Release of reverse indemnity undertakings

In this case the Court of Protection approved an application by BJB’s property and affairs deputy (Deputy) for release from the reverse indemnity undertakings included within the approved damages settlement. 

Background

BJB was born in 1994 and sustained a hypoxic brain injury at birth, which caused dystonic cerebral palsy. After her mother passed away, BJB was brought up by her father.  

Since October 2020, BJB has lived in her own home and “having moved into independent living arrangements, she has a team of paid carers”. In April 2022, Barnsley Metropolitan Borough Council assessed BJB’s needs as requiring 24-hour care, funded by way of direct payments by the local authority.

A claim for damages was brought in 2003, with an agreed settlement approved “on a “98% liability” basis”. The award of damages was made by way of a lump sum payment of £1.4 million and index linked periodical payments (which at the time of the judgment were in the region of £132,000 per year).

The terms of the approved settlement included:

1. "reverse indemnity undertakings, whereby 98% of sums received by BJB in state provision are to be deducted from her periodical payments; and
2. provision for release from the reverse indemnity undertakings by the Master of the Court of Protection or his successors, if that person is satisfied that BJB does not have sufficient resources to meet her reasonable needs.” 

The settlement approval order included what was referred to in the Court of Protection judgment as a “30+ recital” in which it was agreed by the parties that no allowance had been made “for possible enhanced needs after the age of 30 years (so that any increased payments made as a result of such enhanced needs shall not be repaid in full)”.

The Deputy made an application by COP1 (dated 1 June 2023) for release from the reverse indemnity undertakings, anticipating that “from December 2023 (when BJB would be just 6 months short of her 30th birthday), the amount received from direct payments would exceed BJB’s periodical payment, which would therefore be extinguished under the terms of the settlement order.”

To summarise, the Deputy’s position being that meeting the cost of BJB’s care needs (at that point) required “£60,000 per year more than BJB has in annual income”, that such shortfall was likely to increase, and “[r]esorting to capital does not provide a solution because it will be exhausted in around ten to twelve years”.

In the COP5 Acknowledgement, the defendant hospital Trust “indicated its objection to the application, on the basis that “if the claimant were to be released from the reverse indemnity undertaking as she seeks then it appears that there would almost certainly be double recovery…””.    

The Respondents (the defendant hospital Trust and NHS Resolution) did not challenge the reasonableness of the care and therapy arrangements in place. The Trust asserted that the reverse indemnity would only become a disadvantage to BJB “if she was required to repay the excess of the direct payment over the periodical payment, which is not the position”. It was asserted that the intention had always been for any enhanced care needs from the age of 30 to be drawn from BJB’s “other financial resources”.

Decision

On the issue of whether the Court of Protection was the appropriate forum for this matter to be determined (essentially adjudicating between the claimant and defendant), rather than the High Court, HHJ Hilder (Senior Judge of the Court of Protection) observed:

 “There is an obvious tension between a jurisdiction based in best interest decision making, and an adjudication between claimant and defendant……but I proceed on the basis that the High Court must have intended, and the parties in the High Court proceedings must have agreed to, the incorporation of the best interest principle into the determination of the clause 5 release mechanism.”

HHJ Hilder was satisfied on the evidence put forward by the Deputy on income and expenditure “that BJB does not have sufficient resources to meet her reasonable needs” if the reverse indemnity undertakings were left to stand, and that it was “in BJB’s best interests for her property and affairs deputy to be released from those undertakings.”  

On the matter of the “30+ recital”, HHJ Hilder observed that “rather than indicating agreement to pay for any enhanced needs post-30 from capital, I interpret the 30+ recital as very clearly pointing to the mechanism for release from the reverse undertaking”.

Comment

As HHJ Hilder indicated, if the Court of Protection has jurisdiction it will act only in the interests of the protected party to accumulate and protect any financial benefit and increase the funds of the protected party.

Accordingly, in a recent matter that Kennedys are instructed on, approved by the High Court in November 2025, the standard NHS Peters undertaking has been amended to replace a Senior Judge of the Court of Protection with a Judge of the High Court as follows:

“AND UPON the Claimant, his Litigation Friend and/or his Deputy undertaking

1. To notify the Senior Judge of the Court of Protection of these proceedings; and
2. To obtain from the Court of Protection a limit on the authority of the Claimant’s Deputy as appointed from time to time whereby no application for public funding of the Claimant’s care pursuant to Section 47 of the National Health Service and Community Care Act 1990 or section 21 of the National Assistance Act 1948 (or such comparable legislation as may hereinafter be enacted) can be made without further order, direction or authority from a Judge of the High Court…”

Unlike in BJB it is not standard practice for us to agree to provisions for the release of the indemnity.

The BJB outcome was fact-specific and decided in the absence of challenge to current expenditure. Further, many approved reverse indemnity wordings do not contain any future release provisions. The judgment therefore does not adversely affect the overall validity of reverse indemnity clauses. There will continue to be many scenarios where such arrangements will be of mutual benefit to both parties and allow more commercial flexibility during settlement negotiations, including split liability cases where statutory funding can bridge the compensation shortfall if the defendant is willing to bear the risks of a future change.

As HHJ Hilder observed, the case does highlight a tension between the best interest principles, enshrined in the Mental Capacity Act and Children Act and the damages principle of putting the claimant in the position they would have been in but for the negligence. The latter does not necessarily result in what is best but what is reasonable, appropriate and fair.