Compensating Accident Victims

The President of the High Court, Justice Nicholas Kearns, has established a working group to explore the alternatives to Ireland’s system of lump-sum compensation for accident victims. The group is headed by another judge of the High Court, Justice John Quirke, and has been asked to report by end-year.

The lump-sum system has been modified across the water, where the courts can award recurring payments, in practice index-linked annuities, with or without the agreement of the parties. I argue in the paper below that we should consider following suit in this country.

23 replies on “Compensating Accident Victims”

Wasn’t there a case recently with Irish Rail where they agreed to go down a similar path to what you are suggesting? Makes sense to me.

It does seem more rational to adopt the phased system but I assume there would be the feeling that a bird in the hand is preferable.

Some of the negligence in medical cases can be absolutely shocking. Then there are other cases where after a war of attrition in the courts, there’s a settlement and while nobody is held accountable, the State is left with a big bill.

On a smaller scale, parish-pump politics have their place as long as the pump is actually attended to when required. Some years ago, Dun Laoghaire-Rathdown council in South Dublin carried out a botched refurbishment of the main street in Blackrock village. It was just finished when some holes were dug by the PermanentTsb office and a few shovels of tarmacadam were “temporarily” put on the handiwork.

For the two subsequent years, councillors, council officials and the public traipsed over the rickety pavement. Shur why would there be accountability at such a mundane level, when there’s none all the way up the ladder??

In 2007, the Irish Independent reported that Dublin’s local authorities had paid out over €15m in compensation to people who injured themselves walking on ‘dangerous’ footpaths. And Dublin City Council spent more compensating injured parties than it did repairing pavements between 2001 and 2005.

Dublin City spent €8.7m in compensation but just €7.3m repairing footpaths during the period.

Dún Laoghaire Rathdown paid out almost €1.9m for injuries, while spending €4m on repairs; South Dublin paid out €1.4m in compensation and €3.6m on maintenance; and Fingal County Council spent €2.9m on compensation and €4.1m on repairs. In all, €14.9m was spent on compensation and €19.2m on repairs.

And the buck stops where??

Interesting paper Colm. One issue that would need to be addressed is some form of a guarantee on future payments. Obviously a Sovereign would be the ultimate and this could be achieved through the index linked Government Bonds you suggest. I note that in the recent case the plaintiff secured a State undertaking.
One only has to look at what happened with AIG to appreciate that guarantees are needed. Governments may not bail out insurance companies in the future. There is also the issue here of certain defendants being quasi-insurance companies.

I think if I were injured badly I would prefer to have the lump sum so I could at least invest that as I saw fit and try to increase my earnings above what the court might assess them at. If I am limited to an annuity then I lose all control over my destiny (assuming a very severe physical injury) and all possibility of generating a good inheritance for my children. I also lose the ability to invest substantially to change the course of my life. It is a bit nannyish although I can see the benefots for the many of people whose aim is to make a steady income rather than a fortune and who may not have the capacity to pursue their own investments.

Gavin S: The Irish Rail settlement was indeed a landmark, explicitly anticipating legislative change. But it had the state (at one remove) as defendant, and could not easily be replicated for the generality of cases as things stand.

When I was young, if anyone fell on the pavement they were advised to ‘pick up their feet’.

Ireland has a poor sense of civic responsibility which goes some way to accounting for public liability claims. The claims culture has had a terribly damaging impact on service industries and community facilities.

For SMEs insurance is a major cost. For years SMEs campaigned vigorously for changes but may as well have talked to a wet toilet floor. PIAB is only a partial solution, Now all of sudden the problem must be reported on again. No government has chosen to interfere with the public liability gravy train that has made many lawyers immensely wealthy – with many in the government being publicans and lawyers what more could be expected? Another factor for consideration is whether so many public bodies from the HSE downwards should be engaging in expensive litigation with all in sundry. Very few companies could afford to take to the field and sustain an army of legal champions on the scale of public bodies. Perhaps that cavalier attitude towards spending taxpayers money could be looked at?

Of course, it doesn’t make sense for someone to receive lottery scale settlements when the same claimants could never hope to attain employment which would allow them to save the size of the settlement in reasonable time. The recent working group is just another example of the stable door being grindingly slow to shut after the horse and their jockeys have bolted.

Colm McCarthy’s paper is highly illuminating and most instructive.

His concluding observations invite a wider Professional bodies (e.g. the Institute of Chartered Accountants and the Law Society) and public participation in the debate.

It would be good to see some creative and lively discussion on this issue. It overlaps with many areas of social policy and function.

Congratulations, Colm. A most interesting paper…. you made the issues come alive…. and I expect even the actuaries could feel the pulse!

Peter Mathews

@Zhou_enlai: In arguing for lump-sum payments you say that with an annuity …. “I lose all control over my destiny …. and all possibility of generating a good inheritance for my children”.

I don’t know about your destiny (whatever it means in the present context) , but your children’s prospects for an inheritance should be irrelevant as far as public policy is concerned, no matter how much you may care about them at a personal level.

@John Sheehan

My response was american republican – I want my freedom and I choose the (illusory?) opportunity and potential to make additional money and to achieve elevation for me and my descendants into the moneyed classes who enjoy a huge advantage in all western societies. I think that I should have control over my wealth to exploit it as best I can, much as I could have chosen to exploit or risk my health if I had it (e.g., by being an underwater welder or working on a BP Rig or trucking for a number of years).

Your response is more american democratic – you see policy as having as its only goal the best means of protecting welfare.

My response may be illogical but it matters!

I would also question the prospects for the performance of long term annuities where holders are locked in, i.e. they cannot alienate their annuity.

If the holders are not locked in then the system will not protect the profligate injury victim. The question would also arise as to whether the injury victim could in actuality alienate the annuity for a sum equivalent to the lump sum which would otherwise have been payable.

The effect is therefore along the lines of a Thaler and Sunstein nudge. The products are kept in existence by being compulsory. Sufficient numbers for risk sharing longevity are also generated this way. This is an advantage over simply making such products available at low cost.

The injury victim is however tied in with a private company (InuranceCo). This creates an industry mandated by the State’s law. This is generally seen as acceptable consumer protection in other industries. However, one might argue that people shouldn’t have to insure against themselves (longevity or profligacy). Also, creating this market and industry may leads to moral hazard (profit gouging, excess risk taking, reduced health care from same insurer), insolvency risk and perhaps even State liability consequent on private sector default.

Another problem might be that the beneficiary may have reduced opportunity to borrow agains the annuity in part thereby reducing his ability to smooth out large cost items or to fund asset purchases.

Having looked at Colm’s paper, I was struck by his questioning of the allegedly high rate of medical inflation.

The idea that somehow high medical inflation is an ineveitable fact of life has been too easily accepted by the media and maybe by policy-makers as well. Recently a senior VHI manager was forecasting high medical inflation for years (or decades? ) to come, with implicitly catastrophic consequences for the continued affordability of private medical insurance. So maybe Colm should send the VHI and the relevant regulator a copy of his paper.

In addition to medical price indices not capturing quality change, there is also the dimension of new “goods” (or rather procedures). Over time we have seen organ transplants, hip replacements and other quite expensive procedures introduced: have medical price indices controlled for these, in line with a Laspeyre Index medhodology?

Zhou, the Irish lump-sum system, as well as having high litigation costs, makes the incapacitated plaintiff the bearer of both longevity and investment risks. The point of my paper is that these risks are enormous, far bigger I suspect than people realise. The result is that over- and under-compensation of plaintiffs must be the norm rather than the exception. This is why the UK changed the system, and why the Irish variant is being reviewed.

@Colm McCarthy

I can see huge merits to what you are proposing. The Plaintiff should be compensated for their actual loss which depends on how long they live.

As you say, there are enormous risks of overpayment and under-payment, with under-payment being the more pernicious as poverty as a disable person is that much worse than poverty as an able bodied person.

As things stand, the defendants get the benefit of risk spreading by the award being based on actuarial estimates while the injured party nears the risk of these projections being accurate or not in his case. This really becomes problematic in cases of catastrophic injury.

I was adopting a devil’s advocate view. I suppose I was being a bit obtuse but there are a number of issues to be ironed out.

@Colm McCarthy:
“Zhou, obtuseness is cream to the peaches of Chinese diplomacy.”

I think you forgot to put in “Confucius, he say:”.


Surely this is a problem that doesn’t need fixing, people can just buy annuities. Or maybe you’re discussing saving people from themselves, or from the financial investment industry.

I would have thought the real priority in this area should be the dismantling of the entire pathetic claims culture in Ireland, where judges (and no doubt juries) play a huge part in outrageous awards to people who should take personal responsibility when they trip and fall, for example. Or the case of the recent outrageous award to a boy stopped on suspicion of shop lifting.

As for the description of ‘Justice’ to describe the title of judge.

The other real issue is the lack of competition in the legal profession.

In the US they legislate away the ability to sue, for example, insurance companies. We should do the same for most routine injuries, I am not talking about very serious injuries, disablement and death here of course, although the size of the awards is no doubt grossly excessive.

Ciaran Daly:

‘Surely this is a problem that doesn’t need fixing, people can just buy annuities’.

They can’t buy index-linked annuities Ciaran, so they remain exposed to inflation risk. What do you reckon the Irish inflation rate is going to be in 2050?

Colm, you have probably discovered this but there is a wrong tot on page 7. The total should read 6638 and not 6038.
A very timely and thought-provoking paper!

@Colm McCarthy

I blame our training in Marxist dialectics. Always looking for the dualities and contradictions in a concept leads to contrariness.

Regarding inflation, I agree it’s a risk, a risk that every single member of society faces every day of their lives.

Maybe Germany will hold sway and we’ll have low inflation then again who knows…

@Ciaran ”Regarding inflation, I agree it’s a risk, a risk that every single member of society faces every day of their lives”.

All the over borrowed out there must be praying for high inflation, it is their only hope of releasing them from their debt burden in the long/medium term.

When you mention the situation across the water and also reference the united kingdom, do you mean England and Wales, or is it the case in Scotland and norn Iron also?

What do other EU countries do? there might be better solutions than just these 4 countries.

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