A State statutory periodic payment scheme for future damages in medical malpractice actions impermissibly limited the right of plaintiffs to a less valuable remedy than would otherwise be available, the Arizona Supreme Court has ruled. Smith v. Myers, 887 P.2d 541 (Dec. 29,1994). In so ruling, Arizona has joined New Hampshire and Kansas in striking down a periodic-payment-of-future-damages statute as unconstitutional.

The Arizona court based its ruling primarily on the effect it found the statute, which applied in medical malpractice actions, to have of limiting victims' access to their entire award for future damages. Theoretically, the "value" of an award is the same whether it is paid in a lump sum or over time - without periodic payments, future damages are generally reduced to present value; under a periodic payment scheme, the gross award is paid out over time. However, the court took issue with that assumption as well.

Foremost, the court said that periodic payments restrict tort victims' immediate access to their entire award, violating their constitutional right to the immediate use of a lump-sum award "to do with as they see fit." By so doing, the court said, the scheme threatens to affect, in several ways, the actual amount victims ultimately receive. It also deprives victims of the flexibility in meeting unpredictable expenses, the court added.

The Arizona state constitution specifies that "no law shall be enacted in this State limiting the amount of damages to be recovered for causing the death or injury, of any person." The high court said that this "extraordinary protection carved out by Arizona's founding fathers is jealously guarded by its citizens," noting that voters recently rejected attempts to eliminate this constitutional guarantee. A promise to pay in the future is not the same as a lump-sum award, the court said, adding that, because the full amount is not presently available for a beneficiary's use, it has a "less immediate worth" than a lump sum.

The court also noted that an annuity carries risks that threaten the value of a structured payment, as an annuity company may face solvency problems before the plaintiff recovers all the sums to which he or she is entitled. The uncertainties of the marketplace create other risks that a tort victim must face under a periodic payment scheme, the court said.

The court rejected the defendants' arguments that the constitutional provision was "meant only to maximize the injured party's potential for recovering his entire damages, not to insure its recoverability." It said that periodic payment statutes can hardly be viewed as consistent with the constitutional goal of maximizing a plaintiff's potential for recovering full damages when there are such additional risks as the potential insolvency of the annuity company.

Finally, should the injured party die before the date predicted by the jury, payments cease in some instances, even if the total judgment has not been satisfied, which could amount to a reduction in the size of the potential recovery, the court found. The defendants argued that this is appropriate because victims should not receive payments for harm not yet suffered and damages should compensate only for actual loss. But the court responded that victims do not necessarily suffer losses that are "proportional to and on the same time schedule as periodic payments." It also noted that, if death occurs later than predicted, the annuity company is not required to increase the amount of the earlier judgment.

The New Hampshire Supreme Court previously struck down its state's statutory scheme for the periodic payment of future damages in Carson v. Maurer, 424 A.2d 825 (1980). Its rationale for doing so was that the provision unreasonably discriminated in favor of health care defendants and un duly burdened seriously injured plaintiffs.

Finding that the provision singled out seriously injured medical malpractice victims, the court said that this offended basic notions of fairness and justice and violated the state's equal-protection guarantees. Additionally, New Hampshire's scheme did not provide for interest payments, depriving plaintiffs of the. ability to accumulate interest on unpaid portions of their awards.

Similarly, Kansas has found its periodic payment scheme to be unconstitutional. In Kansas Malpractice Victims Coalition v. Bell, 757 P.2d 251 (1988), the state Supreme Court ruled that annuity provisions violate the right to a jury trial guaranteed by the state constitution, since decisions as to damages are an issue for the jury alone and are not to be arbitrarily limited by the court.

In contrast to the New Hampshire and Kansas courts, the Arizona court focused on the statute's "limitation" of damages -- limitations that were not strictly monetary, but rather that infringed on plaintiffs' immediate right to their full award as well as created the risk of depriving plaintiffs of full payment due to the annuity company's insolvency or the premature death of a plaintiff.