This article was originally published in the summer 1999 issue of the Expert Witness.
We occasionally encounter the claim that a plaintiff is better off financially than before the accident, or at least will be better off in the future. The evidence for this is usually that they are now earning more than they did at the time of the accident. Therefore how can there be any loss? This is not really very hard to respond to, and there are several reasons why there may still be a modest, or very substantial, loss of future income.
In an article in the March 1999 Barrister, Mr. Cameron J. Ashmore of Russell & Company provided a discussion of this issue, within a broader analysis of possible approaches to future loss assessment. Mr. Ashmore listed four reasons why a person who was apparently earning more might still have a loss of future income: early retirement, increased risk of unemployment, reduced future wage growth, and the prospect of time missed from work over the years. All of these are certainly legitimate concerns, and we commonly address them in our work. They all require, however, subjective judgments regarding the future effects of injury, which are difficult even for vocational experts to assess. If vocational opinions are not provided, or if the plaintiff’s outlook is less than clear, then we commonly consider a range of alternatives
(i.e. various growth, contingency and retirement assumptions). The court can then choose the figures it finds most reasonable in the pre- and post-accident cases, and the loss follows from that. If the court, for example, finds that all of these effects are fairly minimal, then indeed a small future loss is all that will result.
There is another issue to consider in these cases, and that
is wage growth between the date of the accident and the date of the evaluation. I would suggest that in some cases, a future loss is denied on the basis of faulty logic, in that
post-accident wage growth in that period is accepted as a fact, while pre-accident wage growth is implicitly or explicitly not considered. We refer now to wage growth in the general sense of any career progression, either incremental or sudden (such as when improved educational standing leads to a quick increase in income). It should be quite obvious that, no matter how minimal the injury, a plaintiff is never more capable of vocational progress after an injury than before, yet that is commonly implied or suggested outright.
Consider the example of an average male college graduate, injured at the age of 27, when he was earning $32,000. Five years later, at age 32, he is earning $33,000. First, we note that inflation alone applied to the older figure would probably predict an income of roughly $34,500, so even with just that adjustment there is an immediate loss. Much more important is the fact that 1996 Census data would predict that over those 5 years, the plaintiff’s income would have grown by approximately 22.56 percent, plus inflation. Assuming cumulative inflation of 8 percent over the five years, the total estimated increase in pre-accident income is 32.36 percent, and the value of pre-accident income at age 32 is
$42,355. The loss from age 32 to 33 is seen to be approximately
$9,355, and of course this loss may continue through to retirement. (In many cases the annual loss will decrease over time, simply because an average income curve starts with higher growth and levels off, such that a plaintiff who is five years behind, for example, will eventually get closer to their pre-accident level.)
I realize that the above example seems quite trivial, but we have repeatedly seen analyses in which post-accident figures are compared to pre-accident income from several years before, and inflation, or pre-accident wage growth, or both, are ignored. While there is certainly room for argument regarding how much more pre-accident wage growth a plaintiff might have enjoyed, it can never be considered logical to say that they will enjoy better prospects and wage growth after being injured. It is also flatly wrong to compare a post-accident figure to a pre-accident figure from several years before, without adjusting for inflation.
When a high school graduate plaintiff, in another example, retrains 4 years after the accident, and obtains a diploma in technology, their income could easily be far greater than before the accident. I would suggest that it is generally wrong to suggest that there is no future loss. I would further suggest that one fair way to assess the loss is to assume that the plaintiff would have completed the same given diploma one to three years sooner, in the absence of the accident. The loss then is the gap between pre- and post-accident income curves, which, as noted above, could almost vanish when growth slows in the later years of the person’s career. If the plaintiff had had no plans to enter such training until the accident occurred, that should not prevent the use of the method: clearly he/she had the potential to enter some form of training, and any such upgrade would have resulted in increased income. In addition to the loss resulting from a lag of some years, it is also possible that some of the four factors Mr. Ashmore listed will also be found to apply, and a more substantial loss might result.
In the absence of evidence regarding the plaintiff’s intentions prior to the accident, it is reasonable, I would argue, to assume that the plaintiff would have followed the same career path had the accident not occured as he/she has been observed to follow after the accident. If the new field is about as lucrative as any they could have entered, without injury, then there is probably no loss beyond what is due to the time lag and, possibly, some increased contingency risk. The loss is limited to the delay and probably some increased contingency risk. Conversely, the defense should not be able to claim that, because of the accident, the plaintiff has entered a new and better-paying field. To do so is, I repeat, to deny that the given path was possible before the injury, which makes little sense.
Two other examples merit brief mention. The first concerns women who are becoming more involved in work, after their children reach some particular stage (e.g. into grade 1). In such cases we might see a woman who had had very minimal income enjoy significant increases, even after an accident. This is occurring because they can now use their earlier training, or commit to full-time work, or move, or simply devote time to retraining and adding to their employability. It is again false to compare the income such a woman is now earning to what they were earning perhaps 6 years ago, yet this has been done at times. Any correct pre-accident scenario must be an answer to the question “What career path would have been open to Ms. Plaintiff, in the absence of the accident, and considering that her children are older and she can devote more time and energy to work?” One cannot use a pre-accident income level from the past, as if, in the absence of the accident, the children would never have grown up!
A final example is similar in principle to the case of the
“returning mother.” I have handled a fatal case in which pre-accident business income was assessed using the average of several years prior to the accident. As it happened, these were very poor years for the type of business in question, with returns well below the historical average. At about the same time as the accident, the business climate improved dramatically, producing higher returns for the surviving spouse, who was using a family member to replace some of the deceased’s labour. The opposing expert used income from the poor, before accident years to estimate pre-accident income, and an average in the later good years to define post-accident income. The plaintiff was said to be better off, before accounting for the (inadequate) wage paid to the family member to replace the deceased’s labour. After that was subtracted, the plaintiff was said to have suffered only a very slight loss. Note that this entire treatment is fatally flawed, as it assumes that the deceased would never have benefited from the improved business climate. Alternatively, it amounts to claiming that the accident
caused that improved business climate, which seems even more indefensible.
Any loss assessment should properly address the financial effects of changes which are due to the accident, and those alone. Other unrelated changes must be applied in both the pre- and post-accident analyses. Failure to compare apples to apples is an objective wrong, not simply a point of legitimate subjective dispute, like many of the assumptions made in most loss of income reports.