Editors --- "Compensation preclusion period: meaning of compensation and special circumstances" [2008] SocSecRpr 28; (2008) 10(2) Social Security Reporter, Article 10

• SECRETARY TO THE DFHCSIA and MAGRATH
• Background
• The issues
• Medical expenses
• Formal decision

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Compensation preclusion period: meaning of compensation and special circumstances

SECRETARY TO THE DFHCSIA and MAGRATH

(2008/380)

Decided: 12th May 2008 by A.F. Cunningham

Background

Magrath sustained injuries to his neck and shoulder during the course of his employment. The injuries affected his ability to perform his employment duties and he received weekly workers compensation payments between9 December 2001 and 10 July 2006 totalling $102,897.24.

By agreement dated 28 June 2006, Magrath’s compensation claim was settled for a lump sum amount of $171,050.00. The agreement further provided that his employment was to be terminated by way of resignation effective 10 July2006. In addition, a total sum of $87,377.25 was paid on account of Magrath’s medical and other costs during the period December 2001 to June 2006. These costs were paid directly to the relevant service providers.

After expending the total amount of the lump sum workers compensation payment, Magrath lodged a claim for disability support pension (DSP). This claim was rejected by Centrelink on 23 April 2007 on the basis of the application of a compensation preclusion period. Centrelink’s original calculation of the preclusion period was based on an entitlement to a lump sum payment of $361,324.49. This had included the lump sum payment of $171,050 pursuant to the settlement agreement, the periodic weekly payments of $102 ,897.24 and the amount paid for medical and other costs in the sum of $87,377.25. On review, the Authorised Review Officer determined that $102,897.24 should be deducted from the total figure because it represented the weekly payments and that the preclusion period should be reassessed on the basis of the figure of $258,427.25 which comprised the lump sum compensation and the medical and other costs.

On further review to the SSAT, the Tribunal decided that the medical and other benefits totalling $87,377.25 did not form part of Magrath’s lump sum compensation payment but rather constituted periodic payments and should be deducted from the lump sum payment upon which preclusion period was calculated. DFHCSIA sought review of this decision to the AAT.

The issues

The issues for determination by the Tribunal in this case were:

• Whether the medical and other costs in the form of rehabilitation, hospital and pharmaceutical costs should be treated as part of the lump sum payment pursuant to s.1171 of the Social Security Act 1991 (the Act)

• Whether Magrath’s circumstances were sufficiently special to warrant a reduction of the compensation preclusion period.

• Whether the medical and other costs should be treated as part of the compensation lump sum payment pursuant to section 1171 of the Act?

The DSP claimed by Magrath is included under s.17 of the Social Security Act 1991 (the Act) as a compensation affected payment.

Subsection 17(2) defines compensation as follows:

(a) a payment of damages; or

(b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

Relevantly, ss.1170 and 1171 of the Act state:

(1) Subject to subsection (2), if a person receives both periodic compensation payments and a lump sum compensation payment, the lump sum preclusion period is the period that:

(a) begins on the day following the last day of the periodic payments period or, where there is more than one periodic payments period, the day following the last day of the last periodic payments period; and

(b) ends at the end of the number of weeks worked out under subsections (4) and (5).

Sections 1171(1) and (2) of the Act also provide, as follows:

1171(1) If:

(a) a person receives 2 or more lump sum payments in relation to the same event that gave rise to an entitlement of the person to compensation (the multiple payments);and

(b) at least one of the multiple payments is made wholly or partly in respect of lost earnings or lost capacity to earn:

the following paragraphs have effect for the purposes of this Act and the Administration Act:

(c) the person is taken to have received one lump sum compensation payment (the single payment) of an amount equal to the sum of the multiple payments;

(d) the single payment is taken to have been received by the person:

(i) on the day on which he or she received the last of the multiple payments; or

(ii) if the multiple payments were all received on the same day, on that day.

1171(2) A payment is not a lump sum payment for the purposes of paragraph (1)(a) if it relates exclusively to arrears of periodic compensation.

Medical expenses

On behalf of Magrath it was submitted that the medical expenses and other costs should not be included as a lump sum payment because whilst he received the rehabilitation and medical treatment he did not benefit financially from the treatment. It was argued that the medical costs were more appropriately categorized as periodic payments which s.1170(1)specifically excluded from the formula for deeming the compensation part of the lump sum payment. It was further submitted that the payment of medical expenses could not be classified as having been made in respect of lost earnings or lost capacity to earn because they had been paid directly to the providers over a period of about four years as they were incurred.

The Tribunal considered the decisions of Broad and Secretary, Department of Family and Community Services [2003] AATA 1017; (2007) 77 ALD 523 and Navritaland Secretary, Department of Family and Community Services [2002] AATA 452; (2002) 69 ALD 777.In Broad’s case, it held that although the payments for hospital, medical and rehabilitation expenses were not actually for lost earnings or incapacity to earn, they were deemed as having been received for that purpose by virtue of the provisions of s.1171(1). The Tribunal also noted that Navrital’s case which had been concerned with the construction of the since repealeds.17(2)(b), which was the former equivalent of s.1171(1), had also concluded that though hospital, medical and rehabilitation expenses were better characterized as being a discharge of the statutory obligations of work cover rather than lost earnings or lost capacity to earn they could still be caught by the section. This was because the section only requires that one of the multiple payments in relation to the same event be made wholly or partly in respect of lost earnings or lost capacity to earn.

Applying these decisions, the Tribunal found that Magrath’s medical and other expenses were correctly deemed by Centrelink as part of the lump sum payment pursuant to the provisions of s.1171. The Tribunal found that the fact that Magrath’s medical and other expenses were paid on a periodic basis and not in the form of one lump sum did not exclude their consideration under s.1171 which provides that separate payments can be deemed a lump sum payment.

Whether Magrath’s circumstances were special

The Tribunal noted that the special circumstances advanced on Magrath’s behalf were said to include that he was not able to work again, his wife’s medical conditions that may result in her not being able to continue work and that the inclusion of the medical and other costs in the lump sum amount failed to reflect what was actually received.

After considering the evidence, the Tribunal rejected the submission citing the following reasons:

• the compensation funds were largely used to purchase a family home and two motor vehicles which the parties still owned and would not have but for the receipt of the monies;

• Magrath’s wife was still in employment and there was no medical evidence adduced to confirm her medical conditions or work capacity;

• It could not be said that Magrath’s financial circumstances were at crisis stage;

• There had not been a significant change of circumstances from those which existed at the time of settlement of Magrath’s compensation claim;

• The authorities make it clear that it is not open for Magrath to argue that the strict application of the 50% rule which includes the amount paid on account of his medical and other expenses, produces a result which constitutes financial hardship such as to fall within the meaning of special circumstances undersection 1184.

Formal decision

The Tribunal set aside the decision under review and substituted its decision that Magrath was subject to a compensation preclusion period from 9 July 2009 to 22 January2010.

[G.B.]