by Scott Beesley
This article first appeared in the spring 1996 issue of the Expert Witness.
It is not uncommon for a plaintiff’s injuries to have reduced his or her life expectancy sufficiently that he/she is now expected to die before the “normal” retirement age. In such cases, the court will be forced to determine compensation for the income which the individual would have earned between the (reduced) age of death and the (former) age of retirement. A number of recent Canadian cases have wrestled with this issue. The purpose of this article is to offer a rationale for the calculation of compensation in these cases; and to compare that rationale with the methods adopted by the courts.
A Rationale for the “Lost Years” Calculation
Assume that a 45-year old woman has suffered an injury which will reduce her life expectancy such that she is now expected to die at age 52. Had she not been injured, she would have worked to age 62, earning $30,000 per year. The defendant might argue that, as she will not live beyond age 52, the plaintiff will not need to be “compensated” during those lost years. The plaintiff might be expected to respond that, as the defendant has denied the plaintiff the opportunity to earn income from ages 52 to 62, restitutio would require that she be compensated for the entire value of her foregone income during that period in this case, a lump sum value of approximately $180,000.
Although both arguments have merit, both are flawed. The defendant’s argument ignores the fact that the plaintiff has lost the opportunity to enjoy the income which she would have earned between 52 and 62. The plaintiff’s argument, on the other hand, ignores the fact that the plaintiff would not have “enjoyed” the full value of her income had she lived. Some portion of that income would have been used simply to keep her alive. Now that her life expectancy has been shortened, she has “saved” this amount.
These considerations suggest an approach to the calculation of the plaintiff’s damages for reduced life expectancy. In each year in which the plaintiff would have lived, but will not now, calculate the dollar cost of “necessities,” that is, of the amount which would have been required to keep her alive. Deduct this amount from the plaintiff’s income in each of those years. The remainder is the amount which would have been available to spend on “pleasure” and which has now been lost. It is this loss which is to be compensated.
The appeal of this approach is that it gives the plaintiff an amount which she could, in principle, use to replace the loss of pleasure which she has suffered due to the reduction in her life expectancy. That is, the level of compensation calculated using this approach is truly restitutionary, as the common law requires.
The primary difficulty which arises when applying this approach concerns the measurement of the value of “necessities.” A popular method is to approximate this figure using the average family’s expenditures on such categories as food, clothing, shelter, and transportation. Typically, these expenditures are found to constitute approximately 55 percent of family income. Two problems arise with respect to use of this figure, however. First, it is clear that a significant percentage of the expenditures on each of these categories is for items which would not normally be considered to be necessities. Restaurant meals are included in the food category, for example; as are expenditures on steak and frozen dinners. Similarly, the clothing category commonly includes expenditures on items which few of us would consider to be truly “necessary.” Instead, much of the 55 percent figure identified above is devoted to expenditures which provide the individual with “pleasure.” If it is the loss of expenditures on pleasure items which is to be compensated, those elements of food, clothing, shelter, and transportation which provide pleasure should not be deducted from the plaintiff’s damages.
Second, if the plaintiff is a member of a family, not all of her income would have been spent on herself. Indeed, we know from fatal accident litigation that the total amount which most individuals spend on goods and services which benefit them alone is approximately 30 percent of after-tax income. As only some portion of that percentage is spent on necessities, the deduction for personal necessities may be as little as 10 – 15 percent.
These arguments suggest that it would be preferable to employ a technique which measured the cost of necessities directly. Fortunately, in Canada such a technique is readily available. Christopher Sarlo, in his book Poverty in Canada (The Fraser Institute: Vancouver, 1992) and in a subsequent article, “Poverty Update” (Fraser Forum, January 1996, 25-31) has undertaken a detailed analysis of the cost of maintaining long term physical well-being. For able-bodied individuals, he proposes to include in the list of required items “….a nutritious diet, shelter, clothing, personal hygiene needs, health care, transportation and telephone.” (Poverty in Canada, p.49) Wherever possible, he uses objective criteria to determine the required amounts and to price those amounts. For example, he bases his estimate of food requirements on the Canada Food Guide and his shelter and clothing requirements on recommendations developed by the Montreal Diet Dispensary (a Montreal social services agency). His 1995 estimates of the cost of necessities for families of one, two, and three individuals in each of Saskatchewan, Alberta, and British Columbia are presented in Table A. It is Sarlo’s figures which we believe most accurately measure the concept of “necessity” implied in the lost years calculation.
TABLE A – Annual Costs of Necessities by Family Size and Province: 1995
| Province |
Family Size |
| 1 |
2 |
3 |
| Saskatchewan |
$ 5,948 |
$ 9,093 |
$12,086 |
| Alberta |
6,478 |
9,253 |
12,241 |
| British Columbia |
8,108 |
11,223 |
15,007 |
Some have suggested an alternative approach, in which the plaintiff is considered to have “reduced needs” and hence will not require any of the lost income for themselves. Advocates of this method argue that the only compensation payable is that which replaces the plaintiff’s support of dependants. Essentially all other uses of income are considered “personal living expenditures.” This argument certainly protects dependants, but leaves plaintiffs completely uncompensated for their loss of pleasure in spending income which would have been earned in the lost years. Consider a thirty year-old plaintiff who is expected to die at 45. There are many ways in which such a person could enhance their remaining years of life by spending money awarded as compensation for “lost years” income. The defendant has already taken perhaps 30 years of the plaintiff’s life. To suggest that there should be no compensation for all the income and pleasure lost is, we submit, unreasonable.
Those arguing for the “dependants-only” approach admit that in principle, an aware plaintiff could use awarded monies to enhance their life in the time left to them, yet they do not support any such award. It is hinted that such awards are somehow undeserved, unless the plaintiff spends the money on foster children (in lieu of those they cannot now have) or another worthy charity. Even then, it is claimed that those making awards should be aware that they are draining the defendant’s bank account or the liability insurance pool. I submit that it is precisely the function of dam age awards to transfer costs to those who have caused the harm, and in doing so deter whatever reckless behavior resulted in injury. There is also an admission that household services may be a legitimate claim, but that is just another way of protecting dependents from loss.
Note that there are myriad practical difficulties with basing awards on support of dependants and little else. Should the award be based on a hypothetical (statistically likely) pre-accident family, or on the actual post-accident situation? It may be that the plaintiff is still capable of having a relationship and/or children, but has no dependants as of the trial. Any such case would make it difficult to assess lost dependency. If future dependency is assessed in a manner akin to current fatal accident cases, the future income of the spouse will have to be assumed.
Should the courts wish to deduct more than the low percentage implied by our approach, it has been suggested in previous cases that a deduction of 33 to 53 percent is appropriate. A discussion of some cases is provided below. The alternate approach described above, on the other hand, would result in very large deductions, at or near 100 percent in cases where the plaintiff was without dependants.
Recent Court Decisions
Four court cases, all from British Columbia, have dealt explicitly with the “lost years” deduction in personal injury cases. In the first of these, Bastian v. Mori, (Vancouver Registry No. C876136 [1990] B.C.J. No. 1324) Hood J. relied upon expert evidence to conclude that
….it is appropriate to deduct from the amount ascertained the amount that Danny would have expended on the basic necessities of life while earning that income.
…In any event I am satisfied on the evidence before me that 53% rounded off fairly represents Danny’s “cost of living” which he would have expended while earning his future income from age 30 to age 65 (pp. 53, 58-59, Emphasis added).
In Semenoff et al. v. Kokan et al. (1992) 84 D.L.R. (4th) 76, the British Columbia Court of Appeal was provided with no expert evidence; yet deducted 33 percent for hypothetical living expenses from damages for the lost years. Melvin J. then followed Semenoff in his decision in Sigouin (Guardian in litem of) v Wong (1992) 10 C.C.L.T. (2d) 236, again deducting 33 percent for “living expenses.” Interestingly, however, whereas the court in Semenoff had reduced the lost years deduction because the plaintiff was a married man, the plaintiff in Sigouin was an infant.
Finally, in Toneguzzo-Norvell v. Burnaby Hospital, (1994) 2 W.W.R. 609, the Supreme Court of Canada deducted 50 percent for “personal living expenses” in the case of an infant. Yet it quoted approvingly from Cooper-Stephenson and Saunders (Personal Injury Damages) who had argued that
…the award of damages to a very young child for prospective loss of earnings during the lost years, should reflect only that portion of the entire lifetime earnings which the court estimates would have been saved by the child for his estate, at the end of his pre-accident expectancy. It may result in a very small award… (Toneguzzo at 618. Emphasis added.)
As in both Semenoff and Sigouin, the court in Toneguzzo had only received the benefit of very casual evidence with regard to the cost of personal living expenses. Apparently, the expert’s complete evidence amounted to the following:
Q. …But would you agree that your average person, depending on their in come, would spend something between 50 to 75 percent of their income on necessities, the lower amount being at the higher income levels and the higher percentage being at the lower income levels?
A. It doesn’t as you said, without being too precise, it doesn’t sound like an unreasonable range.
Q. Within your own experience, that 50 to 75 percent sounds roughly correct?
A. Surely. (Toneguzzo-Norvell v. Burnaby Hospital (1993) 73 B.C.L.R. 116 (B.C.C.A.) at 129-130).
It can be concluded from these decisions that the need for a lost years deduction has become accepted by the Canadian courts in personal injury cases. Nevertheless, there is still uncertainty concerning the basis on which that deduction is to be calculated. The courts have said nothing more than that the deduction is to allow for “personal living expenses.” Expanding that definition as a means of limiting awards is in my view unreasonable. The core of the issue is whether or not plaintiffs are compensated for the pleasure they have lost as a result of not being able to spend the income earned in the lost years. I believe that some such compensation should be paid, and that a deduction along the lines of Sarlo’s necessities estimate is correct. However, there has yet to have been a full airing of expert opinion concerning the value of these expenses. Whether such an airing will result in the use of the approach recommended by Sarlo remains to be seen.
Scott Beesley is a consultant with Economica and has a Master of Arts degree (in economics) from the University of British Columbia.