Economica Ltd.

home -> newsletter -> spring 1997 (2.1) -> here.

The "Lost Years" Deduction

by Christopher Bruce

This article first appeared in the spring 1997 issue of the Expert Witness.

In a series of recent cases, defendants have argued that if an injury has shortened the plaintiff's expected work life, full compensation should not be paid for the earnings forgone during the "lost years."

Resolution of this issue has forced a re-examination of the legal foundations of personal injury damage assessment. At one extreme, restitutio has been invoked to support the position that the plaintiff should be compensated for the full value of the income which would have been earned. In Andrews v. Grand & Toy (1978), 83 D.L.R. 452, for example, Dickson J. ruled that compensation must be awarded for "... the loss of that capacity which existed before the accident." (at 469) This also appears to be the ruling in most American jurisdictions.

At the other extreme, McLachlin J., in Toneguzzo-Norvell v. Burnaby Hospital (1994) 1 S.C.R. 114, expressed concern that the plaintiff's estate not be unjustly enriched. Her position was that, as the plaintiff would be adequately cared for from other heads of damage (e.g. the cost of care award), any funds paid in compensation for lost earnings would simply benefit the plaintiff's heirs. Such enrichment may be sufficiently contrary to public policy that it would override the principal of restitutio and justify the denial of compensation for lost earnings.

Legal decisions can be found to support virtually every position on the spectrum between these two extremes. Only two that I have been able to identify adopt Madame Justice McLachlin's reasoning. In both Granger v. Ottawa General Hospital (June 14, 1996, Doc. 18473/90, Ont. Gen., Div.) and Marchand v. The Public General Hospital, ([1993] O.J. No. 561 (Ont. Ct. - Gen. Div.)), the plaintiffs were awarded only that portion of their incomes which would have been devoted to savings – apparently on the view that it was only that portion which would be lost by the plaintiffs' heirs. (In Granger, savings were held to amount to 30 percent of earnings, whereas in Marchand 15 percent was assumed.)

Nevertheless, most experts testifying in Canadian cases have relied on the principle which underlay Justice Dickson's decision in Andrews – that the plaintiff is to be compensated for the pleasure which will be forgone during the lost years. In particular, at least since Semenoff v. Kochan, (1991), 59 B.C.L.R. (2d) 195 (B.C.C.A.), there appears to have been agreement that the plaintiff should be compensated for that portion of his/her income which remains after deduction of "personal living expenses" or "necessities." In principle, the pleasure which consumption of this residual would have provided during the years which have been lost can be replaced by consumption during the plaintiff's now-shortened lifetime.

Where the experts disagree is with respect to the measurement of "personal living expenses." First, although most of the reported cases assume that all expenditures on food, shelter, clothing, transportation, and health care are "necessary," two alternative views have been proposed concerning the size of the family on which to base the calculations.

In both Semenoff, and Sigouin v. Wong, (1991) 10 C.C.L.T. 236 (B.C.S.C.), it was assumed that the plaintiff would have married and, therefore, it was only that portion of family income which would have been spent on the plaintiff which should be deducted. On that basis, the plaintiff was awarded 67 percent of the income which would have been earned during the lost years.

In subsequent cases – including Toneguzzo (where Madame Justice McLachlin did not apply her own argument concerning unjust enrichment), Pittman v. Bain, (1994) 112 D.L.R. (4th) 482 (B.C.S.C.), and Webster v. Chapman [1996] M.J. No. 384 (Man. Q.B.) – the courts have based their awards on the percentage of personal income which would have been devoted to necessities. This has led to awards lying between 50 and 60 percent of the lost years income.

A second source of disagreement concerns whether income taxes should be included as personal expenses. In a number of recent cases, the defendants have argued that taxes should be considered in this way. Should the courts agree, awards would fall to approximately 25 percent of the lost years income.

Finally, it has been argued that it is inappropriate to assume that all expenditures on broad categories, such as food and shelter, are "necessary." According to this view, for example, only a small fraction of the expenditures which individuals devote to transportation could be considered to be necessary. Whereas individuals with incomes of $50,000 commonly spend $8,000 to $10,000 per year on automobiles and travel, they could meet their "necessary" travel needs by spending $500 to $1,000 on public transit.

All expenditures above the latter minimum could be considered to have provided pleasure. Hence, on the doctrine of restitutio, they should be recoverable. When this approach is applied, it is found that it is only 15 to 30 percent of income which is devoted to necessities, leaving the remaining 70 to 85 percent to be compensated in damages. (This issue is discussed in greater detail in an earlier "Lost Years" Deduction article)

It is not yet clear what the resolution of these issues will be. All that can be said with certainty is that they have not yet received a full airing in the courts. My expectation is that in cases in which the plaintiff is not severely brain damaged, between 25 and 50 percent will be deducted for necessities during the lost years. In cases of severe brain damage, in which the plaintiff may not be able to benefit from an award for the lost years income, it is possible that the courts will follow Granger and Marchand and award only 15 to 30 percent of that income.

leaf

Note: This article has been reprinted with permission from The Lawyers Weekly (March 28, 1997).

Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).

Overview

In this article Christopher Bruce deals with the current issue of appropriate compensation for the "lost years" of a plaintiff with reduced life expectancy. One of the approaches discussed includes the view that the plaintiff should be compensated for the lost earnings which remain after the cost of necessities is deducted. Further clarification is required on this issue to establish an estimated cost for "necessities."

Related topics:

© 1996-2007 Economica Ltd.
home | about us | services | checklists | consultants | newsletter
articles | calculation tables | what’s new | contact us

home
about us
services
checklists
consultants
newsletter
articles
calculation tables
what’s new
contact us