Insurers should not “unduly concerned” about the prospect that periodical payments awards will increase following a recent court ruling, according to a leading law firm.

Earlier this month the Court of Appeal, in Flora v Wakom, refused to strike out the claimant's argument that periodical payments for future loss of earnings and care costs should be subject to annual increases based on wage inflation rather than retail price inflation.

It said the question should be resolved by a trial judge.

But the court's decision to hear the claimant's argument that payments in his case should be linked to the Average Earnings Index (AEI) has led to speculation that insurers will be liable for increased payments in the future.

James Arrowsmith lawyer at Browne Jacobson said the impact of such a ruling on the insurance industry may ultimately prove to be limited. This was for several reasons:

1. courts have not proved eager in the past to impose periodical payments where these are not specifically requested; there is no reason to expect a change in this approach
2. claimants will still tend to prefer the flexibility of a lump sum settlement
3. claimants may remain reluctant to pursue a case to court simply to resolve indexation; the prospect of early settlement will often have far greater appeal

“The court in Mr. Flora's case may rule in favour of using the AEI in some claims but insurers need not be unduly concerned,” Arrowsmith said. “A substantial proportion of claims will simply not reach this stage.

“While insurance firms would be prudent to make allowances for a degree of increased payments now, the overall impact on them is unlikely to be drastic. Insurers will recall how concern over the impact of periodical payments proved largely unfounded a year ago. The industry has been well aware of the possibility of alternative indexation from the outset.”

Related Insurance Times' Articles

Insurers to fight payments ruling

Periodical payments confusion