July 31, 2015 by Mathew Rose, Principal, Mathew Rose and Associates Inc.; and Kateryna Shpir, Forensic Economist, MRA Medlegal Consulting|Mathew Rose, Principal, Mathew Rose and Associates Inc.; and Kateryna Shpir, Forensic Economist, MRA Medlegal Consulting
Building the foundation of fair damages quantification commences with a consideration of pre-accident factors that establish the starting points. In this article, we review two areas of pre-accident status that are considered in damages quantification – pre-accident health status and pre-accident earnings. How do these starting points affect the final quantum of damages?
Our previous article (February/March 2014 Claims Canada) explored three end points – life, worklife, and housekeeping expectancy – used in damages quantification in both accident benefit and bodily injury claims. However, there is another equally important area of contention in damages quantification; the evaluation of pre-accident file attributes to determine the starting points. The use of starting points in the evaluation of a claim is the corollary to use of end points, and both are equally as impactful on the final quantum.
Starting points are the claimant’s relevant pre-accident conditions (such as income, health, socioeconomic status, home environment) that form the baseline from which accident-related damages can be clearly evaluated. The claimant’s base earnings (also known as base wage or benchmark salary) provide a particularly important starting point from which a claimant’s loss of income is projected. Because loss of income is often one of the larger heads of damage, this starting point can have significant implications on the overall quantum of damages. Establishing realistic base earnings sets a precedent for a reliable, fair value of loss of income – one that is neither over nor underestimated.
There are many sources of information when determining base earnings; the value of this starting point can vary significantly from expert to expert depending on which sources are relied upon. The most reliable source to turn to when predicting how much an individual would have earned is the claimant’s past income history. Referencing tax returns and employment history paints a thorough earnings profile specific to the claimant. Provided that the profile is consistent year-to-year-with the individual’s annual income growing relatively smoothly over the considered period-the base earnings are then extrapolated into the future for the determination of future loss of income.
Individual-specific work information is preferred over general statistics as it gives a more accurate prediction of the plaintiff’s earning patterns for the future. However, in certain cases (such as young adults, recent immigrant populations) past income history is unavailable, inconsistent, or insufficient (e.g. 1-5 years). In such cases, general population statistics must be relied upon. Even in situations where income history does not suffer from the aforementioned problems, statistical averages should be used as a verification of the claimant’s own experiences. Comparing the claimant’s specifics to the general population allows for a more contextual understanding of the individual’s earning patterns.
Statistics can be gathered from telephone surveys of employers, educational institutions specializing in training for a specific labour market opening, union agreements (if applicable) and Statistics Canada’s income surveys. The Statistics Canada Census or National Household Survey (NHS), which consists of a sufficiently large, random sample of observations, provide the most dependable figures. The base earnings are contingent on the age, experience, gender and education of the claimant in addition to the industry in which the individual was working prior to the accident. The average earnings of individuals who share the claimant’s attributes are extracted from the surveys and applied as a measure of base earnings.
It is important to consider a special scenario that commonly arises in personal injury cases: a young adult whose starting points can be more difficult to determine, and whose substantially long loss of income timeline contributes to a generous value of claims. A high percentage of seriously injured individuals are between ages 18 and 30 and fall under this category of young adult. For example, in 2002 of the 227,768 people involved in MVA, 26% of those were aged 15 to 24, according to the Traffic Injury Research Foundation (TIRF).
The young adult category is well known to have highly inconsistent work histories. This group is unusual in that they do not have clear employment plans and are prone to changing career paths. When examining the average number of jobs held in the previous five years by gender and age, the 20-24 age group changes jobs more than any other age group, according to Statistics Canada.
A young adult’s employment can often be directly related to the economic conditions. If the economy as a whole is doing well, then young adult employment is high. This group is unaffected by involuntary unemployment because they are considered adaptable to the market. Thus, one of the most important determinants of young adult employment is the strength of the economy as a whole.
The second starting point integral to quantifying damages is the pre-accident health of the claimant, particularly as it relates to their pre-accident functioning. In our experience, we often find that pre-accident conditions are not carefully considered in terms of their functional implications; despite the large impact this can have on the total quantum of damages. This area of consideration is arguably the cornerstone to the entire damages quantification process.
Determining pre-accident health status involves considering medical and lifestyle conditions, often obtained in the form of pre-accident medical and claims records. Independent medical reports regularly acknowledge these pre-accident conditions but there is little or no connection between these diagnoses, the past/present functioning of the individual, and how such conditions would have affected them in the long-term if the accident had not occurred (this often leads into the “crumbling skull theory”- see CanLII Lee vs TDSB. 2012).
Proper analysis requires an understanding of both the pre-accident medical conditions and the functional trajectory of these conditions. Any medical condition could conceivably affect a claimant’s pre-accident functioning and pre-accident functional trajectory. For example, a claimant who has pre-existing depression will likely continue to experience depression after the accident. Careful consideration must first be given to determine how the depression was affecting the claimant’s pre-accident functioning; in other words, one must establish this medical starting point. In our experience, this area is often not considered in adequate detail.
Similar to base earnings, medical starting points (expressed in terms of functional abilities) provide a baseline for the theorized trajectory of the claimant’s post-accident wage opportunity and growth. Medical starting points also allow one to determine how pre-accident medical conditions would have affected function if the accident had not occurred. The necessary integration of different starting points highlights the importance of collaboration between economic and medical professionals.
In conclusion, clearly establishing a claim’s starting points provides baselines for evaluating the quantum of damages. Starting points such as base earnings and pre-accident functioning can have a significant impact on determining loss of income (one of the largest heads of damage, especially for younger claimants). Allocating adequate time to the evaluation of a claimant’s pre-accident status has a significant impact on the final quantum of damages, and is a necessary practice to ensure more accurate damages quantification.
Mathew Rose, OT (Reg). ON, CCLCP, is a Canadian Certified Life Care Planner, Occupational Therapist and Principal of Mathew Rose and Associates Inc. He is also an Adjunct Lecturer at University of Toronto’s, Faculty of Medicine. Kateryna Shpir is the Forensic Economist at MRA Medlegal Consulting and provides economic/statistical assessments of damages us
ed in settlement negotiations and litigation.