Re RH1 is the most recent court decision which continues to tip the scales in favour of applying an earnings based index to periodical payments.

The claimant sustained profound injuries at birth taking the form of cerebral palsy, for which he will always require a high level of care. Liability was admitted.

Continuing the direction of Flora v Wakom (Heathrow) Ltd [2006] and Thompstone v Thameside & Glossop Acute Services Trust [2006], the court agreed that a Periodical Payments Order (PPO) should be made in respect of future care needs.

The judge held that because future care costs are predominantly labour or earnings related, linkage to a predominantly price based index, RPI, would breach the Wells v Wells principle of the claimant’s entitlement to 100% compensation. (Over the period 1992 to 2004, the RPI has increased by 35%, whist the Average Earnings Index (AEI) increased by 60%). Linking the periodical payment to the RPI would produce a “significant and substantial shortfall.”

As carers’ earnings have in the past increased at a significantly faster rate than RPI, and there is a strong probability that this will continue, the judge ordered that future periodical payments in relation to care should be linked to a more appropriate index, choosing in this case (as in Thompstone) ASHE 6115 relating to home carers and care attendants. This index (on which detailed accountancy evidence in Thompstone was given by the economist Dr Victoria Wass) was preferred on the basis that it was sufficiently sensitive to track changes affecting the earnings of carers and the weighted hourly rate being based on pay rates agreed by care experts.

In the circumstances, it was agreed that it would be “appropriate, fair and reasonable” for the amount of payments to vary by reference to the 80th percentile of that index for the first two stages of care and the 75th percentile for the third stage. On current information such index runs at between 2.5% and 3% above RPI.

The issue of indexation in Thompstone (now to be conjoined with Corbett v South Yorkshire Strategic Health Authority [2006] and Sarwar v Ali [2007]) is being appealed and is due to be heard in November.

Interestingly in Re RH the judge refused permission for the defendants to adduce evidence on distributive justice - namely, the likely financial impact on the NHS of a different level of indexation to the RPI - and said that the issue, if relevant at all, could be dealt with on submissions of principle. No doubt it will be for the Court of Appeal to take a wider perspective on this issue when the appeal is heard.

At present we are not aware of any attempt by representatives of the insurance industry to intervene in the appeal. To do so would give the industry an opportunity to shape what will undoubtedly be an extremely significant decision for insurers.