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The question whether periodical payments (PPs) by a 'passported' insurer are ‘reasonably secure’ pending the unknown future outcome of Brexit was considered in a recent case. The parties were agreed that the answer was in the affirmative, but the court had to satisfy itself when approving the settlement.
The court reaffirmed the judicial threshold for 'reasonably secure’ and took a common sense view that, in the relevant circumstances, PPs do presently meet the standard. Should this change following Brexit, options would be available to ensure continued protection of the claimants damages.
‘Reasonably secure’
Currently, PPs are deemed ‘reasonably secure’ if the compensator is an insurer protected by the Financial Services Compensation Scheme (FSCS). Due to the ongoing ambiguity surrounding Brexit, there is no longer certainty as to whether the FSCS will continue to offer 100 percent protection.
Whilst this clearly poses a risk to the continuity of PPs, it was accepted by the parties that PPs are currently ‘reasonably secure’. Should there be a change in the rules following Brexit, steps could then be taken to achieve continuity of payment by alternative means, including the possibility of capitalising PPs to discharge the liability as a lump sum instead.
There were no concerns regarding the financial stability of the compensator and, in any event, a claim could alternatively be made to the Motor Insurance Bureau (MIB) as compensator of 'last resort’ in the unlikely scenario of any unsatisfied judgment.
The court accepted that in the present political climate, PPs carry some risk of future legislative change, but that it was a risk to which the claimant consented, with full capacity, and is not unique to Brexit, but is always present in the FSCS scheme, albeit that Brexit adds an additional risk.
In considering the meaning of ‘reasonably secure’, the court referred to Kotula v Eastern Power Networks [2010] where it was stated that:
… the Act does not require a judge to be assured of complete security in respect of such payments. The proper approach must be ‘reasonable’ security … ‘reasonable’ must mean ‘reasonable’. It also seems to me that when deciding what is reasonable security a judge must, in good sense, take some cognisance of the alternative to future periodical payments.
Decision
The court concluded that there was no evidence to suggest that at this time the PPs were not ‘reasonably secure’ and that until the uncertainty as to how Brexit will play out is resolved the PP is clearly secure in that intervening period.
Comment
PP security pending Brexit has become a necessary question for court approval of high-value personal injury settlements. That question is arguably hypothetical, because insurers are obviously governed by strict capital and solvency requirements and could prove their financial security if ever required, although it is more practically convenient for practitioners to know that existing regulatory frameworks offer the relevant security without bespoke accountancy investigations being required in every case.
In that respect, it is to be hoped that this judgment definitively answers the question, pending any adverse Brexit changes, and that both claimants and insurers can continue to achieve the finality of settlement approval. In doing so, it removes a potential barrier to PPs and allows the market to continue functioning as before, when Brexit is of itself uncertain and may not happen soon or in the way expected, depending on your political views. Ironically, the market's appetite for PPs as a form of award is likely to be determined to a significant extent by another recent political milestone, namely the Civil Liability Act 2018 and the Lord Chancellor's important decision regarding the new personal injury discount rate.
Read other items in Personal Injury Brief - March 2019
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