BENEFITS FLOWING FROM AN ACCIDENT. 1. An injured claimant typically suffers loss. What about the benefits which

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1 BENEFITS FLOWING FROM AN ACCIDENT 1. An injured claimant typically suffers loss. What about the benefits which he/she receives as a result of the accident? Are some of them deductible? All of them? From all heads of loss? 2. These notes accompany a talk given on these issues by Matthew White on 17/6/10. This is not an advice; the time available for the talk means that I am cutting some corners. A detailed exploration of this topic is contained in Chapter 27 of Kemp (in current numbering), and Brian Langstaff s excellent book Personal Injury Schedules (3 rd edition due out any day now) is also a useful source if you need to argue any of this. Facts and Figures contains a good summary of the statutory benefits situation. THE BASICS 3. The general rule is that C must give credit for all benefits accruing as a result of an accident ( Hodgson v. Trapp [1989] AC 807 at 819E). There are 3 exceptions:- (i) Certain social security benefits which are subject to their own statutory regime (although note that not all benefits are covered by this regime, and the others fall to be dealt with by first principles); (ii) The fruits of insurance to which C has contributed; and (iii) Charitable donations (sometimes called the benevolence exception ). Deduction of benefits. Matthew White 17/6/10. 1

2 4. Note that only benefits of a like nature are to be taken into account against a particular head of damage. (4.1) An obvious effect of this is that if C saves on living expenses due to a stay in hospital (say he doesn t have to pay heating bills at home), credit potentially needs to be given against extra living expenses in hospital occasioned by the accident (say the extra costs of calls from a hospital phone). (4.2) A less obvious, but important, effect, is that a pension received on account of injury is not to be set off against loss of earnings (but can be set off against a pension loss). The law on this might change; the Law Commission wanted to change it years ago. (4.3) Pecuniary advantage cannot be set off against non-pecuniary loss (so PSLA awards are essentially ring-fenced). (4.4) Pecuniary benefits can be set-off against only a similar category of pecuniary damage. If C is made redundant because of the accident, he should give credit for the redundancy payment against the claim for loss of earnings. SOCIAL SECURITY BENEFITS 5. In every case D should get a certificate from the Compensation Recovery Unit (the CRU certificate). All PI texts deal with the way in which the scheme works, so I will not recite all of that. Deduction of benefits. Matthew White 17/6/10. 2

3 6. How the deductions work will be dealt with by way of a series of worked examples. You ll need this table (which is Schedule 2 to the Social Security (Recovery of Benefits Act) 1997):- SCHEDULE 2 CALCULATION OF COMPENSATION PAYMENT Section 8 (1) (2) Head of compensation Benefit 1 Compensation for earnings lost during the... relevant period Disablement pension payable under section 103 of the 1992 Act [Employment and support allowance] Incapacity benefit Income support Invalidity pension and allowance Jobseeker's allowance Reduced earnings allowance Severe disablement allowance Sickness benefit Statutory sick pay Unemployability supplement Unemployment benefit 2 Compensation for cost of care incurred during the relevant period 3 Compensation for loss of mobility during the relevant period Attendance allowance Care component of disability living allowance Disablement pension increase payable under section 104 or 105 of the 1992 Act Mobility allowance Mobility component of disability living allowance NOTES 1 (1) References to incapacity benefit, invalidity pension and allowance, severe disablement allowance, sickness benefit and unemployment benefit also include any income support paid with each of those benefits on the same instrument of payment or paid concurrently with each of those benefits by means of an instrument for benefit payment. (2) For the purpose of this Note, income support includes personal expenses addition, special transitional additions and transitional addition as defined in the Income Support (Transitional) Regulations Any reference to statutory sick pay (a) includes only 80 per cent of payments made between 6th April 1991 and 5th April 1994, and Deduction of benefits. Matthew White 17/6/10. 3

4 (b) does not include payments made on or after 6th April In this Schedule the 1992 Act means the Social Security Contributions and Benefits Act Some additional points which will probably not emerge from discussion of the worked examples are:- (i) If D makes any payment, he triggers the liability to repay all of the outstanding CRU. Thus (a) an interim payment triggers CRU liability in full; and (b) D cannot offer a nuisance settlement to C without exposing himself to all of the CRU. (ii) Benefits falling under the CRU scheme are excluded from the basic principle. Thus they are only deductible in the relevant period (which always ends at date of payment if not before). So even if C is likely to continue receiving benefits of a CRU type in future, they are not deducted. (iii) A particular problem faces claimants who have been assessed so as to be in receipt of a life award of DLA in an acceleration case. We will discuss that (but I don t want to give away too many clues in the notes for fear of spoiling all of your fun with the worked examples!). (iv) Part 36 offers must make clear the CRU position, as must court orders. (v) Failure to mention CRU will probably lead to the assumption that a given settlement figure was gross. (vi) Defendants should take care when settling cases and planning to appeal a CRU certificate. A defendant who says in a Part 36 notice that the gross payment is 46,124 when there is a CRU certificate Deduction of benefits. Matthew White 17/6/10. 4

5 at 40,124 and who then appeals the certificate such that it is reduced to nil will find that the money is paid to C and not back to D (see Hilton International Hotels v. Smith [1002] PIQR P14). Housing benefit and other non-cru benefits 8. Housing benefit is not one of the benefits dealt with under the CRU scheme. It falls to be dealt with in accordance with basic principles (like for like deduction to avoid double recovery). In Clenshaw v. Tanner [2002]EWCA Civ 1848, it was found that C would have been off work anyway for 30% of the time, and would have received housing benefit. For the remaining 70% of the time, he would have been in work and not on housing benefit. The judge deducted the housing benefit from the 70% loss of earnings claim. The Court of Appeal upheld that, Kennedy LJ saying Obviously there must be some correlation between the benefit received and the loss claimed before the one can be deducted from the other... But for the accident the claimant would have used part of his earnings to pay for his accommodation. Because the accident has rendered him impecunious that liability was discharged for him by his local authority in the form of housing benefit. If, as it is now contended, he is entitled to recover his loss of earnings in full without any liability to reimburse the local authority he is being overcompensated to the extent of the housing benefit, and I see no reason why the court should regard that as a just result. Deduction of benefits. Matthew White 17/6/10. 5

6 9. Clenshaw v. Tanner is sometimes mis-cited as authority for the proposition that non-cru benefits are deductible from claims. It does not say that. What is says, essentially, is that non-cru benefits fall to be considered in line with basic principles:- i.e. pecuniary benefits (of which housing benefit is one) can be set off against like pecuniary losses. Clenshaw treats housing benefit as like earnings in that sense because C would have had to spend his earnings on housing if not on housing benefit:- that logic might apply quite widely. As an aside I find it quite hard to see how the following propositions can both be maintained by the courts (although they are):- Housing benefit is like earnings, so housing benefit received is deducted from a claim for earnings loss. Incapacity pension is not like earnings, so incapacity pension is not deducted from loss of earnings (see further below). THE INSURANCE EXCEPTION 10. The basics of this are relatively straightforward:- If C has bought an insurance policy to cover him against the effects of an accident, D should not be entitled to effectively reap the benefits of C s financial prudence by deducting the insurance payout from any part of the damages. 11. That logic has been applied where C has contributed to the insurance policy at all. So if it was purchased jointly by an employer and employee, with the employee only paying 1% of the purchase cost, the whole is non-deductible. There is obvious potential for a sense of injustice where Deduction of benefits. Matthew White 17/6/10. 6

7 the employer who contributed 99% of the cost is also the tortfeasor:- the employer tortfeasor would then not be able to reap the benefits of its own financial prudence. The employer tortfeasor would have had to have paid for the insurance to the tune of 100% before it came to be deducted in the claim. 12. Note that C has to contribute towards the insurance policy. He does not necessarily have to do so directly financially (by paying a proportion of his salary directly to the insurer or whatever). The claimant s contribution need not be a direct financial contribution, but there needs to be evidence of at least an indirect financial contribution (so whilst a reduced wage to pay for the policy would certainly suffice as a contribution, evidence of a reduced hourly wage reflected in a collective bargaining agreement to allow for the purchase of the policy would also probably do). To quote from Gaca v. Pirelli [2004]EWCA Civ 373 (para 56):- Payment or contribution will not be inferred simply from the fact that the claimant is an employee for whose benefit the insurance has been arranged. Thus if an employer pays for the policy with no contribution from an employee, the employee s work is not treated as a contribution so as to mean that the payment under the policy is ignored when calculating damages. 13. Many claimants miss a trick here. If they can establish some sort of collective agreement on wages (possibly through the assistance of a union) in which it can be shown that wages were agreed at a lower level Deduction of benefits. Matthew White 17/6/10. 7

8 then they might otherwise have been, expressly because of insurance taken out by the employer for the employees, they could avoid potentially significant deductions from damages. 14. There is an interesting anomaly in relation to disablement pension. (a) When an employee receives a disablement pension, he does not have to give credit for sums received before he would have retired (if an accident had not happened) regardless of whether or not he made direct contributions to the fund from which the disablement pension is paid (see Parry v. Cleaver [1970] AC 1). Two reasons are given:- (1) the credit would be given against the claim for loss of earnings, and it would be pension being used to give credit against loss of earnings when that would not be a like-forlike comparison (since pension income is not the same as income from earnings); and (2) The disablement pension is categorised as the fruits, through insurance, of all money which was set aside in the past in respect of his past work ( Parry v. Cleaver, later approved in Smoker v. London Fire Authority [1991]2 AC 502). (b) Thus the anomalous position exists that a claimant who receives a disablement pension which he did not contribute towards in any way other than by working for the employer does not have to give credit for that disablement pension, whereas a claimant who Deduction of benefits. Matthew White 17/6/10. 8

9 receives a payment pursuant to a policy of insurance taken out on his behalf by the employer has to give credit for the payment unless he can show that he contributed to the purchase of the insurance policy (and mere work for the employer is not enough to show that). (c) The apparent anomaly in stark terms, therefore, is this:- (1) Disablement pension is not deductible, because it is akin to insurance, whether or not an employee contributed to the fund; but (2) Insurance payments themselves are only not deductible if the claimant contributed to the fund. 15. I cannot resolve this strange state of the law by any method other than the following:- (i) I express the tentative view that the true rationale behind nondeductibility of pension is not that it is akin to insurance (albeit that various Law Lords have expressed it in that way), rather it is that pension gained cannot be deducted from salary lost, since that would not be to deduct a like kind of loss. That seems to me to make sense because:- (a) The Lords in Parry v. Cleaver, whilst expressing the nondeductibility of disablement pension as being because it is in effect an insurance payment, did not have regard to the well established need (under the insurance exception) for contributions to have been made by a claimant. Deduction of benefits. Matthew White 17/6/10. 9

10 (b) The Lords did offer alternative reasoning (namely that pension cannot be deducted pre-retirement as it would not be deducting like from like). (c) Disablement pension received after retirement age is deducted from loss. If Parry v. Cleaver were taken to its logical conclusion (disablement pension being the fruit of insurance such that it should be disregarded), there would be no reason not to disregard the disablement pension after retirement age. (ii) Regardless of whether I am right on that on not, the state of the law is, broadly:- (a) Insurance money is not deducted when a claimant contributed to the policy. It is deducted when the claimant did not contribute. (b) (c) Sick pay is a type of pay, so it is deducted. Disablement pensions are not deducted against loss of earnings (regardless of whether or not a claimant contributed to the relevant fund), but they are deducted from pension loss (since one is them comparing like with like). 16. Another interesting case is Page v. Sheerness Steel [1996] PIQR Q26. C had paid 4.5% of his salary into an occupational pension plan (thus, arguably, a direct financial contribution), and a perk of the pension plan was that it entitled C to permanent health insurance. It was held that C Deduction of benefits. Matthew White 17/6/10. 10

11 did not pay premiums for the policy (there was no contract between him and the insurer), and the payout under the health insurance plan therefore fell to be deducted from the loss of earnings claim. THE BENEVOLENCE EXCEPTION 17. There is similar thinking here to the insurance exception:- if someone out of charity gives an injured claimant some cash as a result of his accident, it would not be right if the tortfeasor were able to appropriate the benefit of that. It would hardly be the benefactor s intention that they paid money to the benefit of D, and it would be contrary to public policy to deter charity (as it would be contrary to policy to deter the taking out of insurance policies). 18. It used to be thought that a benevolent payment made by the tortfeasor should not be brought into account in assessing damages. That is not correct. See Gaca v. Pirelli (above). SOME PARTICULAR SITUATIONS Pensions 19. It will be remembered that pension is not set off against loss of earnings. It is set off against pension. So a reduced post-accident pension is set off against the pension which would have been received if there had been no accident. Deduction of benefits. Matthew White 17/6/10. 11

12 20. Lump sums cause a complication, since a lump sum represents a commuted payment in respect of the whole of the pension. In Longden [1997]3 WLR 1336 the House of Lords held that the proportion which represents pre-retirement age is not to be brought into account, but the balance is. So when a lump sum is received early it is necessary to attribute it between pre- and post-retirement periods (and Longden explains how to do that). This is a little tricky to get your head around. Think about it like this:- (1) If you save up x per year for 20 years into a pension fund (which doesn t grow), you end up with 20x in the pot at retirement. You can chose between an annual pension of y, or taking a tax-free lump sum of z with a reduced annual pension of y less a bit. Taking part of 20x as a tax free lump sum is called commutation. That lump sum reduces the annual payment which you then get. So if you commute as expected at retirement 65, you get a lower annual pension from age 65. (2) If you commute early (at age 55, say), you are still giving up part of each year s pension. In the period before age 65 you do not have to give credit for annual pension against loss of earnings (because you are not comparing like with like), but after age 65 you do have to give credit for your (now lower) post-accident pension. (3) So it is with the lump sum element:- you do not have to give credit for the part of the lump sum which is attributable to the period between the accident caused retirement and normal retirement, but you do have to give credit for the part of the lump sum which Deduction of benefits. Matthew White 17/6/10. 12

13 represents decrease in annual pension from the post-retirement (at age 65) period. There is a worked example of how to apportion at of Kemp if you need it. Statutory sick pay 21. This is deducted. Non-statutory sick pay 22. It might be that the employer expects to recover the non-statutory sick pay paid to C at the conclusion of the litigation. Some employers pay non-statutory pay on terms that C will include it in the claim and re-pay it to employers; it is not deducted from the damages if that is the situation. Redundancy pay 23. Deductible against loss of earnings if the redundancy was caused by the accident. Not otherwise. Employment tribunal awards 24. Deductible insofar as is necessary to avoid double recovery. This can lead to problems when an ET settlement is unclear as to how it is broken down. TAKE HOME POINTS (1) Only deduct like for like. Deduction of benefits. Matthew White 17/6/10. 13

14 (2) Once like damages are extinguished, no more deduction from other heads of claim should be made. (3) Benefits received as a result of insurance payments to which C has contributed (in any way) should not be deducted. (4) Benefits received through benevolence should not be deducted. (5) Make sure in offers and judgments that you make the CRU position clear. MATTHEW WHITE 17/6/10 Deduction of benefits. Matthew White 17/6/10. 14