PPOs are used by many compensators in high value clinical negligence and personal injury claims to fund a claimant's future heads of loss, usually care and case management and loss of earnings. Payments are made for the remainder of a claimant's life and often on an annual basis.

Mrs Justice Swift in RH v University Hospitals Bristol NHS Foundation Trust [2013] amended the model schedule to the PPO used in NHS cases.

PPOs have also come before the Court of Appeal in Wallace v Follett [2013] which held:

  • It was reasonable to require a claimant receiving periodical payments to undergo a medical examination to enable insurers to calculate reserves
  • A compensator can suspend payment of a claimant's periodical payment in the absence of written confirmation of proof of life without having to obtain court approval

Implications

As PPOs provide a stream of annual payments for the duration of a claimant's life there is a continuing relationship between claimant and compensator. In his judgment in Wallace v Follett, Lord Justice Leveson referred to Mr Justice MacKay's judgment in Long v Norwich Union Insurance Ltd [2009] who observed that where settlements include PPOs there is a balance of benefits and burdens for both sides. It is also interesting that the Court of Appeal accepted it was appropriate to resolve these discrete terms of PPOs where the parties had failed to reach agreement.

The judgment provides a real benefit to compensators as it avoids having to obtain court approval to suspend an annual payment in the absence of written confirmation that the claimant is still alive. It also ensures insurers can arrange a medical examination of the claimant to assess the adequacy of existing reserves.

Insurers should consider reviewing their standard PPOs in light of this judgment and make the necessary amendments to benefit from the above provisions.

Background

The Claimant suffered catastrophic injuries in a road traffic accident. Liability was accepted subject to a discount of 30 per cent for contributory negligence. An agreement was subsequently reached on the payment of a lump sum and periodical payments. However, a dispute arose over two issues in relation to the terms of the PPO:

  • Whether it was reasonable to permit the insurer to require the Claimant to undergo medical examinations to obtain an up-to-date life expectancy figure for the purpose of calculating reserves. In previous cases a provision had been inserted in the event that insurers wished to find an annuity provider.
  • The consequences of the Claimant failing to provide written confirmation from his GP, prior to the commencement of each payment year, that he was still alive.

At first instance His Honour Judge McKenna found in favour of the Claimant on these issues. The Defendant appealed to the Court of Appeal.

Decision

Leveson LJ allowed the Defendant's appeal:

  • Medical examination - to be allowed for the purpose of purchasing an annuity or to review reserves but limited to once every seven years. The following clause was proposed be inserted into the PPO:

"The Defence Insurer shall be entitled to require the Claimant to undergo medical examination at its request upon reasonable notice being given to the Claimant at any time during the Claimant’s life time, such medical examinations to be limited to obtaining a medical opinion as to the Claimant’s general health in order to obtain a quotation for the purchase cost of an annuity to fund the periodical payments and/or (not more frequently than once every seven years) for the express purposes of reviewing its reserve. The cost of any such examination, to include any reasonable costs and any loss of earnings incurred by the Claimant in attending the examination, shall be paid by the defence insurer. The Claimant shall have permission to apply to the court in the event of reasonable concern as to the nature or extent of any such examination."

  • Written confirmation – an insurer is entitled to be reassured that a claimant receiving PPOs is alive as at the date on which a payment is to be made. There was no reason why confirmation should not be made available on an annual basis. The task should be made as straightforward as possible and the insurer should provide a reminder of the obligation. There was no virtue in requiring the insurer to return to court before suspending payments. The following clause was proposed:

"Following a request by the Defence Insurer in writing on or before 1 November each year, the Claimant shall obtain and provide to the Defence Insurer by 1 December each year, commencing 01/12/2012, written confirmation from his GP or other medical adviser dated not before 1 November of the same year confirming that the GP or medical adviser has seen the Claimant on or after that date and that the Claimant is still alive, in default of which the obligation of the Defence Insurer to make instalment payments to the Claimant shall be suspended until 7 days after the written confirmation (dated not more than one month before the date of its submission) is provided to the Defence Insurer."