefore refer to previous court cases where other people have been awarded money for similar injuries, and use that as guidance.
In general, matters that influence the amount of general damages include things like the degree of pain or disability suffered, the duration of symptoms and the effects on things like the ability to work, family life and hobbies and interests.
There is also guidance published in the Judicial College Guidelines which summarises court awards for various injury types. For example, the guideline for awards for a broken ankle giving rise to fairly minor but permanent symptoms such as a limp or difficulty with stairs is £11,500 to £22,220, a shoulder strain that recovers within a year is up to £3,630, and for severe brain injuries the guidance is £183,150 to £337,700.
Loss of earnings
When someone is injured they often can’t work. Whilst they may receive some sick pay, often it is not available, or only for a limited period. The claim is for the difference between what they would have earned had the accident never happened and what they actually have earned. This can include things like lost bonuses or promotions.
In the case of serious injuries people can spend long periods out of work. They may even have to change careers, or might never be able to get back to work. Loss of earnings claims can also cover future losses, even to pension age if they are permanently unfit for work.
If someone needs medical treatment due to an injury, the cost of that treatment will be part of the claim. This often includes routine items such as the cost of over the counter painkillers or prescription charges. If you pay for treatment such as physiotherapy or counselling, this can be reclaimed.
In principle you could even pay for private surgery or other private hospital treatment. There is a risk that if you do so you might not recover the cost if you lose the case, or if it turns out the treatment would have been necessary even without the accident. More often private treatment is arranged through private health insurance, and it is likely the health insurer will require you to try to recover their treatment costs for them through your claim.
Care and assistance
When someone is injured they often end up being looked after, even if only briefly, by a family member. This might be personal care such as help with washing and dressing, help with domestic tasks such as cooking, laundry or gardening, or shopping. Anything that the injured person would normally have done themselves but which they cannot do because of the injury can potentially give rise to a claim.
Although a cleaner or gardener can be used and the cost claimed, usually these tasks are done by family members for free. However, a claim can be made on their behalf for the value of their time, usually on the basis of what the equivalent professional help would have cost.
In more serious cases, professional help is not only required, it becomes vital. Where someone has serious disabilities they will often require proper, trained nursing care. They may need adaptations to their house or garden, equipment like wheelchairs or adapted cars, or may even need to move to a house equipped to deal with their disability.
Having professional help can also significantly reduce family stress. Whilst it is only natural for families to want to care for injured relatives, it can be exhausting, lead to family breakup, and can be financially devastating if a relative gives up work to care for an accident victim, particularly if the victim themselves is also out of work due to the accident.
If someone is unable to work, they often lose not just earnings but pension benefits. This is increasingly common now that employers are usually required to provide a workplace pension scheme.
Pension schemes usually come in one of two forms, money purchase schemes where the employee and employer put money into an investment pot so the employee has money to buy a pension when they retire, or final salary schemes where the pension is based on the amount of time spent working for the employer and their final level of pay.
In the case of money purchase schemes, if the period out of work is fairly brief the pension loss claim is usually fairly simple. It is the loss of the money the employer would have contributed to the fund, along with the tax relief on what the employee would have contributed. When the compensation money comes in, the lost pension money can then be paid into the pot.
If the time away from work is longer then it may be necessary not just to work out the loss of contributions, but also how the pension pot would have grown as an investment. This will often need an expert report from an accountant specialising in pensions.
Final salary pensions are not as common as they once were, but are still found quite a lot amongst public sector employees such as council workers, NHS staff, teachers, police and the military. The principle is much the same as for working out loss of earnings. The employee’s career is forecasted which gives their pension but for the accident. Their likely career following the accident gives their pension now, and the difference between the two is the loss.
Future losses – a lump sum or regular payments?
When someone’s likely losses go on well into the future, for example if they can’t work again or need medical or nursing care for life, compensation can be paid in two ways.
The traditional way is for damages to be paid as a single large payment of money. This money is then usually invested, and can be drawn upon to replace lost income or to pay for necessary expenses as required.
The effect of interest or other returns on the investment is taken into account, as are the risks of things that might cut short the loss, such as early death or the risk that the injured person might have lost their job anyway.
For example, if someone due to an injury needs to spend £10,000 a year on treatment for the next 10 years, they will spend £100,000 over that time. However, if they were given £100,000 all at once the money would earn interest over the 10 years, so that by the end they would have spent £100,000 but still have some money left over. Lump sums are therefore adjusted to take this into account.
There are risks and benefits to compensation for future losses being paid as a single lump sum. The money is yours to do with as you like. If invested, the investment could perform better than expected and give you a bit extra, but at the same time could do worse and leave you with less than you need. If you die earlier than expected your estate doesn’t have to repay anything because your losses have been cut short and you can leave the money to your family, but if you live a long time you might run out.
The alternative is regular payments by the defendant’s insurance company, known as ‘periodical payments’. Under such an arrangement you still get a lump sum to cover your injuries and losses to date. However, for future losses and expenses the insurers pay you regular amounts of money for as long as is necessary.
This has the benefit of ensuring that it is more likely your losses and expenses will be met in the long term. You won’t run out of money, and you aren’t relying on the investment of your money performing well. However, you don’t have the flexibility of having all the money at once to spend as you like. In addition, you will often need to have regular medical check-ups so the insurer can buy annuities to pay your money, and many people don’t like the feeling of still having to deal with the insurance company that has been fighting against them in their case.
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