Periodic Payment of Judgments Act Summary

When a person suffers bodily injury because of the fault of another person, the injured person is generally entitled to compensation for that injury. The action is a tort or personal injury action, and a successful law suit results in quantification of the injury in terms of money. In the law the sums of money involved in that quantification are called damages. Damages are categorized in various ways—economic and non-economic, past and future—depending upon the character and extent of the actual injury. Traditionally, when the quantification is complete, a lump sum amount represents the aggregate of what the defendant in the action owes the plaintiff, the injured person. The plaintiff is entitled to the entire sum, at once.

In the last two decades, an alternate payment system has evolved by case law and statute for payment of future damages for economic loss. These are the damages that the facts indicate an injured party will suffer as a result of the injury after the tort action is concluded. For example, a person who is paralyzed because of an injury will require continued medical care throughout his or her remaining lifetime. The projected medical expenses are a common example of future damages for economic loss.

The alternate payment system calls for payment of such damages as they accrue, periodically, rather than for payment of a lump sum all at one time following the award of damages. The Uniform Law Commissioners contributed to this evolution with the Model Periodic Payment of Judgments Act in 1980. In 1990, this earlier act has been replaced by a considerably updated Uniform Periodic Payment of Judgments Act (UPPJA).

What is the advantage of the alternate system? One, a periodic payment system removes the risk that the money will be lost by either improper expenditure or bad investment before it is needed to pay for actual loss. A periodic payment award of damages is usually funded through the purchase of an annuity from an insurance company or other similar system of secured payment. The obligation of payment is secured without burdening the injured person with the responsibility for keeping and investing the damage award.

The second important advantage belongs to the defendant. The defendant is able to acquire the annuity or similar system of secured payment at a price less than the aggregate amount of the damages that must be paid to the plaintiff. This is an immediate savings to the defendant (or more properly the defendant's casualty insurer) who is obligated to pay the damages. This savings is obtained without depriving the plaintiff of any damages to which he or she is entitled.

The ability of the defendant to obtain a savings is translated into lower premium costs for casualty insurance. Anything that lowers casualty insurance rates or that retards the inflation of those rates, benefits just about everybody. For just about everybody has some exposure to liability for personal injury of another person, and buys insurance to cover potential loss if there is such an injury.

Under UPPJA, either party to a tort action involving bodily injury may elect to have the award of future damages for economic loss be in periodic form if the damage potential exceeds $100,000.00. The other party may contest such an election by showing that the time period for periodic payment is too short or the amount of damages too small to make periodic payment an advantage over a lump sum award, or by showing that a periodic payment judgment cannot be properly and securely funded.

If an election is effective, UPPJA then requires a specific sequence of findings pertaining to damages that lead to a declaration of a periodic payment award. Initially, both past and future damages are stated separately in lump sum form. Deductions are then made in a specific order for pro rata shares of such things as prior settlements with joint tortfeasors, and comparative fault determinations, followed by setoffs or credits. After dealing with these issues, the court then allocates attorneys' fees. They must be taken insofar as possible from future, non-economic damages. The remainder of such fees are taken proportionally from the other categories of damages, if future non-economic damages are insufficient. After all of the deductions, the court lastly determines punitive damages, if any, in a lump sum. The periodic payment of future damages is then set out, literally year by year. This is how a periodic payment award is established under UPPJA.

In establishing a periodic payment award, the court may receive evidence of future changes in the purchasing power of the dollar, and the trier of fact may factor such evidence into the allocation of damages or make separate findings upon the annual rates of change that must be applied to the actual damage figure. In this way a judgment can be created that takes inflation into account over the life of the judgment.

Before a periodic payment award is made, the defendant must provide a qualified funding plan. A qualified plan can take several forms, including an annuity from a qualified insurance company. The essential characteristic for each form is adequate security to assure payment of the award over its lifetime to the injured person. Part of that assurance is reliance upon what UPPJA calls a qualified insurer.

UPPJA requires the state insurance commissioner to keep a list of qualified insurers. These are insurers that meet standards of reliability and financial quality as expressed in common industry rating systems. A qualified funding plan cannot be effected without reliance upon a qualified insurer in some fashion either to provide the plan or guarantee the obligation. The list maintained by the insurance commissioner assures that there will be a reliable pool of qualified insurers from which plans can be obtained to fund periodic payment judgments.

The UPPJA provides assurances to those who suffer bodily injury that funds will be available to pay the damages while reducing the costs of such damage awards. Its adoption uniformly will be of great benefit to defendants and plaintiffs, alike.