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Imagereal Capture -- - - -- - p---- -- Report No. 4 Prevention and Recovery Report on the Accident Compensation Scheme Other Law Commission publications Report serles NZLC R1 Imperial Legislatlon In Force In New Zealand NZLC R2 Annual Reports for the years ended 31 March 1986 and 31 March 1987 NZLC R3 The Accldent Compensation Scheme-Interm Report on Aspects of Fundlng Prel~m~naryPaper serles NZLC PP1 Legislatlon and ~tsInterpretatlon the Acts Interpretatlon Act 1924 and Related Leg~slatlon(d~scusslon paper and questionna~re) NZLC PP2 The Accldent Compensation Scheme (dlscusslon paper) NZLC PP3 The Llmltatlon Act 1950 (dlscusslon paper) NZLC PP4 The Structure of the Courts (d~scusslonpaper) NZLC PP5 Company Law (dlscusslon paper) LAWCOMMISSION Report No. 4 PERSONAL INJURY: PREVENTION AND RECOVERY Report on the Accident Compensation Scheme 1988 Wellington, New Zealand The Law Commission was established by the Law Commission Act 1985 to promote the systematic review, reform and development of the law of New Zealand. It is also to advise on ways in which the law can be made as understandable and accessible as practicable. The Commissioners are: The Rt. Hon. Sir Owen Woodhouse, K.B.E., D.s.c.-President Mr B. J. Cameron, C.M.G. Miss S. Elias, Q.C. Mr J. E. Hodder Professor K. J. Keith Margaret A. Wilson The Director is Mrs A. B. Quentin-Baxter. The office is at Fletcher Challenge House, 87-9 1 The Terrace, Wellington. Telephone (04) 733 453. Post address: P.O. Box 2590, Wellington, New Zealand. Reporti'Law Commission Wellington 1988 ISSN 0 113-2334 This report may be cited as: NZLC R4 Also published as Parliamentary Paper E3 1B ERRATUM In ~aragraph28 (4) p. xxii; paragraph 35 p. 99 and clause 43 p. 127 the figure $1000 should read $2000 CONTENTS Paragraph Page Acknowledgements . Letter of Transmittal . vii ... Terms of Reference Vlll SUMMARY OF REPORT ix Purpose of review ix Nature of the scheme ix Private insurers X Social compact X Prevention and recovery xi Sickness . xi By stages . xii Injury by accident xii... Incentive . Xlll... Targetting . Xlll Lump sum benefits xiv Periodic payments xiv Schedule assessments xv Time limits . XV Latent disease xvi The costs of the scheme xvi Abuse . xvii Medical benefits xvii Source of funds xviii System and method xviii Employer levies xix The self-employed xix Legislation . XX Transition . XX PRINCIPAL RECOMMENDATIONS xxi Safety and rehabilitation . xxi Entitlement . xxi Accident and incapacity . xxii Paragraph Page Benefits . 28 xxii Permanent disability . 29 xxiii Income . 30 xxiv Transition . 31 xxiv INTRODUCTION . An interim report . Other processses . Some wider issues . Policy and objectives . Targetting . Time barriers . Illness and injury . Employer levies . THE COMPENSATION SCHEME IN OPERATION Benefits . Costs . SAFETY AND REHABILITATION . Safety . Responsibility of government . Individual responsibility . Occupational safety and health The characteristics of the responsibilities fo; occupational safety and health . An International Labour standard . "One Act-One Authority" . The wider safety area . Financial incentives in the accident compensation scheme? . Safety incentives in general . Variable industry classifications -a safety incentive? . Bonuses and penalties for individual employers-a safety incentive? . Rehabilitation . COMPENSATION ENTITLEMENTS . Personal injury-a schedule approach . Temporal scope . Limitation period . Congenital defects . Medical and related expenses . Monetary benefits . The waiting period for periodic benefits . Lump sums for permanent disability and pain and suffering . Personal injury arising from sexual and other serious assaults . Total incapacity-periodic benefits . A final comment on costs and benefits . Paragraph Page THE FUNDING OF THE SCHEME . The sources of the funding . Allocation of funding between sources . Allocation within particular sources-a single rate for employers and the self-employed . Payment by instalments . ADMINISTRATION . Decision-making on claims . Appeals from decisions . The role of an independent corporation . The problem of fraud and abuse . Statistics; information about the operation of the scheme APPENDIX A Statistical Tables . APPENDIX B Outline of Legislative Proposals . APPENDIX C Report on the Cost of the Accident Compensation Scheme . APPENDIX D List of Submissions . INDEX . ACKNOWLEDGEMENTS The Commission is very grateful for the advice and material pro- vided by Mr I B Campbell, especially on safety and related issues, Mr L V Castle on underlying economic and public policy principles, and Mr J R Cumpston and Dr R C Madden on actuarial and policy matters. 9 May 1988 Dear Minister A year ago the Law Commission was asked to review the Accident Compensation Corporation Act 1982 and the way in which the scheme it controls is operating. In the course of the Inquiry we have had the advantage of a consider- able volume of advice and comment in the form of 1698 written submissions and orally, during many discussions with interested organisations and individuals. We have received too, a great deal of assistance throughout the inquiry from officers of the Accident Com- pensation Corporation. On the 30 October 1987 you received our Interim Report. I now have the honour to submit the Final Report. You will notice that the Final Report is accompanied by legislative proposals in the form of the first draft of a Bill for a new Safety, Rehabilitation and Compensation Act. We hope that this document will explain certain details of our recom- mendations. At the same time it may be a useful basis for legislation should the Government decide that the proposals ought to be implemented. Yours sincerely Owen Woodhouse President The Right Honourable Geoffrey Palmer, MP Deputy Prime Minister of New Zealand and Minister of Justice TERMS OF REFERENCE The Law Commission is asked to examine and review that part of the Accident Compensation Act 1982 which recognises and is intended to promote the general principles of community responsibility, com- prehensive entitlement, complete rehabilitation, real compensation and in particular administrative efficiency as propounded by the 1967 Royal Commission Report on Personal Injury in New Zealand. It maybe accepted that those principles are broadly acceptable and- deserve to be supported. The basis upon which the Accident Compensation Corporation or its predecessor has made provision from time to time for the annual amounts needed by the accident compensation scheme for benefits, administration and contingency or other reserves together with the principles and methods applied in their allocation or distribution will form part of the overall inquiry. SUMMARY OF REPORT 1. Purpose of review The accident compensation scheme was brought to life on l April 1974. Fourteen years later it is clear from national surveys taken recently on a random basis and the 1698 submissions received by the Law Commission that its purposes and principles continue to have general public support. This opinion is shared by the 1988 Royal Commission on Social Policy. However at the end of 1986 there were large and sudden demands upon employers for increased levy income. All this was associated with complaints about cost and administration. Other issues were raised as to some aspects of benefits and entitlement. In this situation the Law Commission was asked to examine and make recommenda- tions concerning the system as it is operating. 2. Nature of the scheme The accident scheme protects the whole population against the conse- quences of personal injury. It depends upon an acceptance of com- munity responsibility. Its purpose is to encourage safety and promote physical and economic rehabilitation. Its compensation aim is income maintenance in order to provide a fair measure of support for living standards. The scheme replaced compulsory insurance schemes which had been underwriting the risk of claims in the Courts or under workers' com- pensation legislation. That fact, together with its use of funds col- lected from those who earlier had paid premiums to insurers for their indemnity, has left behind for some people the misconception that it is simply a new means of obtaining cover against new risks. It is wrong and a cause of confusion to think of it in this way. This scheme is not in any sense an insurance system. Its benefits are provided as of right without reference to cause and regardless of risk. It is simply one component of the general social welfare provisions of the country. 3. Private insurers At one point we were urged to consider that the system be handed over to the private sector, with the legislative provision requiring individuals to purchase their own first party insurance. Immediate reasons against this proposal speak for themselves. First there would be the problem of ensuring that those who could afford it actually would insure; and that there would be provision for those who could not. Second, there is the expense of such arrange- ments. Were private insurers to provide equivalent benefits either on a first party or third party basis, the added cost might be as much as $400 million. Third, the extra cost would be quite unmanageable if the system were to be extended to sickness as It should be. Fourth is the fact that arguable claims would produce a return to the adversary environment it was designed to leave behind. And finally, there is the lack of interest of the insurance industry itself. 4. Social compact As recently as 1974, following a broadly based understanding, pro- posals for the new scheme received bi-partisan acceptance. It hap- pened because the scheme seemed likely to be able to deal in a balanced way and so fairly with all who might thereafter be affected. It was agreed that certain rights to have losses shifted or shared would be given away with the corresponding responsibilities thereby removed (such as those implicit in workers' compensation and the negligence action) in exchange for the universal benefits and different duties which were to arise under the new legislation. 5. Prevention and recovery The legislation expressly speaks of the importance of safety and reha- bilitation as the first and second purposes of the scheme.
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