February 4, 2010 by Canadian Underwriter
A newer method of calculating loss of income in the event of a breadwinner’s death could save defense costs, said Jamie Dunn, partner at Blouin Dunn LLP.
The method is used in situations in which both spouses or partners are breadwinners of a family and one is killed.
Courts have expressed differing views on the accuracy of the new method of calculation, Dunn told delegates at a seminar during the OIAA Professional Development & Clams Conference in Toronto on Feb. 3.
Traditionally, the ‘modified sole dependency method’ has been used in situations in which there are two breadwinners and one is killed. It is assumed that the surviving spouse would only use about 60% of the deceased’s net income, so 60% is awarded typically as an income replacement benefit.
A third, newer method of calculating loss of income in a fatal case was developed by Dr. James Pesando, an economist at the University of Toronto, and has been dubbed the ‘co- or cross-dependency method,’ Dunn said.
The idea is that one person can live cheaper than two, so when there is only one survivor, that person should have roughly 70% of the net income of the two salaries combined.
To calculate the 70%, the net income of both breadwinners is added together, and then the 70% is determined from the total. From there, the net income of the survivor would be deducted.
“It’s complicated but it works out to be about 15% less than the modified sole dependency number,” Dunn said.
This method has been accepted on one case and rejected by two trial judges in separate cases, he added.