Accident Compensation Corporation v Fenemor

[2008] NZCA 241

IN THE COURT OF APPEAL OF NEW ZEALAND

CA107/07
[2008] NZCA 241

BETWEENACCIDENT COMPENSATION CORPORATION

Appellant

ANDJAMES LEONARD FENEMOR

Respondent

Hearing:29 April 2008

Court:Hammond, Chambers and Baragwanath JJ

Counsel:I R Millard QC and L M Rice for Appellant

J M Miller for Respondent

Judgment:17 July 2008 at 10 am

JUDGMENT OF THE COURT

A        We answer the questions stated for our determination as follows:

(a)The High Court was wrong in law in concluding that s 442 of the Accident Insurance Act 1998 did not apply to Mr Fenemor.

(b)The High Court was wrong in law in concluding that the percentage of previous lump sum compensation paid to Mr Fenemor was not to be deducted from the combined whole-person impairment assessment.

BThe appeal is allowed.  The result is that Mr Fenemor’s final impairment assessment is to be in accordance with the Accident Compensation Corporation’s assessment of 22 per cent.

C        There will be no order for costs on the appeal.

REASONS OF THE COURT

(Given by Hammond J)

Introduction

[1]       This is an appeal by way of case stated from a decision of the Full Court of the High Court: HC WN CIV-2005-485-001002 24 November 2006 (Wild and Mallon JJ).

[2]       Mr Fenemor suffered a back injury in 1990 for which he received a lump sum payment under the Accident Compensation Act 1982 (“the 1982 Act”).

[3]       On 26 May 1998, while the Accident Rehabilitation and Compensation Insurance Act 1992 (“the 1992 Act”) was in force, Mr Fenemor suffered a severely fractured leg.  Complications ensued which ultimately led to the leg being amputated below the knee.

[4]       It was not until 13 February 2003 that Mr Fenemor applied for an independence allowance.  By this time the Injury Prevention, Rehabilitation, and Compensation Act 2001 (“the 2001 Act”) was in force.  However, as the personal injury was suffered before 1 July 1999, ss 441 and 442 of the Accident Insurance Act 1998 (“the 1998 Act”) were applied; they were part of the transitional regime of the 2001 Act.  Mr Fenemor was assessed as having a 28 per cent impairment from his leg injury and a 5 per cent impairment from his back injury.  Under the relevant “whole-person impairment assessment” using the combined value chart in the American Medical Association (AMA) Guides to the Evaluation of Permanent Impairment, that amounted to a combined assessment of 32 per cent.  Ten per cent was deducted from the 32 per cent for the lump sum he received for his back injury, giving him a final impairment assessment of 22 per cent.

[5]       The Full Court of the High Court reversed a District Court determination upholding this assessment.  The High Court held that Mr Fenemor’s back injury and leg injury were unrelated.  Because a 5 per cent allowance should not have been added, nor 10 per cent deducted for the lump sum payment, this left an independence allowance for a 28 per cent impairment.

[6]       The arithmetical difference between the two assessments – one of 22 per cent and one of 28 per cent – results in a difference in payment of a little over $4 per week.

[7]       The Accident Compensation Corporation (the Corporation) appeals against  the High Court determination. 

[8]       Two questions are stated for determination by this Court:

(a)Was the High Court wrong in law in concluding that s 442 of the 1998 Act did not apply to Mr Fenemor?

(b)Was the High Court wrong in law in concluding that the percentage of previous lump sum compensation paid to Mr Fenemor was not to be deducted from the combined whole-person impairment assessment?

The legislation

[9]       Mr Fenemor applied for his independence allowance assessment in 2003 for personal injuries suffered before 1 July 1999.  The accident compensation legislation in force at the time of his application was the 2001 Act.

[10]     By virtue of s 377 of the 2001 Act, ss 441 and 442 of the 1998 Act are part of the transitional regime of the 2001 Act. 

[11]     Prior to amendment by s 59 of the Injury Prevention, Rehabilitation, and Compensation Amendment Act (No 2) 2005, s 377 read:

(1)Sections 441 and 442 of the Accident Insurance Act 1998 continue to apply to personal injury covered by this Part that was suffered before 1 July 1999, irrespective of when the claim for cover in respect of that personal injury was or is lodged. 

(2)A claimant who suffered personal injury before 1 July 1999 and who applied, before that date, for an independence allowance but who was not or would not have been entitled to receive the allowance before the close of 30 June 1999 is to have his or her independence allowance assessed under Part 4 of Schedule 1 of the Accident Insurance Act 1998.

[12]     As a side note, as a result of the 2005 amendment, s 377(1) now provides that “sections 441 and 442 of the Accident Insurance Act 1998 cease to have effect”.  What is substituted is an assessment regime with certain modifications that go some way to ameliorating the vexing interpretative difficulties in this current proceeding.

[13]     For the purpose of this appeal, it is necessary to set out ss 441 and 442 of the 1998 Act in full:

441.     Independence allowance -      

(1)       Subsection (2) applies to -

(a)A person to whom section 27(1) of the Accident Rehabilitation and Compensation Insurance Amendment Act (No. 2) 1996 applies and who was not reassessed under section 54A of the Accident Rehabilitation and Compensation Insurance Act 1992 before 1 July 1999:

(b) A person who, immediately before 1 July 1999, was receiving or was entitled to receive an independence allowance under section 54 of the Accident Rehabilitation and Compensation Insurance Act 1992:

(c)A person who suffered a personal injury before 1 July 1999 and did not apply for an independence allowance before 1 July 1999.

(2)Such a person is entitled to receive an independence allowance on and after 1 July 1999 under Part 4 of Schedule 1, as modified by -

(a)       Subsection (3); and

(b)Section 442(2)(a) and (b), if the person is a person to whom section 442(2) applies.

(3)       The modifications made by this subsection are as follows:

(a)Such a person may not lodge a claim for an independence allowance under Part 4 of Schedule 1 for any injuries suffered before 1 July 1999:

(b)A person described in subsection (1)(a) receives the rate of independence allowance payable on 30 June 1997 as adjusted by section 71 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 460:

(c)Any assessment under clause 60 of Schedule 1, or reassessment under clause 61 of Schedule 1, must be done on the basis of whole-person impairment for the combined effect of all his or her personal injuries covered by the former Acts, and only 1 independence allowance is payable for all those injuries:

(d)As soon as practicable after 1 July 1999, the manager must require a person described in subsection (1)(a) to be reassessed in accordance with paragraph (c).

442.Entitlement to independence allowance of persons who received lump sums under former Acts and suffer further impairment –

(1)Subsection (2) applies to a person who received a payment for personal injury by accident under section 119 of the Accident Compensation Act 1972 or section 78 of the Accident Compensation Act 1982.

(2)Such a person may apply under section 441 for an independence allowance under Part 4 of Schedule 1. That Part applies subject to the following modifications:

(a)The independence allowance must be calculated by deducting, from any whole-person impairment assessed under clause 60 of Schedule 1, or reassessed under clause 61 of Schedule 1, any percentage permanent loss or impairment of bodily function for which any payment was made under section 119 of the Accident Compensation Act 1972 or section 78 of the Accident Compensation Act 1982:

(b)An independence allowance payable as the result of an assessment under clause 60 of Schedule 1 is payable from the date of the application for it.

The whole-person impairment assessment

[14]     Mr Fenemor suffered a back injury in 1990 for which he received a lump sum bodily impairment payment assessed at 10 per cent under the First Schedule of the 1982 Act.  Eight years later he suffered a very serious leg injury.  He was then reassessed as having a 28 per cent impairment from his leg and a 5 per cent impairment from his previous back injury.  Together they gave a combined assessment of 32 per cent.  One could be excused for thinking that 28 plus 5 equals 33 per cent.  But in the world of accident compensation it does not.  This is because under s 441(3)(c) and s 442(2)(a), the assessment had to be done on a “whole-person impairment” basis. 

[15]     The way the whole-person impairment assessment operates is as follows.  That term was previously found in s 54(5)(a) of the 1992 Act (as applicable from 1 July 1997).  Reg 3 of the Accident Rehabilitation and Compensation Insurance (Independence Allowance Assessment and Rates of Payment) Regulations 1997 then required that assessment of a person's whole-person impairment to be carried out using the AMA’s Guides to the Evaluation of Permanent Impairment (4ed).  (The prior s 54 referred to the second edition of the same Guides at s 54(15).)  That method of assessment continued under the 2001 Act, which was in force when Mr Fenemor applied.

[16]     The chart in the AMA Guides shows how two injuries are assessed by taking the greater percentage and then working out the combined percentage from the chart.  That combined percentage is described in these terms:

The values are derived from the formula, A + B(1-A) = combined value of A and B, where A and B are the decimal equivalents of the impairment ratings.

[17]     The reasoning behind such a formula is to be found in the ACC User Handbook (expressly referred to in Reg 4(2) of the Injury Prevention, Rehabilitation, and Compensation (Lump Sum and Independence Allowance) Regulations 2002) (at 13):

Combining: How it works

This is how “combining” works:

·     If we take an individual with no impairment, and they lose their leg (the impairment value for which is 40%), they now only have 60% of their whole person remaining.

·     If they then suffer a further loss of (say) the other leg, that second impairment is deemed to be on the 60% whole person remaining.  That is, the whole-person impairment for the second leg is 24% (40% of 60%).

·     The total impairment for the loss of both legs is 64% (40% for the first leg, plus 24% for the second).

·     The remaining whole person is now 36%.  (Any further impairments should be applied to 36% of the whole person.)

The method guarantees that the total impairment rating for an individual can’t exceed 100%, and can be expressed mathematically as:

Percentage impairment = A + B(1-A)

Where A and B are the two impairment values being combined.

[18]     Thus, “whole-person impairment” assessments take the person’s existing state of impairment into account when assessing the impact of any subsequent injury (whether related or not).  The wording of the Handbook makes no reference to the injuries being related and the sense of the passage quoted is that the injuries do not need to be related.  The Guide also recognises that a person cannot be impaired more than 100 per cent whether or not the injuries are related.

[19]     Mr Millard said that in Mr Fenemor’s case, “his new leg injury was assessed at a 28 per cent whole-person impairment.  The prior back injury was reassessed and considered to then be only a 5 per cent impairment but that 5 per cent had to be applied to the balance of the “whole-person” after deducting the 28 per cent assessment for the leg (ie to the 72 per cent remaining) to give a 3.6 per cent further impairment figure, or a total impairment (after rounding) of 32 per cent”.  Presumably that submission reflects the Corporation’s own view of the application of the Handbook.

[20]     We are not sure that calculation is entirely correct.  The first injury was the back injury with a 5 per cent impairment.  That left Mr Fenemor with a 95 per cent whole person remaining.  Then, when he lost his leg, that would yield 26.6 per cent (28 per cent of 95 per cent).  The 5 per cent would be added to the 26.6 per cent, to get 31.60 per cent (rounded to 32 per cent), from which the 10 per cent earlier assessed would be deducted, which appears to follow the methodology in [17] above.  The consequence would be that the result would be the same, but the back injury would ultimately receive a 5 per cent rating, not a 3.6 per cent rating.  In short, it is the second injury which is reduced in value under the AMA guideline.

[21]     Given that we have not heard submissions on the point, and nothing turns on this point of “internal” arithmetic in this appeal, we need not address it further.

The High Court determination

[22]     It seems that the High Court thought that the very fact of taking into account both injuries was unfair largely because the AMA Guide had lower percentage impairment ratings for some injuries compared with the percentages provided in the First Schedule of the 1982 Act.  This led the High Court to hold (at [88]):

Section 442 applies only to claims for independence allowances where there is a further impairment to the same injury for which a lump sum payment was made. This avoids double dipping but it also ensures that earlier compensation for unrelated injuries are not effectively clawed back when later injuries are suffered.  (Emphasis added.)

The submissions for the Corporation

[23]     As we apprehend it, the Corporation’s response to the High Court finding (apart from the rather obvious one that Parliament should be taken as found to have deliberately adopted the AMA Guide assessment regime) is that there is nothing wrong, in principle, in saying that the injured person should be taken as they are found in subsequent evaluations of permanent impairment.  After all, that is a perfectly normal principle within legislative compensation schemes and the common law generally.  In other words, there is nothing wrong with endeavouring to assess the impact of the later injury by taking into account the impact of the earlier injury which has already been compensated for, in assessing the overall impairment.  That is what the AMA Guide does. 

[24]     It is correct that some of the impairment percentages were higher under the Schedules to the 1972 and 1982 Acts than in the AMA Guide.  This is the basic source of Mr Fenemor’s discontent.  But as Mr Millard said, it must have been open to Parliament to legislate on the basis that the AMA Guide was a better indication of impairment than the approaches under the 1972 and 1982 Acts.  The AMA Guide is statistically more reliable than the previous Schedules because it draws on a much larger data pool in the United States, than what is available in New Zealand. 

[25]     In short, therefore, the essential submission for the Corporation was that Mr Fenemor was squarely within the transitional regime of ss 441 and 442 of the 1998 Act.  Those sections prescribed the “whole-person impairment” assessment.  The calculation was done correctly.  It was not open to say that the exercise was “unfair”; rather, it was required by statute and could not be avoided by saying that the injuries were unrelated.

The submissions for Mr Fenemor

[26]     Mr Miller contended that the Corporation’s interpretation of the legislation is “manifestly unfair”.  He supported the decision of the High Court as one that achieves a fair result for Mr Fenemor.  He suggested that on the Corporation’s interpretation, a person who has previously received a lump sum may never be able to receive an independence allowance for a new injury of any kind.  He said that the percentages for lump sums under the First Schedule to the 1982 Act were very high.  For example, loss of an arm was given as 80 per cent and the loss of a hand was given as 70 per cent.  On the other hand, the percentages under the AMA Guides were much lower, stating that “to be 95 to 100 per cent impaired is to be in a state approaching death” (at 12).  Hence, if a person had received a lump sum for the loss of an arm under the 1982 Act and that 80 per cent was to be deducted from any new percentage assessment for a new injury such as a leg amputation (40 per cent under the AMA Guides), the injured person would never receive an independence allowance for that further injury.  They would have to be assessed at over 90 per cent to meet the 10 per cent threshold for an independence allowance, after the 80 per cent had been deducted.  Mr Miller argued that this could not have been the intention of Parliament.

[27]     The example above does indeed point to an unfairness in deducting the high percentages under the 1982 Act from the lower assessments under the AMA Guide.  Mr Miller suggested this should only be done when there has been a further impairment of the same injury in the same accident (the position under s 148(3) of the 1992 Act, the predecessor of s 442(2)(a)).

[28]     Mr Miller then set out a number of what he said are “fairer” interpretations of s 442 of the 1998 Act which would enable Mr Fenemor to obtain a fuller independence allowance for the amputation of his leg, viz:

(a)Section 442 only applies to further impairment of the same injury in the same accident.

(b)Section 442 only applies to further impairment of the same injury.

(c)Section 442 only applies to further impairment that arises after 1 July 1999.

(d)Section 442 does not apply as it refers in s 442(2) to an application under s 441.

(e)If the prior lump sum has to be deducted, that should be done in a fair manner.  Mr Miller suggested this could either be done by deducting the previous lump sum percentage from the AMA Guides percentage for that injury to achieve a nil figure thus leaving the new injury without further deduction, or converting the previous lump sum percentage to the equivalent percentage under the AMA Guides and then deducting that percentage so that like is deducted from like.

A red herring

[29]     During the oral hearing, the panel floated a further possibility (recorded in our Minute of 2 May 2008) that would have had the effect of setting up a different comparator.  If adopted, this would have resulted in a percentage impairment assessment somewhere between those contended for by Mr Miller and Mr Millard.

[30]     Counsel filed further submissions on this proposition.  We are grateful to counsel for this assistance but we do not pursue our suggestion further here.  The tentative proposition does not accord with the full history of the various schedules employed in this legislation; and, on further reflection, the practical consequences of the proposition are unworkable.  We leave the possibility in the position of something which seemed like a good idea at the time.

Discussion

The application of s 442

[31]     The question is whether Mr Fenemor is within the transitional regime of s 442.  In our view, that must be so: s 441(2)(b) expressly makes s 442(2) applicable.  Section 442(2) then expressly provides that a person “may apply under s 441 for an independence allowance”, subject to modifications which are then set out.

Deduction of previous compensation

[32]     Given Mr Fenemor is within s 441 by operation of s 442(2), s 441(3)(c) applies.  That provision requires an assessment to be made on the basis of whole-person impairment for the combined effect of all personal injuries covered by the former Acts, and only one independence allowance is payable for all those injuries.  The High Court could not depart from that statutory requirement.   Section 442(2) then requires the resultant deduction to be made.

[33]     What Mr Miller has sought to do is to read the legislation in such a way as to support persons who – had they claimed in time – would have been within the prior regime.  But ss 441 and 442 are a particularised transitional regime which had to be followed in Mr Fenemor’s case, under s 377 of the 2001 Act.  We accept Mr Millard’s submissions in their entirety on this case, which is the only case we have before us.

Conclusion

[34]     We answer the questions stated for determination by the High Court as follows:

(a)The High Court was wrong in law in concluding that s 442 of the 1998 Act did not apply to Mr Fenemor.

(b)The High Court was wrong in law in concluding that the percentage of previous lump sump compensation paid to Mr Fenemor was not to be deducted from the combined whole-person impairment assessment.

[35]     We allow the Corporation’s appeal. The High Court was in error on both the questions of law stated for our determination.  The result is a final impairment assessment of 22 per cent.

[36]     There will be no order for costs.

Solicitors:
ACC Legal Services, Wellington for Appellant
John Miller Law, Wellington for Respondent