Winter 1997 issue of the Expert Witness newsletter (volume 2, issue 4)

Posted on December 1, 1997February 25, 2017 By economica

Determination of the Hourly Cost of Household Services
- by Therese Brown and Audrey Hallson
- Therese Brown and Audrey Hallson, in the fourth of a five-part series of articles, discuss the estimation of an appropriate hourly rate in cases which involve the loss of household services. This discussion details rates gleaned from a 1997 survey of household providers which was conducted by Economica.
The Role of the Occupational Therapist in Personal Injury Litigation – Part 2
- by Lorian Kennedy
- In the second of her two-part series on the role of occupational therapists in personal injury litigation, Lorian Kennedy explains that the occupational therapist is well placed, in terms of both her/his education and expertise, to assess the loss of functional capacity of a plaintiff, after an accident, to undertake household services.
D’Amato v. Badger – Complications Arising when the Plaintiff is a Business Partner
- by Christopher Bruce and Scott Beesley
- In this article Christopher Bruce and Scott Beesley bring clarity to some of the complex issues that surround the loss of income which arises when the proprietor of a small business is injured. In particular, they deal with the situation encountered in the recent Supreme Court decision of D’Amato v. Badger, in which D’Amato was a partner in a small business. The issue of compensation became clouded because D’Amato, through his partner’s generosity, was in receipt of a wage post-accident that exceeded the value of his contribution, given his compromised condition.
Determination of the Hourly Cost of Household Services
- by Therese Brown and Audrey Hallson
- Therese Brown and Audrey Hallson, in the fourth of a five-part series of articles, discuss the estimation of an appropriate hourly rate in cases which involve the loss of household services. This discussion details rates gleaned from a 1997 survey of household providers which was conducted by Economica.

D’Amato v. Badger – Complications Arising when the Plaintiff is a Business Partner

Posted on December 1, 1997March 24, 2017 By economica

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

Some of the issues arising when an injured party had been a partner in a small business were recently discussed by the Supreme Court of Canada in D’Amato v. Badger, [1996] 8 W.W.R. 390 (S.C.C.). In that case, D’Amato had been one of two partners in an autobody repair shop. As a result of injuries suffered in an automobile accident, D’Amato’s ability to contribute to the operation of the business was severely and permanently restricted. D’Amato continued to provide some managerial services, but his primary services, as a skilled autobody repairman, had to be replaced with hired workers.

Nevertheless, between the time of D’Amato’s injury, in August 1987, and the trial, in March 1993, D’Amato’s partner, Namura, continued to pay D’Amato his pre-accident salary of $55,000 per year. Although the company recouped some of this payment from the services of replacement workers, the court found that the company’s profits were significantly lower during the pre-trial period than they would have been had D’Amato been healthy.

In this article, we wish to add to the analysis of the D’Amato decision by providing an economist’s perspective on the issues which were raised there. We do not, however, represent ourselves as experts on the legal doctrines which were discussed, in some detail, by the court.

Can a Company Claim When a Partner Is Injured?

Although the trial judge in D’Amato, Mr. Justice Vickers, awarded damages to D’Amato’s company, Arbor Auto Body, the Court of Appeal and the Supreme Court, ruled that the claim had to be made on behalf only of the injured partner. There was some suggestion from both of these courts that, as a public policy goal, claims from shareholders resulting from employee injuries should be discouraged (in order to encourage companies to insure themselves against such losses, and prevent frivolous claims). From an economist’s perspective, the critical factor in deciding whether or not a corporation (or partnership) suffers a loss when an employee is injured is simply whether or not that person’s labour can be replaced at constant cost. If the company can easily hire a replacement, or combination of replacements, who can produce identical business results at identical cost, then the company has suffered no loss at all. As this is almost always the case, few shareholder loss claims, for lost market share or profit, would succeed.

In practice, however, the business may incur additional costs associated with hiring and training and either lower quality or reduced productivity of replacement help. The loss claimed by Arbor (in particular the half of it claimed by Mr. D’Amato’s partner) was simply an attempt to recover an overpayment of salary relative to work provided, not an attempt to claim that the business was seriously impaired by Mr. D’Amato’s limitations.

In general, for medium-sized and larger companies, the employer’s loss in this type of case would be small, and the cost of putting forth a claim could be considerable, thereby limiting the number of claims. For a smaller business, however, any potential claim related to a loss of business volume would be greater, in a relative sense. It is quite plausible that the loss of a skilled technician like Mr. D’Amato could result in a loss of business, or that the added costs imposed on the company to find, train, and supervise replacement workers could be significant. As long as courts demand that the company in question provide firm evidence of any loss of business, or additional costs, then there would be no overcompensation. An additional factor which would create a tendency to modest awards is the short-term nature of this loss: Reputations can be re-established, training takes only so long, and hiring costs are a one-time item in most cases.

Should a Business Partner be Altruistic?

A complicating factor in D’Amato, which does not appear to have been considered explicitly by the Supreme Court, was that D’Amato’s partner continued to pay D’Amato his pre-injury salary after the injury, even though D’Amato’s productivity had been reduced significantly. According to Mr. Justice Vickers’ decision, D’Amato’s post-injury value to the company was only 25 percent of the salary which was paid to him. Had D’Amato been paid the actual value of his work, his pre-trial claim would have been roughly 75 percent of $55,000, or $41,250, per year. The business’ only losses, if any existed, would be from loss of volume, since customers would know Mr. D’Amato was not doing the work, or from the additional costs of hiring and training discussed above.

But Namura/Arbor did continue to pay D’Amato his pre-injury income. Hence, although the total loss which was incurred was the same as if Namura/Arbor had paid D’Amato only according to his post-accident productivity, the nexus of the loss was shifted – from D’Amato to Namura and Arbor. In spite of the fact that the total value of the loss was unaffected by this shift, the Court, by refusing to compensate Arbor for its overpayments to D’Amato, allowed the defendants to benefit from an altruistic act on the part of Namura.

From an economist’s perspective, if an injured employee’s compensation exceeds the value of his work in the open market, then restitutio requires that the excess amount paid will be claimable from the person who caused the injury. The difficulty is not in the principle, but in the details: it may not be instantly clear what the amount of the “overpayment” is. Replacement cost is one simple way to address the issue since, if the injured party is receiving his/her full prior salary, the cost of replacements represents the value of the services which the injured can no longer perform. Evaluation of replacement cost generally provides a reliable estimate of the employee’s decline in market value. When this overpayment has occurred, the correct redress is quite clear: the employer receives the amount by which the employee was overpaid, and the employee receives the amount they lost relative to his/her pre-accident level (so he/she receives nothing if the company continued to pay his/her full income).

An alternative view of the situation is that the overpayment provided by a partner (or any well-meaning employer) could be considered to be a gift or charitable donation and, hence, a form of collateral benefit, as receipt of the “gift” would not reduce the injured party’s claim. In that case, the replacement cost method should still be used to estimate the injured person’s true loss of income. Note that if a court judged annual pre-trial losses to be small, because the injured person received such benevolent overpayments, and based a future loss estimate on those artificially low figures, then the plaintiff’s loss could be seriously under-estimated, as the partner or employer is very unlikely to continue to overcompensate the plaintiff indefinitely. (This did not occur in Mr. D’Amato’s case, however, as the Court in that case implicitly assumed that Namura would cease to make overpayments after the trial.).

Furthermore, a finding by the Court that the plaintiff could be denied recovery if he had been “compensated” by his partner would send a strong signal to partners that they should refrain from assisting their colleagues when the latter had been injured. It does not seem likely to us that this is the signal which the Supreme Court intended to send, yet this is undeniably the signal which savvy partners will receive.

Two Examples

Two examples, based on D’Amato, will hopefully clarify these points. In both, we assume that, pre-accident, a partner in a business received compensation of $55,000 from the company for his physical and managerial labour, as full and fair compensation for those services. (The individual was also entitled to 1/2 of any business profit, as his return on capital. However, we ignore this as we assume that it is not affected by the injury.) After the accident, the injured party is able to contribute only the managerial component of the previous position, the market value of which contribution would approximate 25% of the pre-accident salary, or $13,750. In both cases, the total loss, $41,250, is identical. In both cases, as well, it is assumed that the business’ additional costs are limited to the cost of hiring replacement labour. Thus, the potential for a loss to the company, based on additional costs for hiring or training replacement labour, or decreased business volume due to loss of reputation, is not considered. The main point of difference between these cases concerns the post-accident compensation to the injured party, which results in different distributions of the total loss. If we assume that there are no other costs associated with hiring and training, and no loss of business due to loss of reputation, etc., then the financial position of the company is unchanged.

Case 1: Assume that the company pays the injured party only fair market value for his work, and that the balance of pre-accident salary of $41,250 (equivalent to $55,000 – $13,750) is paid to a replacement worker. Since other additional costs are not being considered here, it can be assumed that the financial position of the company remains unchanged. The injured person claims an annual loss of $41,250, from the dependant continuing into the future if the annual loss of income is not expected to change. Both the partner’s income and the injured person’s partnership income are also the same as prior to the injury.

Case 2: Assume the facts are as in Case 1, with one exception: the company continues to pay the full $55,000 per year to the injured employee, and therefore they are paying $41,250 “too much,” in order to assist the injured. The replacement labour must still, of course, be hired. The injured person can claim no loss there, unless, as discussed above, the excess payment is viewed as a collateral benefit. Company profit will fall by $41,250, the additional labour expense which has been incurred. Each of the partners bears half of the total loss of profit of $41,250 per year, and the economic analysis suggests that the business should be able to claim that amount from the defendant. The “overpayment” of salary to the injured party, of $41,250, is mitigating income which, in our analysis, represents a loan which required compensation. Should the court find that this overpayment is not compensable, the company would incur a loss of $41,250 per annum – a loss which it could have avoided by refusing to compensate the injured party.

Some Additional Complications

The above examples only discuss one form of loss, the physical inability to work. The situation is more complex at times. For instance, the injured person’s skills may be unique and, hence, irreplaceable. All business profit earned on the activity in question is now lost, in addition to the person’s own income as an employee. If other revenue is contingent on the presence of the injured party (e.g. painting after autobody work), then losses could in principle occur on all of that revenue also. Yet this would be a rather unrealistic extreme, since few if any of us are virtually irreplaceable. It is more realistic to imagine that the loss of a senior and extremely skilled person, who has a reputation for superior work, would indeed cause some loss of business volume, in addition to a proportional loss in an associated field within the business. In Mr. D’Amato’s case, it is not hard to imagine that most senior technicians who could work at his level already would own their own shops, in partnerships or otherwise. They might not be enticed to work for Arbor by anything less than Mr. D’Amato’s base employee income and a profit share, if they would move at all.

Correct determination of loss in such a case would require accurately estimating the loss of volume and profit which has resulted from the absence of the injured person. This may be uncertain, given that other changes in the operating climate occur at the same time, but if industry statistics suggest the company did indeed lose revenue in relative terms, then the difference between predicted and actual revenue may in turn have caused a loss of profit. We still suggest that the entire loss should be recoverable, by both the injured party and all other shareholders. If the partner’s employee income falls, that should in principle be recoverable as well (though that loss would be much smaller, since it would be mitigated by the fact that the partner can still work at something, even if his/her most lucrative opportunity is foreclosed by the absence of the injured person).

A further difficulty with D’Amato, in all three judgments, is that there was no discussion of the components of the company’s estimated pre-trial loss of $73,299. This figure may be interpreted primarily as replacement costs, in which event the analysis in the two cases discussed above applies, and the loss is really just D’Amato’s loss mitigated by a loan from Namura. Or is a significant part of that figure the result of decreases in business volume? The suggestion, that the loss reflects replacement expenses, is never confirmed. The denial of 50 percent of the pre-trial award to Namura suggests that in either case, the BCCA believed the company could not recover its loss. We disagree, particularly in the first instance, since it seems quite unfair to artificially lower a loss estimate because the partner or employer provided assistance in the form of a loan after the injury. In the loss of profit situation, we would still argue that both loss of labour income (suffered by the partner), and net business profits (suffered by the injured and the partner) should be recoverable.

Finally, we note that the judgments in D’Amato remain puzzling numerically. The trial justice and the Supreme Court each concluded that Mr. D’Amato’s future loss was best valued at 3/4 of $55,000 per year, or $41,250. There was no suggestion of any significant worsening of his condition on or about the time of the initial trial. That suggests that his pre-trial loss was also approximately the same annual amount, yet the plaintiff’s accountant reached a total pre-trial loss of $73,299, or only about $13,000 per year (over roughly 5.5 years). Even assuming that all of the $73,299 is actually Mr. D’Amato’s loss of value of work, the gap between pre-trial and post-trial is very large. Assuming no major changes occurred in Mr. D’Amato’s condition, then either the pre-trial loss was seriously underestimated, the future loss overestimated, or some combination of the two. A more exact determination of the value of Mr. D’Amato’s post-accident labour would be required to reach the correct figures, and similarly an estimate of business volume lost, or other costs imposed, would be needed to deduce the loss suffered by the business, in addition to “losses” which are actually just loans to a partner.

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).

Scott Beesley is a consultant with Economica and has a Master of Arts degree (in economics) from the University of British Columbia.

The Role of the Occupational Therapist in Personal Injury Litigation – Part 2

Posted on December 1, 1997March 24, 2017 By economica

by Lorian Kennedy

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

In Part I the basic education and role of an occupational therapist and a basic assessment were discussed. This article outlines the specific value of an expert occupational therapist in a litigation setting and when costing future care needs. It explains how this role differs from other experts.

The occupational therapist understands medical conditions and can explain the impact of impairments in terms that are relevant to the individual case and day to day performance abilities. For example, how would loss of sensation in a hand impact employment if motor functions such as muscle strength and coordination have been preserved? A hairdresser, for example, would be able to use her hands only when she could see them directly. She would not be able to sense temperature, wetness, texture, bulk, etc. When her fingers were covered by her client’s hair she would not be able to tell where they were. She would not be able to feel inside a container to pull out hair clips, etc. Her speed and dexterity would be affected. She would be at higher risk of burning herself or her clients on curling irons. An established hairdresser might be able to compensate by focusing on other aspects of the hairdressing business such as administration. A starting hairdresser would be well advised to change careers to one with less emphasis on manual skills. For a typist this type of impairment would significantly reduce typing speed. In terms of housekeeping, more spills or errors and reduced efficiency would be expected.

Various methods of valuation of household services, such as opportunity costs or market replacement costs, have been discussed in past issues of this newsletter (The Expert Witness, Winter 1996). But these methods must rely on an estimate of what capacity the individual had prior to the injury and what loss has occurred. The plaintiff’s statements alone may not provide sufficient evidence to substantiate their claims. In Acheson v. Dory (1993) 8 Alta. L.R. (3d), at 128, Justice Picard cited factors to consider in loss of housekeeping awards: “specific tasks the plaintiff can and cannot do; the plaintiff’s pre-accident standards of housekeeping; modifications the plaintiff can make to achieve that standard; and the number of hours worked before the accident.” Later, in McLaren v. Schwalbe (1994) 16 Alta. L.R. (3d), at 108, she explained the importance of tendering evidence of “lifestyle, duties and responsibilities, standards, nature of the family unit, and perhaps the plaintiff’s goals.” These are the kind of issues addressed in an occupational therapy assessment. It includes detailed information specific to the individual and their impairments, the role they play in the family, the additional roles they may have caring for extended family, the adaptations they have already made, and additional adaptations or modifications that may be possible. This information is considered in the light of the individual’s performance on functional tests and takes into account pain, fatigue and emotional status. Following this assessment the occupational therapist provides an expert opinion on the number of hours of replacement services or other type of modifications or equipment that would be required to restore the plaintiff to their pre-injury status or as close to it as possible.

The sincerity of effort of the client is always a concern and many attempts have been made to quantify this, sometimes with simplistic methods, such as calculations of coefficients of variation of repetitive strength measures. In their study entitled, “Determining claimant effort & maximum voluntary effort testing: A discussion paper” (Work Function Unit, McMaster University, 1996), Strong and Westmorland, found that these methods, particularly those that rely mainly on physical testing, are founded on weak theoretical arguments and lack scientific reliability and validity. A combination of assessments using information from many domains such as medical reports, history, self report, functional testing, work site evaluation, etc. has been recommended rather than physical testing alone. The occupational therapy evaluation has the advantage of a lengthy period of time spent with the individual with a variety of test types and settings.

Distinguishing features of the occupational therapist

There is sometimes confusion about which experts are the most appropriate. There is no single answer as each case may require different expertise or in many cases a combination of experts.

At one time the physician was relied on to answer all questions regarding an individual’s ability to work. The physician is often still placed in this role and asked to comment on an individual’s work limitations or the match between the individual and their work. However physicians have rarely been educated in job analysis and usually have to base their opinions on brief office visits and medical tests rather than functional capacity testing. The Canadian Medical Association in a recent journal article, “CMA Policy Summary: The physician’s role in helping patents return to work after an illness or injury” (Canadian Medical Journal, 1997, 680) encourages physicians to refer their more complex patients for a comprehensive, objective assessment of functional capabilities, limitations and their relation to the demands of the patients’ jobs.

A vocational evaluator or counsellor usually does testing which relies heavily on pencil and paper test batteries and limited physical evaluation. These tests gather information on aptitudes and interests, and educational levels. This expert can provide market research and may assist with job placement. A computerized search can create a list of jobs which match an individual’s scores. However the lack of detailed information regarding physical capacity or psychosocial barriers can limit the value of the results. It is often an advantage to have an occupational therapist evaluate the individual first so that the vocational evaluator can incorporate the additional information into their analysis, ruling out jobs which are beyond the individual’s limits.

Similarly, standardized psychological tests include only minimal light physical demand components, but can provide detailed assessment of cognitive components. This type of assessment is particularly important where there is a possibility of brain injury or where depression may be a factor. On the other hand, the occupational therapist has the opportunity of being able to see the client perform in the “real” world and in some situations can try out various approaches in those settings.

Physical therapists have generally focused their attention on the physical components of assessment and on the various modalities of treatment. While measures of strength, range of movement, etc. are important they have limited usefulness to the court unless the impact on the individual’s ability to perform functional tasks or complex roles is made clear. Physical testing alone is not sufficient to answer the complex questions regarding a person’s ability to be productive or to pursue their goals.

Home economists have also played a role, particularly regarding loss of capacity to provide household services. Their input is valuable in terms of costing methodologies and comparisons of the individual to statistical data. However, occupational therapists are able to analyze task performance, to suggest modifications in light of medical conditions and/or impairments and to comment on functional capacity.

Other individuals such as nurses or people dealing with specific disability groups may also have developed expertise in costing, but have varying expertise in terms of evaluation.

Cases meriting referral to an occupational therapist

An occupational therapist’s background allows them to work with a wide range of clients, however individual therapists have often developed specialized areas of expertise. The OT expert will discuss a referral, at no charge, to determine if it would be appropriate to their expertise.

In the area of personal injury litigation the occupational therapist is usually involved once the individual’s recovery has reached a plateau. However occupational therapists can also provide a valuable role in case management, problem solving and treatment at earlier stages with improved outcomes and reduced delay before return to work or other resolution. Lack of funding for these services has been the major barrier to this role. Occupational therapists could also be of great assistance in cases of wrongful death to clarify the roles the individual played and to provide an opinion on the impact of their absence. To date they have rarely been used in this capacity.

If engaging occupational therapists, new to the role of personal injury litigation, lawyers must ensure that they understand the litigation environment. Assessments and reports that are performed for rehabilitation purposes tend to focus on assets and downplay impairments in keeping with a rehabilitation philosophy. However, in a litigation situation equal attention must be given to both assets and limitations. The future must be viewed based on what is likely and not necessarily what is hoped for. Adequate consideration must be given to the possibility of a less than optimal scenario.

Cost of the Evaluation

Each case must be considered individually and the assessment will vary depending on the complexity and the type of assessment necessary. A typical assessment of the type described below ranges from $1,600 to over $2,000.

Case Study

Mrs. X, 67 year old woman, was a pedestrian hit by a car two years previously. She fractured her left forearm and injured her right knee and back. The injury to her knee resolved but her arm healed with permanent angulation and loss of range of motion. Mrs. X complained of weakness, pain and loss of function in the left hand. Her pre-existing medical conditions included osteoarthritis of her knees and hips with surgery on her right knee with a good result. Right hip replacement surgery was planned in the near future to relieve pain from her osteoarthritic hip. No other treatment was planned.

A review of the background material and a detailed interview in her home revealed that Mrs. X was a homemaker at the time of her injury and lived with her husband. Prior to her injury she baby-sat her grandchildren approximately three hours a week. She knitted projects such as bedspreads. She had mobility difficulties related to her hip and her sleep was disturbed by hip pain.

Subsequent to her injury she was unable to set her hair in rollers, or cut her nails on one hand. She had difficulty bending and doing up her shoes. She had difficulty manipulating objects to do her usual cooking, or lifting, and she had relinquished most of the household chores because of a combination of hip pain and decreased hand function. She could no longer do any knitting or baby-sit her grandchildren. She was frustrated, angry and depressed with her pain and disability.

The laboratory assessment had to be adjusted for her age, hypertension and painful right hip. Evaluation of maximal lifting strength was not deemed appropriate. Comparison of left and right arms revealed limitations in speed, sensation and range of movement in her left shoulder, wrist and hand. Her ability to manipulate objects with her hands was observed in a variety of functional activities (such as picking up small items from the table, peeling potatoes, slicing, wringing out a cloth, and pouring from a pot). Evaluation of her ability to carry a ten pound bag (simulated groceries) revealed marked weakness on the left and pain. Grip and pinch strength testing also revealed marked weakness on the left. She indicated that she had no pain at the beginning of the testing session but pain in her left wrist when exerting force.

The occupational therapist was able to comment on Mrs. X’s functional limitations separating to some degree those impairments related to her hand from her other pre-existing complaints and noting their combined impact.

In the opinion of the occupational therapist Mrs. X was found to be consistent in her complaints and reports with marked impairment to her left hand function. No improvement in her hand impairment was anticipated but it was suggested that she could learn some helpful adaptive techniques. Some of her functional limitations were caused by her hip pain which contributed to her frustration and depression but a significant amount related to her left arm. She was less able to compensate for hip dysfunction by using her arms to work from a seated position. Her hip pain would hopefully be relieved by surgery but she would have to cope with ongoing loss of left hand function and pain. Decreased use of her left arm predisposed her to further loss of shoulder range and because of her lack of sensation in the left hand she was also at greater risk of injuring herself. Her ability to live alone in the future should she be faced with this eventuality was compromised.

Costs of future care were based on the combination of her hip and hand limitations. Costs included the following: adapted equipment ( specialized cutting board, non-slip matting to stabilize items while she manipulated them, a jar opener, grab bars, tub seat, hand shower); four hours of occupational therapy treatment at $75 per hour; weekly hairdressing services for hair care she used to do herself at $14 per week; bimonthly hair coloring at $35 minus the $6 for home purchased colouring; ten hours per week assistance with homemaking, food preparation and cleaning at $13 per hour; seasonal cleaning of eight hours at $16 per hour; five hours per week for five months per year for her share of gardening at $8 per hour; 0.5 hours per week for five months for her share of snow clearing at $8 per hour; and three hours of childcare per week for 48 weeks for five years at $8 per hour.

Lorian Kennedy has an M.Sc. degree from the University of Alberta, is a registered occupational therapist and the principal of Lorian Kennedy Consulting. She is an adjunct assistant professor in the Occupational Therapy Departments of the University of Alberta.

Determination of the Hourly Cost of Household Services

Posted on December 1, 1997March 24, 2017 By economica

by Therese Brown and Audrey Hallson

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

Articles in previous issues of The Expert Witness have dealt with the appropriate approach to the valuation of the loss of household services, as well as methods to determine the number of hours lost, and a brief look at the way that the courts have dealt with this issue. The focus of this article is the determination of the hourly rate which should be applied to the replacement cost of those household services which the plaintiff performed prior to the accident but is now unable to undertake.

On the face of it, this would seem to be a fairly straightforward process. The features which make this issue more complex become apparent when we pose certain questions, such as: What activities comprise household services? What type of provider can best replace those services which the plaintiff is now unable to undertake? Are there features which differentiate the services offered by seemingly similar service providers? Is there a standard which should be adhered to in regard to the level of service that a plaintiff should be compensated for? Is there a generalist rate that can be applied to the loss of household services which reflects the replacement cost of household services for the plaintiff?

While some of these queries lack pat answers applicable in all cases, it is our intent to give these issues serious consideration in the discussion which follows.

What are Household Services?

Anyone who has undertaken activities in or around the home is well aware that these chores are many and varied. Certain household duties come quickly to mind in this regard, for example, meal preparation, general cleaning, and laundry. There are other household activities which should also be considered, despite the fact that they may not form a large proportion of total household responsibilities. Examples would include indoor as well as outdoor maintenance.

Of interest here is the rate payable to replacement help for those services which the plaintiff is no longer able to undertake. In many instances a plaintiff continues to undertake selected household activities but his/her injury precludes participation in other activities. It is, therefore, important to compensate the individual fairly by utilising an hourly rate for a provider who actually performs the required services. The following discussion will provide a brief explanation of the services provided by various agencies or individuals who may be contracted to provide replacement help to a plaintiff.

Types of Service Providers

We find it useful to distinguish three primary types of service providers. These we call: homemakers, housecleaners, and handymen.

The primary purpose of a homemaker is to provide services which allow a person, compromised in some way, to remain in his/her own home. Homemakers generally undertake non-labour intensive housekeeping duties including light cleaning, meal preparation, grocery shopping, and laundry. These individuals would not undertake all of the general cleaning tasks required in the household. It is not the norm for homemakers to provide any of the equipment or supplies required in the performance of their duties.

Housecleaners tend to specialise in more labour intensive cleaning duties than do homemakers, and they usually provide necessary equipment and supplies. These individuals may be found either through agencies which are listed in the yellow pages of telephone directories or through classified advertisements in newspapers. The latter are more likely to be owner/operators.

Replacement services which are of a home maintenance nature would generally be provided by a handyman. These service providers may be accessed through the yellow pages or classified advertisements. They would undertake tasks such as the repair of leaky faucets, replacement of a furnace filter, or minor household repairs.

Finally, repair of automobiles and outdoor maintenance, such as lawn maintenance or snow removal, would be accomplished by service providers who specialise in those particular services.

Average Rates Charged by Service Providers

In February and March of 1997 Economica undertook a comprehensive survey of rates charged by various service providers in the Calgary and Edmonton areas. With the exception of those housecleaners who are individual providers, we have relied on prices quoted by businesses who offer their services in the yellow pages of telephone directories. The table below summarises the results of this survey. These rates are shown in terms of the cost per hour to hire the various service providers, other than average costs for lawn maintenance and snow removal services. The latter prefer to provide quotes for the total cost per season of providing the service.

The large rate differential between homemakers and housecleaners is largely explained by the fact that these providers offer services which differ from one another in a number of important ways. As previously noted, homemaker services are limited to lighter cleaning duties. The source of the rate differential between “agency” and “individual” housecleaners is less apparent. The most significant difference between these two providers is that the former are usually bonded, insured, and covered by workers’ compensation, which is generally not the case for the latter.

Household Service Provider Rates
	Calgary	Edmonton
Homemakers (Agency rates)	$13.47/hr	$13.39/hr
Housecleaners (Agency rates)	$18.49/hr	$17.25/hr
Housecleaners (individual providers)	$13.54/hr	$14.98/hr
Handyman	$24.68/hr	$23.32/hr
Lawn Maintenance (per season)	$613.62	$589.09
Snow Removal (per season)	$589.07	$637.12

Generalist Rates for Replacement Household Services

In a previous article (The Expert Witness, Winter 1996), we proposed that the technique of choice in the valuation of household services is the generalist variant of the market replacement method. An alternate valuation method, the specialist method, would base the loss on the cost of hiring various and assorted specialists to replicate the contribution previously made by the plaintiff. The concern with that method derives mainly from its impracticality. To match the rates charged by numerous specialists to innumerable household tasks which are now outside of the plaintiff’s capacity would be an almost impossible task. As such, the generalist variant remains the method of choice.

It is shown in two examples which follow that the use of one all-inclusive generalist rate is usually sufficient to accurately capture the plaintiff’s loss of household services. It is recognised, however, that the generalist rate may be oriented either toward: the homemaking type of service (including meal preparation and lighter cleaning); or the housecleaning type of service (comprising more onerous cleaning duties). Finally, a third example describes a situation in which the use of one all-inclusive generalist rate may be inadequate. In that case, it is shown that the use of the generalist rate may need to be supplemented with the use of another rate.

In the first instance, it is assumed that a severely injured plaintiff who resides in a small condominium, will require the services of an individual who will prepare meals and perform general light cleaning duties, to allow him/her to remain in his/her own home. In this case homemaking services would comprise the largest component of future replacement services, as outdoor maintenance is provided and only minimal general cleaning activities would be required in the smaller residence. It can be assumed then that the loss can be calculated according to a generalist rate based on the average cost of hiring a homemaker.

In a second instance, a plaintiff who is less severely injured is able to continue with meal preparation and light cleaning, precluding him/her only from undertaking more labour intensive cleaning duties. Thus, the relevant generalist rate would be the average hourly rate charged by housecleaners.

Finally, in a third case it may be necessary to supplement the use of a generalist rate with the rate of another service provider. For instance, it may be found that the plaintiff’s previous contribution to household services was in the area of meal preparation and home repair/maintenance, neither of which are possible now given his/her physical limitations. The replacement help required by the plaintiff would then include both a homemaker and handyman. For the former, the use of a homemakers’ rate would be representative of the generalist rate required in the calculation of the loss. This alone would not capture the plaintiff’s loss if it shown that prior to the accident he/she also contributed several hours per week to maintenance duties. In this case, the use of a handyman rate should be applied to the portion of hours which the plaintiff is no longer able to contribute toward those type of activities.

Additional Complications

As can be seen in the table of household provider rates, there is a large differential between the average rates of housecleaners hired through classified ads and those hired from agencies. It appears that this is attributable to the fact that the latter tend to be bonded, insured, and covered by workers’ compensation, which is usually not the case for the former. The implication of this additional proviso is that the customer who hires housecleaners from an agency is afforded additional protection. Protection, in part, is derived from the screening of service providers, due to their bonded status. The consumer who buys cleaning services from an agency would be covered for breakage or theft which might occur while the service provider was in his/her home. In addition, because of workers’ compensation coverage, the plaintiff would not be liable for injury that the housecleaner may incur while in the plaintiff’s home.

To some extent, then, the consumer who purchases cleaning services from an agency is choosing a service which differs from that purchased from an individual provider. Determination of the appropriate replacement rate for the provision of housecleaning services is an important issue, as it can have a significant impact on the award. It is important, therefore, to ascertain which of these rate forms the basis for adequate compensation for the plaintiff who will need to hire housecleaning replacement services.

There is yet another factor, not yet alluded to here, which further complicates the valuation of the loss of household services. This is the loss of the management component of household services. A more complete discussion of the concept of the “management or indirect labour component” of the loss of household services can be found in an earlier article dealing with judgments in the valuation of household services (The Expert Witness, Autumn 1997). Any individual who has managed a household can verify that this is essential to the success of any well-run home. In regard to this important function, however, the determination of an appropriate rate becomes increasingly difficult, as this is not a service which can be readily purchased in the market. Until an alternate approach is determined to deal with the loss of household management capabilities the loss is probably best reflected by the generalist rate for replacement help that is being used in that particular case.

The Courts

A number of recent court judgments have specified hourly rates at which the loss of household services has been valued. In Morris v. Budnarchuk (1997) Action No. 9503 04671, Sanderman J. accepted the hourly rate of $10.75 which had been applied to the pre-accident loss. The rate of $12.00 for the future loss of housekeeping services was rejected, to be replaced by the rate of $10.75 throughout. One of the points raised to support the rejection of the higher rate was that there had been no consideration given to the fact that there are people who will perform household services for minimum wage. Likewise, in Reynolds v. Pohynayko (1997) 202 A.R. 1, a proposed rate of $12.00 per hour was rejected in favour of a rate of $8.50 per hour. The rationale for this decision was that there was no need to pay agency rates for housecleaners, as housecleaning services could be hired directly. In Labbee v. Peters, (1997) 201 A.R. 241, McIntyre J. ruled $10.00 per hour to be an appropriate generalist rate at which replacement help could be hired. Other recent decisions have employed similar rates.

These decisions leave both counsel and economic experts in something of a quandary. Whereas our survey indicates that it would be difficult to find a service provider for less than $13 per hour, even from the classified ads, the courts have consistently imposed their own view that no rate above $11 is permissible. The question is: should the expert substitute a rate which has been derived employing a sound statistical methodology with one which has been chosen by a number of trial courts, but not approved by the Court of Appeal?

Some economists testifying in Alberta have answered “yes” to this question and, in the face of the evidence which they have collected themselves, have begun to recommend a rate of $10.00 to $12.00. It is our view that this approach is an abrogation of the responsibility of the expert to provide the best evidence possible. Of course, should the legislature or the courts mandate a particular rate, as has been done with respect to the discount rate in most provinces, the expert would be obligated to adopt that rate regardless of the evidence.

Summary

This discussion has expanded on the use of the generalist method in the determination of the loss of household services. Assigning an appropriate rate to the loss of household services may have a large impact on an award for the loss of household services. Given this reality, it is important to look closely at the nature of a plaintiff’s loss of household services. In most cases, the loss can be valued at one all-inclusive generalist rate. This necessitates the determination of whether the generalist’s role is to provide access to homemaking services of a non-rigorous nature or housecleaning services which are more labour intensive. In reference to the latter, it must then be determined whether the plaintiff’s needs are met by the services of an individual provider or whether a housecleaner hired through an agency is more appropriate.

It has been noted that the rates applied to the loss of household services in the courts are not consistent with the rates charged by the service providers contacted in our survey. There is considerable discrepancy especially between the rates suggested by recent court decisions and the rates of housekeeping agencies which we surveyed. This would imply that plaintiffs are not being compensated at a rate which would allow them to hire replacement workers who are bonded, under the auspices of a licenced business. It may be argued that the plaintiff should have access to bonded replacement workers from a licenced agency, thus leaving him/her relatively less vulnerable in regard to the increased potential of theft or breakage of personal property, and exposure to a liability claim from an injured worker. If there is validity to that claim, it may be argued that the use of an agency rate in the valuation of a household services claim is necessary to restore the plaintiff to his/her pre-injury status.

Finally, there are instances when the use of one generalist rate may result in inadequate compensation. In those cases, a more complex approach is necessitated, whereby the plaintiff’s loss is valued according to the cost of replacement help for more than one type of service. Given that this would make the calculation of the loss more complex, it would be advisable to pursue this route only if the plaintiff’s loss of capacity in categories outside of basic homemaking/housecleaning services forms a significant portion of the loss.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

From 1995 through December 1998, Audrey Hallson was the office assistant at Economica. She also assisted with Economica’s newsletter, and conducted research.

Autumn 1997 issue of the Expert Witness newsletter (volume 2, issue 3)

Posted on September 1, 1997February 25, 2017 By economica

Using Male Earnings Data to Forecast the Future Income of Females
- by Derek Aldridge
- In this article Derek Aldridge deals with the subject of the “wage gap” between men and women. He discusses the rationale used to explain this difference in earnings and why it might be inaccurate to base a prediction of the future earnings of young women on women’s historical earnings. He suggests that there is considerable support for the use of male earnings data which have been adjusted to reflect the extent to which a female’s career path may differ from that of the average male.
Structured Settlement Assignments
- by Heber G. Smith
- In this article Heber Smith notes that the assignment of the obligations of a defendant under a structured settlement to a qualified assignee now provides self-insured defendants access to the tax-free periodic payment option.
The Role of the Occupational Therapist in Personal Injury Litigation – Part 1
- by Lorian Kennedy
- Lorian Kennedy, in the first part of a two-part series, outlines why an occupational therapist’s education and competencies lend themselves especially well to skills assessment in personal injury cases. In particular, demand for the services of occupational therapists has grown in relation to determination of suitable compensation for the loss of an individual’s capacity to perform household services. Reports by these professionals, in addition, may include assessment of an individual’s functional ability in relation to self-care, leisure, and paid work.
Notable Judgments in the Valuation of Household Services
- by Therese Brown
- Therese Brown, in the third of a series of articles on household services, reviews various judgments which are of interest in this area. She discusses the substantiation of the loss, as well as the issue of replacement cost. It is also noted that assumptions based on traditional beliefs may prove to be erroneous.

Notable Judgments in the Valuation of Household Services

Posted on September 1, 1997March 24, 2017 By economica

by Therese Brown

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

This is the third in a series of articles on the loss of household services in personal injury or wrongful death actions. The previous two articles dealt with the approach to the calculation of household services (The Expert Witness, Winter 1996), and the method used to estimate the number of hours lost (The Expert Witness, Spring 1997). The purpose of this article is to provide a view of the law as revealed in a number of recent court decisions.

Establishing General Principles

Two cases in particular, Daly v. General Steam Navigation Co., (1980) 3 All E.R. 696, an English Court of Appeal decision, and Fobel v. Dean (1991), 6 W.W.R. 408, a Saskatchewan Court of Appeal decision, provided precedent-setting judgments involving a claim for household services. Two main principles which are set out in Daly deal with the pre-trial and future loss of household services. First, a future loss was allowed, regardless of the intent, or lack of it, on the part of the plaintiff to hire replacement household labour to compensate for the lost capacity to undertake household work (see Daly at 701),

It is really quite immaterial, in my judgment, whether having received those damages the plaintiff chooses to alleviate her own housekeeping burden … or whether she chooses to continue to struggle with the housekeeping on her own and to spend the damages which have been awarded to her on other luxuries…

This reasoning was later advocated by Justice Vancise in Fobel and subsequently in recent Alberta cases (for instance see, McLaren v. Schwalbe (1994) 16 Alta. L.R. 108 at 138).

In Daly, it was deemed appropriate, to utilise the cost of hiring replacement domestic help to measure the damages, at least in terms of the future loss. In reference to the pre-trial period, however, Bridge, L.J. stated that the cost of replacement services was not an appropriate measure of the loss of housekeeping ability, which in that case was the additional difficulty experienced by the plaintiff in carrying out household duties. The loss, rather, should have been assessed as a part of the plaintiff’s general damages, and the additional pain, suffering and loss of amenity experienced by the plaintiff should be the measure of that loss. Despite this finding, the appeal court concurred with the trial judge regarding the amount of compensation, although the compensation in the lower court was based on the cost of replacement help.

In Fobel, at 423, Vancise J.A. commends the approach to the impairment of housekeeping ability taken in Daly, which awards the plaintiff for her loss of ability rather than relying on the prior “antiquated if not sexist” approach which compensated a third party for the loss of services previously provided to them by the victim. Also recognised, at 424, is the need to consider and define the notion of housekeeping capacity. Vancise J.A. notes that Daly provides a basis for this type of consideration when two major roles are delineated: first, “ordinary housework”; and second, “proper supervision of children”. Vancise J.A. takes this concept further, classifying the former type of duty as “direct labour”, the loss of which can be replaced quite readily by employing household labour, and the latter as “management or indirect labour” which encompasses the duties of a homemaker which are less tangible, such as household management and those aspects of the care of children which extend beyond physical care. The point is made that the latter is much more difficult to replace, and that it is up to the trial judge to ascertain to what extent ability has been impaired, in the case of either component. Despite this clearly enunciated view, the award did not incorporate a separate amount for the loss of “management” as evidence had not been brought forward on which to base a loss for that component.

Substantiating the Loss

While there seems to be consensus that the loss of household services is compensable, there is less agreement concerning the evidence that should be brought forward to substantiate the extent of the loss. As aptly stated by the Court of Appeal in Mason v. Peters (1982), 139 D.L.R. (3d) 104 at 110, “Precise proof is manifestly impossible, but if a basis for reasonable ascertainment of the amount of damages has been established, the court will make the assessment as best it can with what it has.”

There are instances in which the court relies on the plaintiff and/or the plaintiff’s family as the primary source of information in the estimation of the loss of household services. In one such case, Gilchrist v. Oatway (1995), 168 A.R. 56, at 66, the court based the loss on information from family members who estimated the additional household work which they had undertaken due to the plaintiff’s injury, even though they were unable to provide a detailed record of that additional contribution. In that case the evidence was taken at face value but then discounted to reflect a possible decrease in required household services, based on projected changes in family circumstances. In many cases, however, additional evidence as well as documentation has been required.

In Simmie v. Parker and Unger (1994), 164 A.R. 178, Rawlins J., at 182, ruled that the court’s minimum requirements for household services claims included: statistical data on time spent on household services by the average individual with characteristics similar to the plaintiff; specific information regarding tasks previously undertaken by the plaintiff and her/his ability to complete those tasks, post-accident, in the time available for those tasks; and time spent by paid help or family members in replacement of the plaintiff’s duties.

Concern regarding a lack of evidence on a household services claim was also expressed in Acheson v. Dory (1993) 8 Alta. L.R. (3d), at 145, when Picard J. stated that additional evidence that could have been provided would have included “the length of time she was totally and then partially incapacitated and the quantum and nature of the assistance required.” Further, at 146, Justice Picard listed other information pertinent to the establishment of the loss:

…the specific tasks the plaintiff can no longer accomplish or only with assistance, the standard of housekeeping she has maintained and seeks to continue, the modifications she can make to allow her to achieve her standards, the number of hours she and her husband worked in her home prior to the accident and the number she now works, the number of hours she believes she will need assistance.

Experts’ Evidence as to Loss of Hours

Another important factor in the determination of damages for the loss of household services is the acceptance of evidence offered by experts. In Grimard v. Berry et al., (1992), 102 Sask. R. 137, Maurice J., at 152, states that it must be understood that, as expert witnesses are partisan witnesses, it is imperative that their conclusions be supported by the evidence. In this case, the court determined that the estimated requirement for household services according to the plaintiff’s experts ran contrary to medical evidence that the plaintiff was still able to undertake light housekeeping duties. As a result, damages were calculated only on the inability to complete heavier housework. In other cases, the loss of household services may be adjusted in light of other factors in the plaintiff’s life. In Mackie v. Wolfe (1994), 153 A.R. 81, at 146, the claim for a loss of household services was reduced by the court on the basis of the employment circumstances of the plaintiff, as well as her active social and family life.

Reference to average statistics to support the information solicited from the plaintiff or the plaintiff’s family, as to her/his household contribution, increases the validity of that information. This was the case in Brouwer v. Grewal, (1995) 168 A.R. 1 (Q.B.), at 354, when evidence as to the plaintiff’s weekly pre-trial contribution to household services was shown to be less than the average statistics for a woman with her socioeconomic statistics, with an accompanying explanation for this discrepancy.

Similarly, there have been instances in which average statistics have formed the basis of the evidence as to household contribution, supported by testimony from the deceased’s family. In O’Hara et al. v. Belanger (1989) 98 A.R. 86, at 87, counsel for the defence argued that the employment characteristics of the deceased (extensive job-related travel) would have made it difficult for him to actively participate in household duties. Berger, J. affirmed that average statistics were, nevertheless, an appropriate basis for the estimation of the loss of services as evidence had not been brought forward to show that the deceased had not made “average” contributions.

Other approaches have also been used to support the estimated weekly requirement of household assistance. In Fobel, at 432, an estimate of the plaintiff’s level of disability, expressed as a percentage, (in that case 70 percent) was applied to the number of hours spent at household activities by the plaintiff pre-accident.

Are Household Services Replaceable and at What Cost?

In some instances, the household services which were performed by a plaintiff or the deceased cannot be replicated by replacement labour. The extent to which household services are replaceable was an issue in Taguchi v. Stuparyk (1994) 16 Alta. L.R. (3d) 72, at 84-5, when the husband of the deceased testified that a replacement worker he had hired did not actually replace his wife’s household contribution, in terms of quality. Counsel for the defendant argued to have the loss of services valued at $7 per hour, the rate paid to the teenage worker, whereas, evidence from expert witnesses valued such services as high as $23 per hour. The defendant argued that the higher commercial rates were not applicable as they incorporate overhead, profit, and additional building costs. Matheson J., stated that while commercial rates were not determinative, they were, nevertheless, “important and relevant” in this type of valuation. On that basis, the award for the future loss of household services was calculated according to an hourly rate of $12 which was described as being representative of the middle ground.

A related subject, regarding the adequacy of compensation, refers back to the discussion in Fobel with regards to the two components of the loss of household services: direct labour, including most general housekeeping duties; and management or indirect labour. Various judgments have considered a loss in either one or of both components in an award for a loss of household services. Marshall J. noted, in Brouwer v. Grewal and Edmonton (City), (1995), 168 A.R. 342, at 353-4, that the assessment of the plaintiff’s loss must consider not only her loss of ability to perform manual tasks but her ability to perform the management function of homemaking, remarking particularly on her difficulty with decision-making on basic decisions such as meal-planning. A rate of $13.31 per hour was relied on to calculate the award for the loss based on a survey of companies and individuals who provide housekeeping services.

The difficulty posed by the assessment of loss in regards to the management component of housekeeping services is made apparent by Matheson J., referring to Fobel, in Taguchi, at 86, “commercial rates in evidence here still only compensate the plaintiffs for the ‘direct labour’ aspect of housekeeping loss while the ‘management’ aspect discussed by Vancise J.A. … remains as a loss which is difficult to quantify and therefore compensate.”

Assumptions

There have been judgments, in which household services awards have reflected various assumptions about family circumstances, the division of labour in the family, or the assigning of responsibility. In Mayes v. Ferguson and Stettner (1992) 102 Sask. R. 250, at 258, Barclay J., decreased the potential award by 50 percent on the assumption that as the plaintiff and her husband were both working full-time and had no children they would have hired a part-time housekeeper even had the accident not occurred. Alternatively, in the case of DeMarco v. Toronto Transit Commission, (1978) 19 O.R. (2d) 691, at 694, the reduction of the award was based on the assumption that the plaintiff’s husband and sons should have assisted her when injury from the accident prevented her from fulfilling her household duties, thereby reducing the burden that was left to the plaintiff’s daughter.

There is danger inherent in basing an award on an assumption about what “should be” rather than what “is”, as pointed out in McLaren, at 136, when various non-traditional household arrangements are noted. Picard J. makes two points in regard to the use of potentially erroneous assumptions: first, that there is need for caution when relying on such assumptions; and second, that this issue once again highlights the importance of bringing forth sufficient evidence in these types of claims.

The Dependency Argument

In a fatal accident claim for loss of household services, the claim may or not be adjusted to reflect that the loss of services is offset to the extent that family members no longer have to provide household services solely for the benefit of the deceased. In Labee v. Peters and Thompson (1997) Action No. 9404-00110, at 23, the defendant’s expert argued that the household services provided to the deceased exceeded the contributions which the deceased made in this regard, so that until the deceased would have retired, there was not a loss of household services. While the loss being claimed by the defendant’s experts was reduced somewhat, the court ruled that the deceased’s spouse did suffer a loss of household services as she would have to pay for particular specialised work which her husband would have done.

Conclusion

The various judgments noted above suggest that the determination of the award for the loss of household services is not a straightforward matter. Thorough documentation, specific to the plaintiff or deceased in question, which details the loss of household services is essential. In the case of an injured plaintiff, the level of disability may differ according to different time periods. If such is the case, the number of hours requiring replacement and the type of replacement required must be clearly stated for the respective periods. Average statistical evidence can provide further support to the claim. In terms of the replacement cost for the loss of household services, it is prudent to rely on the cost of employing household labour in the locale where the plaintiff resides. As the loss of household services may be comprised of a “management” as well as a “direct labour” component, the loss of both aspects of household services should be considered. Since the loss of household services is not straightforward, the extent of the loss may be difficult to prove. It is crucial, therefore, to ensure that a claim for this loss is supported by thorough documentation and statistical evidence.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

Structured Settlement Assignments

Posted on September 1, 1997March 24, 2017 By economica

by Heber G. Smith

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

Unlike their American counterparts, property and casualty insurers in Canada typically (in compliance with Revenue Canada’s Information Bulletin, IT-365R2 dated May 8, 1987) remain liable to pay the periodic payments payable under terms outlined in the settlement agreement. They, effectively, become a guarantor of the life insurance company that underwrites the annuity contract(s) issued in support of the agreement.

The ownership obligations transcend its simple performance as a back-stop to the annuity contract. The property/casualty insurer, as owner and annuitant (beneficiary), must deal with the accrual tax ramifications of the internal interest component of the annuity contract. As an insurance company, however, it has access to the right to take a reserve under Section 1400(e) of the Rules and Regulations in the Income Tax Act (Canada). Since the interest build-up in the annuity contract is approximately equal to the increasing obligations of the defendant insurer to make future payments to the claimant, the two become a virtual wash and the tax cost to the insurer virtually disappears.

What options exist for the non-insured defendant to a personal injury action? Are such entities simply denied access to the structured settlement option as a method of resolving a personal injury or wrongful death action? The problems faced by such a defendant are twofold; the first is that, because it is not an insurer, it may lack the internal expertise to assess the risk that may be involved with the continuing obligations under the terms of the settlement agreement; and secondly, without access to Section 1400(e), it would be responsible for the tax liability arising out of the annuity and unable to take a write-off for the obligations to make future payments to the claimant.

Revenue Canada now permits a defendant to “assign” it’s contingent ownership rights and obligations inherent with the annuity contract and the performance requirements contained in the settlement agreement to a qualified assignee. Under the terms of such an assignment the defendant shall agree to absolutely assign to the assignee and the assignee shall agree to absolutely assume and to substitute its performance in respect of the obligation to make the required payments to the claimant. The plaintiff must agree to consent to the absolute assignment and assumption and agree to the substitution of the performance of the defendant for that of the assignee. The plaintiff may then absolutely release the defendant in respect of the liability of the defendant for damages resulting from the injuries or wrongful death.

The result is that self insured defendants now have access to the tax-free periodic payment option to remediate a claim with respect to personal injuries or wrongful death. In addition to the traditional self insured defendants, the beneficiaries of such an arrangement include defendants of product liability actions where aggregate claims exceed available insurance limits. Foreign insurers defending actions in Canada may avail themselves of such arrangements without modification to traditional structured settlement administration wherein they assign their obligations on all such transactions. Most insurers are not prepared to change their internal systems to accommodate the small number of potential claims that they may be required to defend in Canada. Another opportunity to use structured settlements, where without assignments it would be impossible, include criminal assault or abuse situations under which a victim has a right to initiate a civil action.

Plaintiff’s counsel may wish to lean on the structured settlement broker to ascertain the financial covenant afforded by the arrangement. The financial covenant may be better or worse than it would have been were the defendant insurer to remain as owner and guarantor under the terms of settlement. A report delineating the risks versus the benefits may be beneficial. For the comfort of the claimant, counsel may wish to be provided with a precedent Revenue Canada advance tax ruling of the scheme or alternately make application to Revenue Canada for such a ruling.

Heber Smith is the principal of Smith Structured Settlements Inc. a structured settlement and annuity brokerage with offices in Calgary and Vancouver. He is also a partner in Structured Settlement Software, a firm that provides tax driven software to the American structured settlement industry.

Using Male Earnings Data to Forecast the Future Income of Females

Posted on September 1, 1997March 24, 2017 By economica

by Derek Aldridge

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

In two recent British Columbia judgments ([B.I.Z.] v. Sams, [1997] B.C.J. No. 793; and Terracciano v. Etheridge and Fujii, [1997] B.C.S.C. B943125), the court accepted use of average earnings statistics for males to estimate the future earnings of female plaintiffs. In this article, I investigate the reasoning behind the court’s decision, and the circumstances in which it might be appropriate for us to use male data when estimating female earnings.

As an introduction, I first consider some statistical evidence regarding the “wage gap” between men and women. How much of this gap is due to discrimination, and how much can be explained by other factors? Second, I examine how the wage gap has diminished somewhat over time. Finally, I consider the implication of the economic evidence, together with the recent court decisions.

The Wage Gap

As we know, women, on average, tend to earn less money than men. In fact, in 1991, average income for women was only 61.5 percent of that for men. However, part of this gap is because a higher proportion of women workers are part-time. If we compare women working full-time to men working full-time, we find that (in 1991), women earned about 70 percent as much as men.

However, a wage gap of about 30 percentage points remains. Can this gap be explained by educational differences – are women earning less than men simply because they do not invest in as much education? The answer is no. Even when researchers compare men and women with the same level of education, the wage gap remains. For example, statistics indicate that Canadian women with university degrees earn only 72 percent as much as Canadian men with degrees. Some, but not all, of this wage gap is due to discrimination in the labour market.

In fact, it appears that much of the wage gap is due to factors other than labour market discrimination. One source is that women tend to work fewer years in total, over their careers, than do men – they have a greater tendency to interrupt their careers and withdraw from the labour force (especially to raise children), and they are also more likely than men to work part-time. These factors are reflected in labour force statistics which indicate that while 95 percent of 25-44 year old male workers are employed full-time, only 77 percent of women workers of the same age are full-time. These factors effectively reduce the average amount of work experience that women accumulate over their careers (part of what economists call human capital). So because women, on average, bring less experience to their jobs, they also tend to earn lower incomes at any given age.

Based on this, we might expect that if we compared men and women in the same jobs, with the same education, and the same amount of work experience, the wage gap would disappear. However, that is not the case. A Canadian study examined this question by surveying men and women who graduated from Canadian universities in 1982 and comparing their annual incomes two years and five years after graduation. The study compared men and women who had completed the same type of degree in university and who had worked continuously over the study period. The conclusion was that, even when controlling for education and experience factors, women still earned less than men – after two years the study found that the women graduates were earning 88 percent as much as men, and after five years they were earning about 82 percent. This trend was visible even for women with master’s and doctoral degrees (though women with doctorates in medical and health sciences were earning more than their male counterparts after two and five years). A particularly notable result is that, on average, the gap between men’s and women’s earnings actually increased as their careers progressed.

This leaves an unexplained wage gap of at least 10 percent – it is this portion of the gap which is generally attributed to discrimination. However, not all of this “discrimination wage gap” is due to discrimination in the labour market. Some of it seems to be due to the type of career paths that women tend to choose within occupations – perhaps they are positioning themselves somewhat for a future point at which they expect to temporarily withdraw from the labour force or drop to part-time status. It also seems that, to some extent, women tend to be socialized – within their families, in school, and culturally – to choose different sorts of career paths than men. The portion of the wage gap that remains after accounting for these factors is due to labour market discrimination – maybe 3-5 percent.

Note however, that the tendency for women to be socialized toward lower-paying careers may result from systemic discrimination – discrimination between boys and girls in the way that they are raised. It is also sometimes argued that traditional women’s occupations are lower-paid because women predominate in these professions (to the extent that this is true, the labour market is responsible). If we include these forms of discrimination, then the total wage gap due to discrimination is more like 10-15 percent.

The Wage Gap: Changes Over Time

When deciding whether to rely on historical income statistics to forecast future earnings, it is important to consider whether the historical relationships of the past can be expected to apply in the future. Examination of historical average earnings statistics for men and women working full-time reveals that the average wage gap has shown a clear decreasing trend over time. Specifically, the ratio of average female earnings to average male earnings increased from 59.7 percent in 1971 to 73.1 percent in 1995. This trend is illustrated in Figure 1 below.

Figure 1: Ratio of Average Earnings of Females to Average Earnings of Males

If we adjust average earnings statistics for the effects of inflation (so that, for example, earnings in 1971, 1981, and 1991 are all expressed in 1996 dollars), we discover that average male earnings only benefited from slight real increases over the last 25 years. (Specifically, average male earnings grew at approximately 0.10 percent per year over 1971-95.) The average earnings of women, on the other hand, experienced noticeable real growth – approximately 1.28 percent annually over 1971-95. This suggests that the male-female wage gap is decreasing over time because women are experiencing significant real wage gains, while men are not. We suspect that this trend is largely due to women spending more time in the labour force (increasing participation rates), pursuing higher paying occupations (including many “traditional male occupations”), and facing less discrimination than in the past. The annual real wage gains of men and women over this period are shown in Figure 2 below.

Figure 2: Real Changes in Earnings of Males and Females

We noted above that women tend to participate less in the labour market than men – they interrupt their careers more often, and for longer periods of time. The tendency toward work interruptions among women is changing though – recent information from Statistics Canada indicates that women’s labour force interruptions are now significantly shorter than they were in the past: over half of all Canadian women now return to work within two years of an interruption, compared with only an eighth in the 1950s. As it continues, this trend will further narrow the wage gap. We also know that women with more education tend to return earlier to the labour force.

Given these trends, past earnings averages for women will not accurately reflect what the average woman will earn in the future. Women are catching up to men, and it seems reasonable that today’s young women can expect to earn approximately the same lifetime income as today’s young men, if they follow similar career paths.

Implications

What do these findings tell us about when we should use earnings statistics for men to forecast the future earnings of a woman? It seems that this would be appropriate if we have reason to believe that the woman involved would have followed a career path more typical of men than of women (historically). For example, if it is believed that a young woman would have worked full-time (or very nearly so), and without interruption, throughout her career, then it would appear to be appropriate to use earnings data for males in her occupation.

Of the two BC judgments noted at the beginning of this article, one involved a woman who had already established her career path at the time of the accident, while the other involved a young girl who had not completed high school. In the former, it was apparently reasonably clear that she was following the sort of career path that has been typical of males, rather than females. In the latter, it was argued that the girl would have followed a typical male career path. In either of these types of situations it seems that using average male earnings statistics will better predict what a woman’s future earnings will be (or would have been, but for an injury or death).

However, what if a plaintiff has not established a career path at the time of her injury, and it is unclear whether she would have followed a typical male or a typical female career path?

In these cases, economists have typically chosen to forecast a young woman’s income based on her expected level of education – using statistics representing average earnings for women with a certain level of education. Our discussion so far may seem to suggest that average earnings for males of the given education level might be a better choice than using that for females. However, there are some difficulties with this approach. As noted, on average, women tend to enter different careers than men, even when they are working full-time (that is, we still observe a trend of “typical male occupations” and “typical female occupations”). And the typical female occupations tend to pay less. Given this, we would expect that the average income for women of a given education will continue to be less than the average for men of the same education – even if the women are working full-time without interruption. This holds even if we believe that labour market discrimination will end.

This suggests that using male earnings data to forecast the earnings of a young woman might overstate the woman’s true earning potential if we are basing our income estimates solely on a given education level, rather than on a given education and a given occupation. (Though, using earnings data for females will almost certainly underestimate the earnings potential of a young woman.)

Alternatively, if one is calculating the young woman’s potential income by assuming that she would have worked at a specific occupation (as an economist, for example), then it would probably be more accurate to rely on male earnings data, and then explicitly apply contingencies reflecting the impact of possible labour force absences and part-time employment. By using historical data for males, we can hopefully correct for the errors introduced when we use historical data for women (which reflects women who followed different career paths and faced greater discrimination than women today and in the future). By directly applying the appropriate contingencies for non-participation and part-time employment, based on our knowledge of the particular plaintiff, we will adjust for the probability that the woman may or may not have followed a “traditional” woman’s career path. These two adjustments will allow us to determine a reasonable forecast of a woman’s earnings, knowing that even if she follows a “traditional” career path, she will likely not face the same degree of discrimination as faced by past women whose earnings formed the basis for current statistical averages.

We should emphasize, however, that these generalizations can always be overridden by the facts of a particular case. If it is reasonable to assume that a young girl would have followed a career path more typical of men than of women (even if we do not know what that career would have been), then it is also reasonable to use male earnings data to forecast her income.

Derek Aldridge is a consultant with Economica and has a Master of Arts degree (in economics) from the University of Victoria.

Summer 1997 issue of the Expert Witness newsletter (volume 2, issue 2)

Posted on June 1, 1997February 25, 2017 By economica

Implications of Duncan v. Baddeley
- by Christopher Bruce
- This article deals with the impact of the recent Alberta Appeal Court decision in Duncan v. Baddeley. Christopher Bruce discusses the implications of this decision for: fatal accident actions in which there are no dependants; the selection between the Fatal Accidents Act and the Survival of Actions Act; and the valuation of the “lost years” deduction in both fatal accident and personal injury actions.
Issues in Loss of Income Calculations for Self-Employed Individuals
- by Scott Beesley
- In this article, Scott Beesley outlines various factors which complicate the assessment of the loss of income for self-employed individuals. After clearly laying out the potential pitfalls in these cases, he reviews a number of approaches which might be employed to maximise the accuracy of these estimates.
Structured Settlements: Case Suitability
- by Heber G. Smith
- In this article, Heber Smith discusses criteria which are useful in the determination of the suitability of structured settlements. Amongst other benefits, Revenue Canada may make a significant imputed contribution to a personal injury settlement through reduced taxation. He identifies those instances in which this tax contribution may be of particular significance.
The Children of Immigrants – How Do They Fare?
- by Therese Brown
- In this article, Therese Brown notes various factors which may enhance or impede the socio-economic progress of the children of immigrants. Considerable evidence suggests that the positive effects associated with foreign parentage overwhelm all other factors. For that reason, the children of immigrants tend to exhibit higher potential earnings than do their counterparts with native-born parents.
Economic and Employment Prospects of the Disabled
- by Therese Brown
- In this article, Therese Brown reviews a study on the economic and employment prospects of the disabled. The panel data relied on for this study suggest that the impact of disability on income may not be as severe as has been suggested by most previous sources of information.

Economic and Employment Prospects of the Disabled

Posted on June 1, 1997March 24, 2017 By economica

by Therese Brown

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

Most research concerning the effects of disability on earnings and employment uses cross-sectional data — that is, data which are collected for a large group of individuals at one time. The impact which an injury incurred this year will have in ten years time is inferred by comparing the status of individuals who have recently been injured with the equivalent status of those who incurred their injuries ten years ago.

This approach suffers from two serious drawbacks. First,
those who are injured today may differ in many significant ways from those who were injured ten years ago. Second, it is difficult to use cross-sectional data to determine the “life courses” of individuals. For example, assume that it has been observed that the unemployment rate of those who suffered a particular type of injury in the past is consistently 20 percent regardless of how many intervening years have passed. Does that mean that 20 percent of those with that type of injury have been unemployed for 100 percent of the time? That
100 percent of the individuals have each been unemployed for 20 percent of each year? Or some position in between?

One possible way of dealing with these problems would be to rely on panel data — that is, data from studies
which “follow” individuals for a number of years. For example, some of the issues identified above could be resolved if disabled individuals could be followed for a number of years after their accidents had occurred.

One study which uses this type of data (from the United States) is “Employment and Economic Well-Being Following the Onset of a Disability” by Richard Burkhauser and Mary Daly. In the interests of providing an all-encompassing perspective, the authors define disability in a broad sense, allowing them to include individuals who have been integrated into the workforce. Further, their analysis considers only those who report a physical or nervous condition that has limited their work capability for at least two consecutive years.

The authors estimate the prevalence of disability among individuals between the ages of 25 and 61 — prime working ages — to be 9.2 percent for males and 10.6 percent for females. Results from their multi-period analysis of these individuals suggest that the onset of disability is not accompanied by a dramatic reduction in economic well-being
(especially once government income is included) — a considerably different finding from that reported by other studies utilising cross-sectional data.

Particularly interesting for our purposes are their estimations of the cumulative risk that disabled persons will experience particular events. Their sample population is aggregated into a younger group of 25 to 50 year olds and an older group of 51 to 61 year olds. Their results indicate that
15 percent of the younger group and 24 percent of the older group had stopped working for at least one full year, one year after experiencing the disabling condition. After five years,
44 percent and 53 percent of the younger and older group, respectively, had experienced at least one year of no work. For those in the younger group who stopped working for a year, many subsequently returned to work. After one year, 28 percent of this group had returned to work, and by five years the majority
(61 percent) had returned to work. Fewer of the older group had resumed employment, with only 14 percent after one year and 28 percent after five years. In terms of economic well-being, in both the younger and older groups, 46 percent earned an income that was at least equivalent to their pre-accident income after one year, with the majority reaching their pre-disability income after 2 years. At a five-year point following the onset of the disability, 84 percent in the younger group and 75 percent in the older group had returned to a level of household income that was at least equivalent to their pre-onset income.

The authors point out that poverty is not unknown to many people who report disabling experiences, as within a five year period 22 percent of this population had fallen into poverty for at least one year. They suggest, however, that the loss of income experienced by disabled individuals is less notable on average than might be expected. Their analysis also suggests that older workers are likely to be more negatively affected by their disabling condition than are their younger counterparts, in terms of reintegration into the workforce and restoration to their pre-onset economic position. The authors indicate that government transfer payments have a larger role in the income recovery of disabled individuals than does the recovery of their health, as the experience of health recovery is relatively rare. They also conclude that there is a longer time period than was previously expected between the time that an individual becomes disabled and the time they exit from the labour market or enter the disability or retirement rolls.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

The Children of Immigrants – How Do They Fare?

Posted on June 1, 1997March 24, 2017 By economica

by Therese Brown

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

It has been argued that one of the factors relevant in predicting the income of minors is the immigrant status of their parents. In this vein, it has been suggested that those with foreign-born parents will not do as well as those with Canadian-born parents. This assumption is based on the belief that the former have a disadvantage deriving from a lack of familiarity with the culture, labour market institutions, and in many cases with the language. Our research does not support this theory. There is considerable evidence, rather, to suggest that second generation Canadians will surpass their more established counterparts.

The Socio-economic Indicators of Success

Numerous studies have lent support to the view that those with foreign parentage are not disadvantaged by that fact, either in terms of earnings, or educational and occupational attainment. A study by Charles M. Beach and Ross Finnie, “A Recursive Earnings-Generation Model For Canadian Males,” found the effect on earnings of having grown up with immigrant parents to be positive, and substantially so. Barry Chiswick and Paul Miller found in their study “Earnings in Canada: The Roles of Immigrant Generation, French Ethnicity, and Language,” that men who have at least one foreign-born parent earn 13 percent more than comparable men with native-born parents. Even if all else is held constant, Canadian-born sons of immigrants have earnings which are two percent higher than their male counterparts with native-born parents. What Chiswick and Miller found particularly striking was the consistency with the findings of other studies in Canada, the U.S. and Australia. This would suggest that American studies are relevant in this discussion as well.

In an American study entitled, “Sons of Immigrants: Are They at an Earnings Disadvantage?” Barry Chiswick states that sons with one or more foreign-born parents have higher earnings on average than those with native-born parents, if other things are held constant. The earnings advantage is approximately eight percent, four percent, and six percent respectively for those who have a foreign-born father, a foreign-born mother, or two foreign-born parents. Another American study undertaken by Geoffrey Carliner, “Wages, Earnings and Hours of First, Second, And Third Generation American Males,” showed that second generation males had higher wages and earnings, in addition to working more hours, than did their third generation counterparts.

Advantages accruing to the second generation have not been limited to higher potential earnings. Frank E. Jones, in his article “Nativity: Further Considerations,” reports that the purely native-born (both parents are native-born) are consistently the least successful in terms of both educational and occupational attainment. A study of Ontario high school students by Marion Porter, John Porter, and Bernard Blishen found that students whose parents were immigrants had higher educational and occupational aspirations than did students with Canadian-born parents (Porter, Porter and Blishen: unpublished).

Peter C. Pineo and John Porter in their study entitled “Ethnic Origin and Occupational Attainment,” refer to the non-British and non-French immigrant populations in Canada, when they state that they find no support for the view that the children of immigrants suffer a disadvantage,

. . . the second and third generation of non-charter immigrant groups have moved out of their low-status origins, acquired as much education as Anglo-Celts (and more than the French), ceased to speak their ethnic language, and diffused into the occupational structure of developing urban Canada . . . neither cultural effects nor discrimination are evident;

Finally, Rao et al. reporting on the educational attainment of the children of immigrants found that those who had at least one foreign-born parent attained higher levels of education, than those with native-born parents, in both Canada and Australia, with this tendency being much stronger in Canada. They found this advantage to be especially apparent for Canadian males with one foreign-born parent.

The Importance of Educational Attainment

Not surprisingly, the economic success of the children of immigrants is strongly correlated with their educational attainment. Monica Boyd et al. conclude that the correlation between father’s and son’s occupational status has declined at the same time that education has become increasingly important in the determination of occupation. Further, they assert that education is the dominating effect on occupational attainment, at labour force entry, so that status attainment and occupational mobility are largely functions of acquired skills, ability and motivation, rather than status which has been ascribed to the individual due to the circumstances of birth.

Others have concurred that education is crucial in terms of occupational attainment, and point to the Canadian immigrant selection policies of the 1960s, as well as excellent educational opportunities, which have led to increasingly well-educated immigrants. Rao et al. conclude that although there is some variance by country of origin, both immigrants and their children are more highly qualified than third-plus generations.

Factors Enhancing or Impeding Mobility

Researchers who have studied the occupational status of immigrants, prior to and after arrival in the host country, indicate that most of the improvement in the status of immigrants, over generations, derives from an increase in labour force skills and the acquisition of language. Chiswick and Miller associate the success of the children of immigrants with the relatively high levels of ability and motivation which they have acquired or inherited from their parents, who exhibit those characteristics. They also acknowledge that the earnings advantage of the sons of immigrants is attributable in large part to education, as these individuals have, on average, almost one additional year of education relative to those of native-parentage. They suggest, however, that part of the advantage may also derive from other factors: first, that a smaller proportion of that population remain unmarried; and second, that they have approximately two years additional labour market experience. Beach and Finnie associate the positive earnings effects of immigrant parentage with factors such as intense work effort, efficient use of human capital, and heightened striving for economic success and pecuniary benefits.

The effects of foreign parentage are not uniformly positive. Chiswick and Miller note that the children of immigrants may be subject to discriminatory labour practices in terms of access to jobs and wages, and they may be disadvantaged by a lack of familiarity with the language and with labour market institutions.

Carliner, while acknowledging that immigrants exhibit a deficit in human capital, proposes that they demonstrate more motivation than non-migrants, made apparent by the lower value which they place on family ties, leisure and easy work. He states that his results, showing higher earnings for the second generation, support the hypothesis that though the motivation of subsequent generations may become somewhat diluted, the human capital which they have acquired more than compensates for that diminution. By the third generation, however, the enhancement of human capital does not fully offset the ongoing attenuation of motivation. The second generation, thus, does better than either the first or third generation.

Conclusion

While various studies support the view that there are both positive and negative effects associated with foreign parentage, there seems to be fairly broad consensus that the net effect of these differences, when other factors are held constant, are negligible. Jones cautions that, while differences in educational and occupational attainment on the basis of foreign versus native parentage are small, Canadian-born sons with one foreign-born parent have higher attainment in both categories, and that the purely native-born exhibit the lowest levels of attainment. In response to the competing arguments that either group, the relative newcomers or those whose families have been resident for multiple generations, have the upper hand, he concludes that
“. . . neither birthplace nor generational status confer advantages or disadvantages which relate directly to educational or occupational attainment.” This finding is supported by the work of Pineo and Porter, who found that the opportunity of the second generation is not impeded, as members of this group, born and raised in Canada, did as well as any.

We subscribe to the view that factors related to their foreign parentage may benefit the children of immigrants, on the one hand, and hamper them on the other. Since the positive effects tend to overwhelm, or at the very least offset, the negative effects, however, it would be misleading to assume that the children of immigrants are at an earning disadvantage, by virtue of their parentage.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

Structured Settlements: Case Suitability

Posted on June 1, 1997March 24, 2017 By economica

by Heber G. Smith

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

It has been said that “only the very large cases” merit consideration for a structured settlement. Some suggest that the list should be expanded to include actions that involve minors and/or those otherwise incapable of managing their own resources.

In reality any injury action that has been reserved for $50,000 or more may merit consideration for a structure, but that doesn’t mean that every case in that category should be structured. Typically, files that, if structured, might generate insignificant income, may not merit consideration in the final analysis. For example, actions involving tax-creditable Cost of Future Care under which the claimant may be financially sophisticated, may also not be worth consideration; but only if the claimant is elderly. A young claimant in a high marginal tax bracket may find him/herself in the unfortunate situation whereby the tax credits reduce tax payable at the lowest rate while investment income increases tax payable at the highest rates. The spread between the two rates of tax and the long period over which the investment must compound to offset inflation may tilt the scale in favour of the structure. Such little nuances make it tricky for plaintiff’s counsel to determine exactly when to recommend that his/her client entertain a structure.

Typically, those cases most suitable for structuring include:

Infants;
Those claimants not mentally capable of managing their own resources;
Claimants whose future life expectancy may be in doubt;
Claimants who are in high income tax brackets;
Cases involving a Cost of Future Care claim;
The elderly who wish to control the distribution of their estates;
Claims that might entail a Tax Gross-Up or Management Fees; and
Excess of Policy Limits cases.

Effects of Taxation

For any Canadian taxpayer, regardless of his/her tax jurisdiction, taxation will have an onerous impact on resultant net income. With 40% taxation on incomes in excess of $30,000 it becomes incumbent on plaintiff’s counsel to introduce the structure option and the tax free nature of the resultant income to a claimant. With a structure analogous to a “matching grant” or “imputed contribution” from Revenue Canada it is no wonder that such a settlement vehicle has become instrumental as the main incentive to conclude many personal injury actions.

Design Development

Input by plaintiff’s counsel to the modeling of the payment scheme is critical to the ultimate success and conclusion of an action by means of a structure. Consideration must be given to medical, rehabilitation, custodial and health care costs, adjusted for anticipated inflation. Future education costs (for both the claimant and/or his/her family) and loss of future income estimates should also be discussed during the settlement negotiation process.

Ideally, the structured settlement specialist should attend that meeting and work with the plaintiff and his/her counsel on the same basis that a mediator caucuses during that process. When accurate estimates of the claimant’s future income and eligible tax credits are known, it is possible to accurately estimate Revenue Canada’s imputed contribution to the proposed settlement — a sum that may very well be sufficient to bridge the gap between the parties.

Issues in Loss of Income Calculations for Self-Employed Individuals

Posted on June 1, 1997March 24, 2017 By economica

by Scott Beesley

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

For a number of reasons, the calculation of the loss of income for self-employed individuals — including farmers, professionals, and owners of small businesses — proves to be much more complex than is the comparable calculation for the “typical” employee. These additional complications arise from two sources.

First, although the relevant source of information for the calculation of the owner’s income is the business’s profit, as reported in its financial statements, there are (at least) two important differences between the firm’s profit and the owner’s income. On the one hand, the owner may have received more benefits from the firm than are indicated in the financial statements, because many of the items which have been listed as (legitimate) business expenses will have benefitted the owner directly.

On the other hand, the profit earned by the business may overestimate the loss to the owner if, following the owner’s accident, some of the assets of the firm could be sold and the proceeds invested.

Second, it is usually much more difficult to forecast the future growth of earnings of a business than it is to forecast growth in the earnings of an individual who has been working for wages or a salary.

The purpose of this article is to discuss these complications in some detail and to propose methods for dealing with the questions they raise.

The “Add-back” of Reported Business Expenses

There are many categories of business expenses in which part of the reported amount actually provided a personal benefit to the owner. An obvious example in the case of a farm operation is expenditures on gasoline, where it is clear that, if all purchases are listed as expenses on the farm tax return, that implies that taxable income will be “too low” by the value of gas that was consumed in personal use. Further expense items which could also require adjustment are heating fuel, telephone charges, repair and maintenance costs, vehicle capital costs, accounting and business service charges, travel costs, computer and software expenses, and mortgage payments, among others. The latter may not be obvious, but consider that if a farmhouse and its immediately adjacent property represent 1/4 of the value of an entire farm, and all mortgage interest is deducted as an expense, then 1/4 of that expense pays not for a cost of business but for the (interest) cost of the family home. Similar proportional adjustments must be made throughout: If half of telephone use is estimated to have been personal, and the total bill (and write-off) was $3,000, then it is exactly as if $1,500 of earned income had been available. These amounts must be added back to taxable income to reach an estimate of the equivalent salary income earned by the plaintiff.

This reporting of consumption spending as tax-deductible business expenses is, in my view, the reason why farmers and many other self-employed individuals (for example, truckers) with very low taxable incomes are not necessarily badly off, and may in fact be doing very well. Fair compensation for injury requires that this adjustment be done as well as is possible, by making reasonable estimates of the fraction of various expenses which actually went to family or individual consumption. As always, one should try to compare the estimates with similar prior cases, or simply use other information to assess the validity of a claim.

A related complication concerns “income splitting.” If the business has paid salaries to the owner’s spouse or children, then one needs to consider the possibility that those payments were artificially inflated for tax purposes. One method of dealing with this issue is to obtain detailed estimates of the types of services performed by the spouse (or children) and the amounts of time devoted to those activities and then estimate the cost of hiring a third party to perform those services. The resulting estimate can then be used to calculate the “true” value of the spouse’s services.

There is a further consideration that, to my knowledge, has not been raised previously. The amounts in question are after-tax. If the business owner spends $4,000 on a computer, and half of its usage is personal, then he/she has effectively enjoyed an after-tax income $2,000 higher than the tax return indicates. A salaried person, who has no access to the use of tax deductions on such an item, would have to earn not just $2,000, but somewhat more, to be put in the same position. Assuming a 33 percent tax rate, the salaried person would have had to earn $3,000, and pay $1,000 in tax, to have $2,000 free for the purchase of a computer. In that case, it could be argued that the plaintiff will only be fully compensated if he/she is paid $3,000.

Our experience is that the profits reported by many small businesses, and particularly by farms, may represent less than half of the true benefits provided by the business to the owner.

The Deduction of the Return to Capital Employed

The income earned by a farm, or any business, can usefully be thought of as being divided into the return on capital employed and the return due to the contributions of the family member or members. As an example, consider a sole proprietorship having $800,000 in net assets (i.e. after deduction of liabilities) which earns $60,000 per year, after all expenses (including interest). Should the owner sell the business, bank the net proceeds and collect the interest, he or she would receive $40,000 per annum in interest on the $800,000 investment, assuming a 5 percent real interest rate. The difference between the firm’s reported profit of $60,000 and the $40,000 interest, $20,000, is the value of the proprietor’s labour, and is the amount on which an income or dependency claim should properly be based.

Note that the estimation of this deduction could potentially be very difficult. The asset value used should reflect actual market value, not the value listed for tax purposes. This raises the issue of depreciation. One can illustrate the problem using an example: an asset is bought that, for arguments’ sake, never depreciates, in the sense that its market price is constant. Yet its cost is deductible at some standard rate. The difference between actual and reported depreciation creates a difference between true market value of the operation and the figure listed in financial statements. This gap also affects the original income calculation, discussed above, since reported depreciation is taken out in calculating taxable income. Though the error could be large in any one year, over time the problem is self-correcting, since all items that will depreciate do so in a few years. This is another reason, along with the obvious fact that business results are quite variable at times, to try to base income calculations on as many years of data as possible.

Additional error can result from honest over or underestimation of the market value of property and equipment. Balance sheets prepared in support of loan applications are generally more optimistic than market reality. At other times the goal may be to minimise the apparent value of assets.

One interesting detail is that the use of this deduction will ensure that we reach the same estimate of labour income regardless of the debt situation of the business. If, in any one year, the business owner pays down debt by, say, $100,000, then explicit (listed) interest will fall, but implicit interest (interest on the liquidation value of the business) will increase by the same amount.

Forecasting Business Income

The basic approach employed is to obtain an adjusted income figure for each year of available data, then average that figure over the period. One can then see any trends in net available income prior to the accident, and make projections into the post-accident period. The problem with this approach is that markets for the products of small businesses are often unstable. As a result, the state of markets must also be considered: if prices have fallen since the accident, and are expected to remain low, we would of course take that into account in projecting pre-accident revenue and income.

More complex is the situation in which the total level of business in the market has fluctuated widely over the past (and is expected to do so in the future). Construction and oil exploration are two sectors which are well known to have experienced such fluctuations in Alberta. In these cases, adjustments to the firm’s past income must be made to reflect the stage in the business cycle in which that income was earned. For example, in one recent case we showed that the income earned by a firm operating in the construction sector was very unlikely to have continued into the future because earnings in the years immediately preceding the plaintiff’s injury were at an unprecedented high for that sector. And, in another case, we were able to show that what appeared to be a very low income for a farm operation was, in fact, well above average; as the years immediately preceding the farmer’s accident had coincided with a trough in the business cycle for that farm’s crop.

An Alternative Approach

From the preceding discussion, it can be seen that basing the estimate of the self-employed individual’s income on the financial returns to the firm will require a detailed, and costly, set of calculations. A much less complex approach, which can be justified in many cases, is to estimate the cost of hiring a worker to replace the plaintiff’s involvement in the business.

This approach is most likely to be appropriate (i) when the plaintiff had no special knowledge or goodwill; or (ii) when the plaintiff’s injuries are such that he/she is limited only in the ability to undertake the physical aspects of the business. A grain farm might be a good example. If a farmer was of only average ability, his widow might be able to hire a farm manager who would be as productive (or almost as productive) as the farmer himself would have been. Or, if the farmer has suffered a physical injury, he may be able to hire individuals to replace his physical involvement in the farm operation, while he maintained control over decisions such as when to plant, the type of fertilisers to be used, etc.

However, if neither of the above conditions holds, use of the “replacement cost” approach may become problematic. If the deceased or seriously injured plaintiff had special knowledge of the industry, or had developed goodwill with clients, the replacement worker may not be able to generate the same level of income as had the deceased/plaintiff. In some cases, it may be possible to deal with this issue by estimating the difference between the profit which the firm would have earned under the management of the deceased/plaintiff and that which the replacement manager can be expected to earn. In other situations, however, this estimation may be as complex as that required to estimate, from the financial statements, the individual’s income from the firm.

Scott Beesley is a consultant with Economica and has a Master of Arts degree (in economics) from the University of British Columbia.

Implications of Duncan v. Baddeley

Posted on June 1, 1997April 18, 2017 By economica

by Christopher Bruce

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

The recent decision in Duncan v. Baddeley (Alberta Appeal #9503-0408-AC), provides important direction for both fatal accident and “lost years” claims. In this article, I review a number of the implications of this decision for the assessment of tort damages. The first part of the article deals with fatal accident claims. The remainder discusses “lost years” claims.

Fatal Accident Claims

Justice Kerans ruled that, regardless of whether the deceased had any dependants,

. . . in Alberta a claim for loss of future earnings does survive the death of the victim. And, with two important qualifications, that claim should be assessed as would any claim for loss of future earnings (Duncan, at 2).

The two qualifications to which he referred are that deductions are to be made from the deceased’s projected annual income for (i) income taxes and (ii) the “cost of personal living expenses.”

The purpose of this section is to assess the impact of the Duncan decision on the calculation of damages in fatal accident cases. This assessment is conducted in three parts. In the first of these, I review the calculation of the two deductions. In the second, I consider the arguments concerning a “tax gross up” in calculations based on Duncan. Finally, in the third, I identify whether there are any cases in which dependants, who are eligible to sue under the Fatal Accidents Act, might find it advantageous to base their claim on Duncan (that is, on the Survival of Actions Act).

Method of Calculation

Justice Kerans ruled that the income taxes which would have been paid by the deceased must be deducted from gross income when calculating the loss to the estate. Although he appears to believe that the deceased would have paid “. . . taxes in the area of 30 to 40 percent of his income,” Statistics Canada data suggest that the average Canadian household pays only 20 percent of its income as income taxes — with a range from about 10 percent to 30 percent.

Second, an amount is to be deducted from after-tax income for the “costs of personal living expenses.” After canvassing a number of alternative methods for calculating this deduction, Justice Kerans settled on an approach which he attributed to Constance Taylor, the plaintiff’s counsel. This method, which Justice Kerans refers to as the “available surplus” approach, was first enunciated in the U.K. Court of Appeal in Harris v. Empress Motors (1983) 3 All E.R. 561 and later adopted in one of the first Canadian cases concerning the “lost years deduction,” Semenoff v. Kokan (1991) 84 D.L.R. (4th) 76. In the latter case, the court concluded that the “conventional deduction” was 33 percent of income.

Kemp and Kemp on the Quantum of Damages explains how the available surplus approach is to be applied, using an example similar to the following: assume that a deceased male would have married and had two children. Of the family’s after-tax income, approximately 22 percent would have been spent on items which benefitted the deceased alone. In addition, approximately 40 percent of family income would have benefitted all members of the family equally. Thus, if one-fourth of that portion of income, or 10 percent, is allocated to the deceased, the total fraction of family income which would have benefitted the deceased is approximately 32 percent.

Two points need to be made with respect to the available surplus approach. First, it should be noted that if this approach was to be applied to an individual who had no reasonable prospect of being married over the period of her or his loss, the value of the damages which would be calculated would equal those calculated using the “lost savings” approach. That is, as all of a non-married individual’s expenditures are spent on him or herself, once personal expenditures have been deducted from after-tax income it is only savings which will remain. As Justice Kerans was highly critical of the lost savings approach, it appears that the available surplus approach may not stand up to scrutiny. Indeed, although Justice Kerans indicated that it was the plaintiffs who had argued for the available surplus approach in Duncan, a review of their submissions suggests that it is the “conventional approach” which they preferred. (See the discussion of “lost years,” below.)

Further, as Scott Beesley argued in “Shortened Life Expectancy: The ‘Lost Years’ Calculation” (Vol. 1(1) of The Expert Witness), it is difficult to argue that wealthy individuals spend as much as 32 percent of their incomes on the “costs of personal living expenses.” Rather, as incomes rise, an increasing portion of expenditures is devoted to items which could only be categorized as “luxury”. Thus, at least for high income earners, one would assume that the appropriate deduction would be less than 32 percent — and for low income earners it would be greater than 32 percent.

Income Tax “Gross Up”

Whereas an income tax “gross up” is allowed in most fatal accident cases, it is not allowed in personal injury claims for lost earnings. The usual rationale which is offered for this is that the effect of basing (personal injury) damages on gross (before-tax) income is to produce an award which is approximately equal to that which would have been obtained by “grossing up” a lump sum award based on after-tax income.

In Duncan, even though income tax was deducted, as in other fatal accident cases, no allowance was made for a tax gross up. It is my view that no gross up will be allowed in cases brought under a Duncan type of claim. The reason for this is that the tax gross up is only required if the plaintiff is expected to invest her or his award in order to replace a future stream of lost income. In Duncan claims, however, there is no presumption that the estate will invest the award in such a way as to replace the deceased’s income stream on a year-by-year basis. Hence, it appears that no gross up will be necessary.

Distinction Between the “Fatal Accidents Act” and the “Survival of Actions Act”

It appears from Justice Coté’s concurring decision in Duncan that overlap between Fatal Accidents Act and Survival of Actions Act claims will be possible in only extremely exceptional circumstances. Hence, it will be important to determine which of these Acts will yield the higher award to the plaintiffs in those cases in which they are eligible to select between those two causes of action — that is, in cases in which the plaintiffs are also dependants of the deceased.

It appears that in most circumstances dependants would receive a higher award under the Fatal Accidents Act than under the Survival of Actions Act. There are three reasons for this. First, whereas it is only that portion of family income which the deceased spent directly on him or herself which is deducted in a traditional fatal accident claim, in a Duncan type of claim, it is this amount plus the deceased’s share of common family expenses which is to be deducted. Second, no claim for loss of household services can be made in a Duncan claim. Finally, it appears that no tax gross up will be allowed in the latter claim.

There are, however, two factors which might make it advantageous for dependants to file their claim under the Survival of Actions Act. First, if the Alberta courts should decide that it is the cross dependency approach which is to be employed when calculating losses under the Fatal Accidents Act, a deduction will be made for the portion of the survivors’ incomes which was spent on the deceased. No such deduction was contemplated in Duncan. As this deduction can be very substantial — particularly when the survivors earn more than the deceased — high income survivors may be able to make a larger claim under the Survival of Actions Act than under the Fatal Accidents Act. (It should be noted, however, that many experts recommend use of the sole dependency approach. See, for example, my article, “Calculation of the Dependency Rate in Fatal Accident Actions” [Vol. 1(4) of The Expert Witness].)

Second, damages in fatal accident claims are reduced for the possibility that the surviving spouse may remarry. In cases in which this possibility is very high — usually those involving individuals less than 35 years old — the survivor may find it advantageous to claim under the Survival of Actions Act.

Alternatively, it has recently been suggested to me that it may be possible to add together a “standard” claim under the Fatal Accidents Act and some portions of the deceased’s income which cannot be claimed by dependants under the Fatal Accidents Act but which are permissible under the Survival of Actions Act. One such portion might be the “non-necessary” element of the deceased’s expenditures on him or herself. This portion would be deducted in a standard fatal accident claim but might be claimable under the Survival of Actions Act.

“Lost Years” Actions

Duncan also has important implications for the assessment of damages in “lost years” claims; that is, in personal injury claims in which the plaintiff’s life expectancy has been shortened significantly. In these cases, the courts have ruled that a deduction for the cost of necessities is to be made from the income which the plaintiff would have earned during his/her lost years.

Although Justice Kerans appeared to accept the “available surplus” approach to the calculation of this deduction, this approach necessarily becomes identical to the “lost savings” approach when the deceased could have been expected to remain single — and Justice Kerans had explicitly rejected the latter approach. With respect, I suggest that Justice Kerans’ discussion in Duncan is more consistent with the application of what is known as the “conventional deduction” approach than it is with the “available surplus” approach.

First, Justice Kerans expressed his approval of the B.C. Court of Appeal’s reasoning in Semenoff v. Kokan, in which the court appeared to have had in mind the “conventional deduction” approach. Second, the 20-30 percent deduction recommended by Justice Keran in Duncan was consistent with the 33 percent deduction adopted only two months earlier in the Alberta trial division decision: Brown and Fogh v. University of Alberta Hospital. In that decision, Justice Marceau explicitly adopted the “conventional deduction” approach.

Together, it appears that Semenoff, Brown, and Duncan signal a preference for a conventional deduction of approximately 30 percent in both fatal accident and lost years actions.

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).

Predicting the Adult Earning Capacity of Minors

Posted on March 20, 1997March 24, 2017 By economica

by Faizal Sharma

This article was originally published in the spring 1997 issue of the Expert Witness.

One of the most difficult tasks facing personal injury litigators is predicting the income stream which a minor would have earned had he or she not been injured. This prediction is almost universally based on research by economists, psychologists, and sociologists concerning the impact which genetics and socio-economic factors, such as parental income and education, have on adult earnings.

The most reliable summary of information concerning this research has been found in Christopher Bruce’s Assessment of Personal Injury Damages (Butterworths: 1992). Recently, however, a number of studies have been published which use much more sophisticated statistical techniques than those reported in Bruce’s text. These articles both report a much stronger correlation between parents’ and children’s incomes than had been found in the past and investigate a much broader set of explanatory variables than had been considered previously. The purpose of this article is to summarise some of the most important findings of the recent research.

From the economist’s perspective, the family can be viewed as an economic unit in which the parents are responsible for generating and distributing economic resources. The amount of resources allocated to the children, as well as the nature and timing of their distribution, can affect the success attained in later life. Nevertheless, children are also affected by other parental choices such as the number of siblings in the family, the type of neighbourhood in which they grow up, the number of locational moves, and family structure changes. The impact of these choices are usually summarised in the academic literature in terms of either “intergenerational mobility” (the correlation between the incomes of parents and children),
“educational attainment” (the impact of parental variables on children’s educational success), or “determinants of adult incomes.” I will consider these three literatures separately.

Intergenerational Mobility

Many sociologists and economists have attempted to measure the correlation between the socio-economic status of fathers and sons. Two 1992 studies using highly sophisticated statistical techniques find strong evidence that in the United States, the father-son income correlation is about 0.4. This is twice as large as previously thought, and depicts a much less mobile society (i.e. one with fewer differences between fathers and sons) than earlier estimated.

For instance, a father-son income correlation of 0.2 implies that a son whose father’s status is in the bottom 5 percent of the income distribution has a 0.30 chance of remaining in the bottom 20 percent, a 0.37 chance of rising above the median, and a 0.12 chance of reaching the top 20 percent. However, a correlation of 0.4 suggests that the son in this situation has a 0.42 chance of remaining in the bottom 20 percent, a 0.24 chance of rising above the median, and a 0.05 chance of reaching the top 20 percent. These findings do not suggest that the sons of low-income fathers are condemned to live their father’s lives; but they do suggest that father’s income status can act as a significant predictor of son’s success.

Factors affecting educational attainment

In all the studies reviewed, the number of years of
schooling completed by the parents is the single most important factor influencing (i) the probability of the child’s completion of high school and (ii) the total number of years of schooling completed by the child. Interestingly, parental completion of either high school or one or two years of post secondary schooling have larger effects on children’s schooling than do years of parental education beyond that level.

Parental income also has been found to have a significant positive effect on children’s schooling achievements. This measure is usually used as a proxy for the economic resources available to the child while growing up. Some studies also indicate that the source of the income may be important to the children’s educational attainment. For instance, a number of studies have found that, everything else being equal, children whose parents received income from welfare have lower educational attainments than do those whose parents did not receive welfare.

Two recent studies have demonstrated that family structure
is extremely important to the educational success of children. They found that children from single parent families, step-parent families, and other non-traditional arrangements have a lower probability of completing high school and attaining further education than do children from traditional, two-parent families. Similarly, it has been estimated that a child who experiences two parental separations during the ages of 6 – 15 has a 5 percent lower probability of completing high school than a child from an intact family; and there is strong evidence that a child living in a single parent family during the ages of 14 – 17 has a 16 percent lower probability of graduating from high school than a child living in an intact family. (The effect of living in a single parent family will be discussed in greater detail in the next issue of The Expert Witness.) Further, parental separation during the child’s preschool years seems to have the greatest adverse effect on educational attainment later on.

The number of siblings in the family also affects the educational success of children – as the number of siblings increases the level of educational attainment declines.

The number of location moves and the availability of reading material in the home significantly affect the educational success of children. While an increase in geographical moves has a negative impact on children’s attainments, the availability of reading material such as newspapers and magazines has a positive impact on their success.

Background characteristics such as race and gender have not been found to be important in determining educational success. In addition, although the supportive characteristics of the neighbourhood have been found to be positively correlated with children’s educational achievements, they are not as significant in determining success as the factors considered above.

Factors affecting earnings

The studies considered indicate that the same factors affecting children’s educational success also affect their labour market performance. This is not surprising since higher education levels attract better jobs.

Parental income while children are growing up is the single most important factor influencing children’s income as young adults. Further, children brought up in families that received welfare have lower earnings than children who grew up in affluent families. Parental education level indirectly influences children’s earnings because parental choices affect children’s educational choices and, hence, earnings. Once again, a family structure which differs from the traditional family has a negative impact on earnings.

While these studies considered background factors such as neighbourhood, gender, race, and county unemployment rate when the children were growing up, these factors were not found to have significant, independent impacts on the children’s labour market performances as young adults. What these surprising results indicate is that, after differences in background and in educational and occupational choice were taken into account, the incomes of young males did not differ significantly from the incomes of young females. Similarly, no significant differences were found among the incomes of different racial groups.

Summary of the findings

Children who were brought up in low-income families tend to have a lower education as well as lower income during adulthood than do children from affluent families. Further, the source of parental income appears to affect children’s success. Children whose parents received welfare support are less likely to be successful than children whose parents did not receive such assistance.

Growing up in a single parent family, step-parent family, or family structure other than the traditional one appears to have a negative influence on educational achievement and labour market performance. In addition, stressful events such as changes in geographical location also have a negative impact on future success.

Although growing up in an affluent neighbourhood has a positive effect on a child’s success, this factor is only marginally significant compared to the others mentioned above.

Background characteristics such as race and gender do not have independent effects on future success.

Bibliography

Astone, Anne Marie and McLanahan, Sara. “Family Structure, Parental Practices and High School Completion.” American Sociological Review, June
1993, 309-320.

Behrman, Jere; Rosenzweig, Mark and Taubman, Paul.
“The Intergenerational Correlation Between Children’s Adult Earnings and Their Parents’
Income: Results From the Michigan Panel Study of Income Dynamics.” Review of Income and Wealth, June 1990,
115-127.

Datcher, Linda. “Effects of Community and Family Background on Achievements.” Review of Economics and Statistics, February 1992, 32-41.

Graham, John; Beller Andrea and Hernandez, Pedro. “The Effects of Child Support on Educational Attainment.”
Child Support and Child Well-Being. Eds.: Irwin Garfinkel, Sara McLanahan, and Phillip Robins. Washington DC: Urban Institute Press, 1994, 317-354.

Haveman, Robert and Wolfe, Barbara. “The Determinants of Children’s Attainments: A Review of Methods and Findings.” Journal of Economic Literature, December 1995, 1829-1878.

Haveman, Robert; Wolfe, Barbara and Spaulding, James.
“Childhood Events and Circumstances Influencing High School Completion.” Demography, February 1991,
133-157.

Hill, Martha and Duncan, Greg. “Parental Family Income and the Socioeconomic Attainment of Children.” Social Science Research, 1987, 39-73.

Ribar, David. “A Multinomial Logit Analysis of Teenage Fertility and High School Completion.” Economics of Education Review, June 1993, 153-164.

Sandefur, Gary; McLanahan, Sara and Wojtkiewicz, Roger.
“The Effects of Parental Marital Status during Adolescence on High School Graduation.” Social Forces, September 1992, 599-634.

Solon, Gary. “Intergenerational Income Mobility in the United States.” American Economic Review, June
1992, 393-408.

Zimmerman, David. “Regression Towards Mediocrity in Economic Stature.” American Economic Review, June
1992, 409-429.

Mr. Sharma was a graduate student at the University of Calgary, where he completed an M.A. in Economics.

Spring 1997 issue of the Expert Witness newsletter (volume 2, issue 1)

Posted on March 1, 1997February 25, 2017 By economica

Predicting the Adult Earning Capacity of Minors
- by Faizal Sharma
- In this article Faizal Sharma sheds light upon the complex issue of predicting the potential income stream of a minor who has been injured. He explains that recent studies show a stronger correlation between parents’ income and that of their children than had previously been expected. The child’s level of education is positively correlated with the parent’s education and is negatively affected by being part of a non-traditional family.
BOOK REVIEW: John Barnes, Sports and the Law in Canada, 3rd Edition (Butterworths: Toronto) 1996
- Reviewed by Christopher Bruce
- In this article Cristropher Bruce reviews a book that examines the state of sports law in Canada.
Spousal Influence on the Decision to Retire
- by Scott Beesley
- In this article Scott Beesley notes that the respondents to surveys do not expect the influence of their spouse to be large in terms of choice of retirement age. He also reports that surveys of those who have yet to retire tend to suggest that this factor plays a much stronger role.
Lost Years Maybe, Lost Care – Never
- by Heber G. Smith
- In this article Heber Smith discusses the importance of providing adequate compensation for an injured plaintiff for whom a diminished life expectancy is projected. He reviews Revenue Canada changes, which have reduced the risk of the insurer, thus making them more willing to negotiate in these matters.
Determination of Contribution to Household Services
- by Therese Brown
- In this article, various complexities arising from the determination of the loss of household services in personal injury or fatal accident actions are explored by Therese Brown in the next article. While it is pointed out that information specific to the individual is preferable, average statistics are frequently relied on as well.
The “Lost Years” Deduction
- by Christopher Bruce
- 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.”

The Role of the Occupational Therapist in Personal Injury Litigation – Part 1

Posted on March 1, 1997March 24, 2017 By economica

by Lorian Kennedy

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

For more than a decade occupational therapists have been establishing their role in the field of personal injury litigation. The steady growth of that role as their contributions gain recognition is discussed by Irene Harris et al. in their article, “The occupational therapist as an expert analyst on the cost of future health care in legal cases” (Canadian Journal of Occupational Therapy, 61(3), 1994, 136-148). In particular, changes in the law regarding compensation for loss of capacity to perform household services has led to increased demand for occupational therapists’ assessment skills to determine the impact of impairment on individuals’ abilities to perform unpaid labour such as housekeeping, child care or yard work and the cost of replacing this labour. Judges now require detailed information on functional abilities. Individuals such as entrepreneurs or farm wives, whose work is multi-dimensional, can benefit from the occupational therapist’s ability to analyze and describe their jobs and relate this to their past, present and potential function. It is a positive sign that occasionally both sides in a dispute will agree to share the cost of an occupational therapy assessment and analysis of costs of future care.

What is an occupational therapist?

Occupational therapists’ education includes knowledge of biological, behavioral, social and occupational sciences. This provides them with a unique perspective and set of skills that are particularly well suited to the questions to be answered in personal injury cases. The Canadian Association of Occupational Therapists notes in “Profile of occupational therapy practice in Canada” (Canadian Journal of Occupational Therapy, 63(2), 1996, 81) that “The impact of the disease process, physical and mental health as well as methods of adaptive functioning are underpinned by the acquisition and application of knowledge from such areas as occupational therapy theory and practice, anatomy, physiology, psychology, psychiatry, medical conditions, neuroanatomy, neuropsychology, human development, human occupation, pathology, sociology, economics, management, political science and ergonomics.” Alberta occupational therapists complete four years of university education, a minimum of 1,000 hours of supervised clinical training and a national certification examination before becoming eligible to enter basic practice. Occupational therapy is a regulated profession so practitioners must be registered with the provincial professional association. Considerable experience is usually advisable prior to practising in the area of personal injury litigation and some occupational therapists have postgraduate degrees with relevant specializations.

The “occupation” in occupational therapy refers to more than just paid employment. It encompasses everything that “occupies” a person’s time, in other words all the activities (including thinking) that are part of our engagement with living. Canadian occupational therapists use a model of practice that focuses on occupational performance. E. Townsend in Enabling occupation: An occupational therapy perspective (1994) refers to the ability “to choose, organize, and satisfactorily perform meaningful occupations that are culturally defined and age appropriate for looking after oneself, enjoying life, and contributing to the social and economic fabric of the community.” Physical and mental occupation is a fundamental human need and health depends on people having meaningful occupations. This perspective takes into account the dynamic relationship between persons, the social, cultural and physical environment and occupation. Also central to the practice of occupational therapy is the recognition that people are unique spiritual beings whose personal experience of meaning in everyday existence nurtures them through life events and choices.

The evaluation

At the time of referral the occupational therapist establishes the suitability of the referral with the referring lawyer. It is important to clarify what questions are to be answered. Both parties need to ensure that the evaluation process is mutually understood and that deadlines can be met. It must also be an appropriate time for evaluating the individual.

Once the referral is accepted the occupational therapist reviews relevant background material which usually includes the individual’s history, reports from physicians, psychologists, therapists, vocational evaluators, resumes, work history, school marks and portions of hospital records. In some cases the occupational therapist may request clearance from the individual’s physician before proceeding with physical components of the assessment. In cases where the individual has sustained severe or catastrophic impairments the physical component of assessment may be restricted to observing and evaluating the individual as they are cared for and interviewing the caregivers.

A detailed interview and completion of questionnaires provide information on medical, work, education, leisure and psychosocial aspects of the individual’s situation. The interview is usually conducted in the home. This helps to put the individual at ease and provides additional information on lifestyle, family and leisure interests, housekeeping roles, and cultural and social contexts. The individual’s perceptions of their abilities and information on their attempts to adapt to reduced function or to pain are an important part of the evaluation. This self-report provides a context for planning further evaluation. The occupational therapist looks for consistency and compatibility between the diagnosis, reported activities and performance during the next stage of the assessment.

Standardized testing and functional performance assessment (functional capacity evaluation) is usually performed in a clinical setting. Objective testing and skilled observation are used to measure factors such as work aptitudes, strength, flexibility, motor skills, perception, activity tolerance, ability to remember and follow directions, and work behaviors. Ability to stand, walk, sit, kneel, squat, reach, lift, and manual dexterity, or other factors specific to the individual situation are measured. In some cases the occupational therapist performs a work site job analysis or sets up simulated work. The occupational therapist may obtain consent to interview other family members, work associates, or teachers particularly in cases of brain injury where individuals may lack the ability to evaluate their own occupational performance.

There are numerous names for functional capacity evaluations and many variations on techniques. Some approaches use “high tech” equipment and computer generated reports. Despite manufacturer’s claims there is little evidence that these machines meet requirements for reliability and validity or that they are any better than simpler methods. Focusing too much on strictly physical components can blind the assessor to important psychosocial, environmental and other factors that are critical for the individual.

The report

The assessment results are summarized in a clear report which describes the individual’s functional abilities as they relate to self-care, leisure and productivity (including paid and unpaid work), nature of impairment and the impact on their capacity to carry out specific life tasks. The report also comments on the impacts on other family members. Where appropriate, the occupational therapist makes recommendations regarding training, treatment, modified or adapted work, ergonomic alterations, housing or care needs, assistive devices, equipment or techniques. The occupational therapist can also prepare a cost of future care report detailing the need for equipment, medical services, support services, adapted housing, transportation, clothing, education or other needs and their associated costs.

Next issue

In the next issue of The Expert Witness, Part II of this article will discuss the specific relevance of the occupational therapist’s expertise in a litigation setting and compare it to the role of other experts. A case study will provide an example.

The “Lost Years” Deduction

Posted on March 1, 1997March 24, 2017 By economica

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, restitution 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 restitution 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 restitution, 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.

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).

Determination of Contribution to Household Services

Posted on March 1, 1997March 24, 2017 By economica

By Therese Brown

This article was originally published in the spring 1997 issue of the Expert Witness.

Quantification of an individual’s, or an estate’s, loss of household services in such a way as to return the plaintiff to their pre-injury status involves the estimation of hours contributed prior to the accident, currently, and in the future. Determination of this loss would appear to be a clearcut matter of identifying the individual’s contribution prior to the accident, and reducing this pre-accident contribution, in the case of an injured party, to the extent that s/he is still able to perform those duties. In reality, however, the process of estimating, after the fact, the extent to which an individual has contributed to the myriad duties required to keep a household functioning, from meal preparation to maintenance of the physical structure itself, is a matter that is neither straightforward nor obvious. Routes to procuring this type of information include undertaking individualised data collection, and accessing general statistical information. This article discusses various sources of information concerning household services including a review of the factors which influence household labour activities. In addition, pitfalls inherent in each method will be analysed and suggestions made as to the steps that may be taken to maximise the accuracy of the data.

Individualised Data Collection

When there is reliable information available detailing the extent of the individual’s past and current (in the case of an injured plaintiff) household labour contribution, the preferred source of data is that which is specific to the particular individual. Incorporation of factors unique to that individual should increase the accuracy of the quantification of the loss. With this method, the plaintiff, or family members of the deceased, are asked to provide a breakdown of the household activities which were undertaken prior to the accident, by completing a Household Services form. An injured plaintiff is also asked to detail the extent to which s/he is able to participate in household activities currently, as well as information about her/his contribution immediately after the accident and in the interim period if that information differs from that in the other two periods.

Family members or replacement help may assume some of the household responsibilities for which the injured person or deceased was previously responsible. A tally of the hours of household services performed in either case is not necessarily an accurate estimate of the number of hours requiring replacement. There is no assurance that replacement help, due to the expense of that service, or family members, due to lack of time, can assume all of the duties which the individual is now unable to complete. This type of information would, therefore, only be used to quantify the loss if other individual-specific information was unavailable.

There are potential hazards inherent in this type of information gathering One commonly noted quandary is the tendency to overestimate the individual’s contribution. It is important to recognise the difficulty of estimating the time devoted to the functioning of the household in a prior period It is useful to remember, as well, that an individual’s view of this type of contribution is based on their personal perspective, making this type of estimate very subjective in nature. Also, time may inadvertently be allocated more than once, as more than one household activity may be performed concurrently. For example, an individual may prepare a meal while attending to a child.

Various steps can be taken to ensure that the information elicited is as accurate as possible. First, to circumvent the possibility of double-counting, we advise the individual who is completing the form to list the activity that they consider to be their primary activity at that time, and to disregard any secondary activities which they may also be involved in. Also the respondent is asked to consider the hours devoted to household activities in the context of the entire day. It is readily apparent, should the total exceed 24 hours, that there is a need for adjustment. It may well be that the individual made a contribution which exceeds that of the average individual. If there are sound reasons for this assumption, however, the factors which create that unusual situation must be stated to support that claim. If, on the other hand, aspects unique to that individual do not justify an above-average claim an investigation of this anomaly is necessitated.

Data Analysis Based on National Statistics

Statistical averages detailing the number of hours contributed by adult Canadians to household services is available from surveys conducted by Statistics Canada on the time usage of Canadians. The most recent of these, the General Social Survey of 1992, relies on the diary approach to measure the use of time. The diary approach, which requires that survey participants complete a chronological log of their activities, is generally considered to be more accurate than the direct approach, which simply asks those surveyed to recount the amount of time which they spent at various activities over a particular reference period (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No. 3, 22-23). Nearly 9,000 survey participants, who were required to be 15 years of age or older and living in private households, responded to the 1992 survey, which was conducted over a twelve month period on different days of the week, to ensure representative results. The unpaid work reported by those surveyed is classified into five broad areas. The first four: domestic work; help and care; management and shopping; and transportation and travel are said to comprise household work.

The breakdown provided by Statistics Canada on this survey information provides an analysis of household activities according to gender, labour force status, family and child status, and age (with those 15 years of age and older separated into five different age groups). We are, therefore, able to use average estimates across those individuals with characteristics most similar to those of the plaintiff or deceased over various stages of their life.

Factors Affecting the Amount of Unpaid Work

The principle determinants of an individual’s daily activities have been found to be their main activity (ie. full- or part-time employment, student, not employed), sex, marital status, the presence of children (the age of the youngest if there are children), and, for seniors, living arrangements. Factors such as labour force status and the presence of children influence the time spent on unpaid work, particularly for women (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No. 3, 48). David Ciscel and David Sharp (Journal of Forensic Economics, 8(2), 1995, 120-21) also note the importance of residency and consumption status as factors that affect time use. They note that for some families home ownership may induce an increased commitment to household labour of 10 percent. The authors make an inference about a family’s consumption pattern by assuming that those families who eat together more than four days a week tend to substitute household production of domestic services for the purchase of those services in the market. Not surprisingly, those families who substitute household for market production devote more hours to household activities, especially in households where only the husband participates in the paid labour force. In families of that type, the number of hours which the wife commits to household work is almost double that of other families.

Remaining Problematic Issues

Another issue which may be problematic is the determination of the proportion of household activities that is compensable, in the instance of household activities which contribute to the functioning of the family home but may also be classified as a hobby for the individual. The example of an individual who has participated in gardening as part of her/his contribution to the household illustrates this well. It may be argued that a portion of the time spent on this activity constitutes a loss of enjoyment rather than a loss of household services, implying a non-pecuniary loss. Following through with this approach necessitates the determination of what portion of the loss of gardening ability can be claimed under the head of damages of the loss of household services.

A different approach is suggested by Janet Yale, in her article “The Valuation of Household Services in Wrongful Death Actions” (University of Toronto Law Journal, 1984, 296). She contends that the enjoyment derived by an individual as they execute a particular activity has no impact on the loss experienced by her/his family when s/he is no longer able to undertake that activity. This implies that the lack of fresh garden produce results in the same loss whether the individual considered gardening to be an onerous task or an enjoyable activity.

The potential for complexity becomes apparent if we extend this illustration of the avid gardener. It may be argued that the value of the fresh produce provided to the family is significantly less than the value of the time that the gardener invested in her/his production. This begs the question of whether compensation is required for the full extent of the time spent at this activity. While this may be an interesting point, in theory, it would be unusual for the estimated value of an individual’s time to vastly exceed the value of her/his production, thus, impacting the total claim. This situation would have to be dealt with, on a case by case basis, when it does arise. In this example, for instance, support for the claim which would include all hours spent gardening could be found by considering the value placed by that particular family on the loss of the individual’s ability to garden. This may be achieved by estimating the cost of buying produce that meets the standard of quality that the individual and their family had been accustomed to, for example pesticide-free, fresh produce which has not been damaged in transport. In the instance that support could not be found to support the claim, in an extreme case, then a downward adjustment of time spent on this activity may be warranted, referring to average statistical information.

When First-Best Is Not Possible

When quantifying the loss of household services, at Economica, we prefer, to the extent that such information is available, to rely on individual-specific information. Even when this information is available its usefulness may be limited to a certain period. We may, for instance, base our quantification of the plaintiff’s loss on the response to our Household Services form, as it applies to the current period. This information, however, may not be relevant for future periods. For instance, if the individual had young children at the time of the accident, the household labour required for that period would be greater than that required for subsequent periods but it would be almost impossible for the individual to project the exact magnitude of the difference. In that case, the percentage decrease which the average individual, with characteristics similar to the plaintiff, experiences when undergoing a similar change in family status would be applied to the base number of hours that the plaintiff currently spends on household services. This allows us to project future requirements based on information specific to that particular plaintiff.

Lifestyle changes aside, there are other instances when average statistics must be relied on to project the future requirement of a plaintiff. If for instance, it had been the plaintiff’s intention to change her/his employment status from full-time to part-time work their contribution to the household would have changed in a way that would be difficult to estimate. The percentage difference on the time spent on household activities by a full-time compared to a part-time employee could then by applied to the information specific to the plaintiff.

Conclusion

To summarise, the preferred method in estimating the extent of an individual’s contribution to household services is to rely on data that is specific to the plaintiff, or the deceased in the case of fatal accident actions. While there are potential weaknesses in this method, as previously discussed, steps can be taken to minimise the potential for inaccurate estimates. To this end, based on past experience and current research, we have revised our Household Services form to make it a more useful tool in eliciting pertinent information. There are instances when this information is unavailable, or when it will not be relevant at some future point, for example, due to lifestyle changes. In these cases, average statistics form the basis for quantification of the loss or adjustment of individual-specific information. In situations where average statistics must be used exclusively, we suggest that this generic information can be used as a reasonable substitute with confidence. This generic information should, however, be viewed primarily as a tool to support or adjust individual-specific data, which remains the data source of choice.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

Lost Years Maybe, Lost Care – Never

Posted on March 1, 1997March 24, 2017 By economica

by Heber G. Smith

This article was originally published in the spring 1997 issue of the Expert Witness.

Whilst the debate over methodology of compensation for the “Lost Years” may rage on, there does exist a simple solution for providing care for a claimant whose injuries (or for that matter, other health ailments) may result in a diminution of life expectancy.

Compensation for the cost of future care of an individual whose life expectancy is demonstrably impaired, need obviously be less than that required for someone whose anticipation of a future lifetime is normal. But who is to say that he or she will live that long? What happens if he/she lives longer?

On the flip-side of the life insurance industry’s practice of “rating-up” or declining an unhealthy applicant for life insurance, some insurers have a practice of improving the income provided by a fixed premium for an annuity applicant deemed by the insurance underwriters to have little likelihood of living to a normal life expectancy. The results of this practice may reduce dramatically the cost of providing “guaranteed-for-life” future care. Cases involving severe injuries have lead some insurers to rate-up prospective measuring lives (the person on whose life the payments are determined) by as much as and in some cases more than 50 years. As one might imagine, the saving inherent in providing lifetime payments for a 65 year old claimant as opposed to a 15 year old can be consequential.

To further reduce the cost is the flexibility that Revenue Canada confers on the structured settlement annuity. Since the casualty insurer is the owner and beneficiary of the supportive annuity and since paragraph 1400(e) of the Income Tax Regulations governing reserving taxation of insurers permits the tax free ownership of the annuity, it is possible to purchase more than one annuity to support the periodic payment stream. This permits the structured settlement annuity broker to ferret the most favourable components of a required stream from a number of companies; i.e. select the most favourable interest rates from one or more companies and the most favourable (negative) life expectancy offering from another.

Revenue Canada now permits a new twist in it’s heretofore “irrevocable and non-commutable” requirements under IT-365R2. Upon the death of the claimant the cost of future care payments under a structured settlement need not vest indefeasibly in the claimant’s estate. Since the death of the claimant negates the need to provide for care, Revenue Canada now takes the position that the future guaranteed payments may revert to the defendant insurer and that the insurer may commute those payments. Comforted by the fact that it may recover a significant percentage of its cost of future care outlay, the insurer may be somewhat more favourably predisposed to negotiate other components of the action.

Very seldom do people die at the “right” time. The problem becomes magnified in respect to a personal injury action since the defendant may overcompensate a victim that dies too soon and a victim that lives too long may find him/herself without adequate resources to provide for care at an age when it may be most imperative to so. The annuity is truly a no-waste solution.

Spousal Influence on the Decision to Retire

Posted on March 1, 1997March 24, 2017 By economica

by Scott Beesley

This article was originally published in the spring 1997 issue of the Expert Witness.

The decision to retire is influenced by several factors including income level, the available pension, company policy, legislation, employment opportunities, the need to help care for family members, health and the status of the spouse. Some interesting Canadian survey data and analysis regarding this last factor can be found in a book entitled The Road to Retirement, by Grant Schellenberg for the Canadian Council on Social Development (1994). A detailed statistical treatment of the issue, using U.S. data, is provided in the working paper Retirement in a Family Context: A Structural Model for Husbands and Wives by Alan Gustman and Thomas Steinmeier (National Bureau of Economic Research: Working Paper #94-4). We provide here a brief summary of the results reported in these studies and their implications for the calculation of lost future income.

Schellenberg listed four particular items which together constituted the spouse’s influence in the decision to retire. They were: the timing of the spouse’s retirement; the spouse’s health; the spouse’s income; and finally, pressure from the spouse to retire. His survey noted, for each item, the percentage of retired men and women who said that issue had been important in their decision to retire. The most notable finding was that for all four items, men were far less influenced by their spouse’s situation than were women. Less than 5 percent of retired men, for example, said that the timing of their spouse’s retirement had influenced their own timing, yet 22 percent of retired women had considered their husband’s situation in making their choice. The three remaining spousal issues were important to about 10 percent of women and an even smaller 2 to 6 percent of men.

An interesting change appeared when the same questions were put to men and women who, unlike the group discussed above, had not yet retired. This sample put a much higher weight on spousal considerations than those who had already left the workforce. Forty-five percent of women said that they expected their spouse’s time of retirement to affect their own, up from 22 percent, while the number for men rose from approximately 3 to 14 percent. The fraction of wives listing their husband’s health and income as important determinants rose even more, to about 40 percent. Similarly, the number of men who listed spousal health rose from 6 to 22 percent, while spousal income was expected to be important by 12 percent, which, while still small, is a significant change from the minuscule 2 percent reported by the retired group. The data quoted clearly reflect, in our view, the much increased importance of women’s income in total family income. One implication is that studies of the factors which determine retirement age will probably underestimate spousal influence, to the extent they are based on older data.

The American study by Gustman and Steinmeier (G & S) was a sophisticated attempt to quantify the effect of one spouses’ retirement decision on the other. In a somewhat striking contradiction of the results given for Canada by Schellenberg, G & S state that “There is some suggestion in the data that the wife’s retirement decision is not strongly influenced by the husband’s, but the husband’s decision is more strongly influenced by the wife’s.” One possible explanation is familiar to those who analyse survey data: Individuals do not necessarily do as they say they will, or (in hindsight) they report reasons for decisions which do not accurately reflect the real choices they made. Hence, while men (in the Canadian survey) might report that their wife’s decision to retire was or will be an insignificant factor in their own decision, the U.S. data, based on actual behavior rather than survey responses, suggests they are influenced, to a statistically meaningful degree, by their wives’ situation. It is perhaps not surprising that men would prefer to say their decision was independent of their wives’ status, if the alternative is to grant that they did not want to be alone at home while their wives continued to work. The authors of the U.S. paper suggest explicitly that perhaps men are unwilling to face housework alone, and they estimate that the effect of “wife being retired” is that husbands then behave as if they were two years older, and are hence more likely to retire themselves. The average change in time of retirement is found in a simulation to be only five months, however.

Another finding of G & S was that when the retirement decisions of couples are treated as jointly determined, a moderate tendency to retire together (or closer than would otherwise be expected) is evident. The alternative to joint determination would be assuming each spouse takes the other’s retirement age as given when determining their own, but this tends to lead to an overestimation of spousal influence.

Finally, we note that, though the tendency to retire at times which are closer together than the couple’s age difference was statistically significant in G & S, this factor is still much less important than the major issues listed at the beginning of this article, such as current income, available pensions, company and government policy and so on. It is these issues which we have historically considered when setting the retirement age in our calculations of lost income. No change in methodology is warranted as yet, though the Canadian survey suggests that spousal influence is increasing and may have to be accounted for in some future cases. If further research suggests that the “spousal effect” is (or will be) likely to produce differences of over a year on average, we can justify changing our assumptions at times. For example, if there is a strong financial incentive for the woman to retire at 58, and her husband would then be 60, we might plausibly assume he would retire immediately, rather than waiting until age 62, if his own income vs. pension calculation was not very age dependent. While this change would be minor for a 30 year old plaintiff (or survivor, in a fatal accident case), it could be quite important for someone in their 50s.

Of course, it would also be interesting (to an economist, at least!) to see if the above-mentioned difference between the opinions expressed in survey responses and the behavior found in real data is resolved.

Scott Beesley is a consultant with Economica and has a Master of Arts degree (in economics) from the University of British Columbia.

BOOK REVIEW: John Barnes, Sports and the Law in Canada, 3rd Edition (Butterworths: Toronto) 1996

Posted on March 1, 1997March 24, 2017 By economica

Reviewed by Christopher Bruce

This article was originally published in the spring 1997 issue of the Expert Witness.

John Barnes, B.A., B.C.L. (Oxon.) barrister, is co-director of the Sports Law Project at the University of Western Ontario. He has drawn on 20 years of experience studying sports law on three continents to write an intensively-researched yet eminently readable account of the state of sports law in Canada.

The first nine chapters of the book deal primarily with issues of contract and labour law in major league sports. For the sports junkies among us, this makes fascinating bedtime reading. But it offers little to those whose primary vocational interest is personal injury litigation.

Where the book should justify its purchase price to civil litigators is in Chapter 10, “Sports Injuries: Criminal and Civil Liability.” The 50-page section on civil liability contains over 350 footnotes – many of which list numerous references to books, articles, and cases. Analyses are provided of: intentional torts; assumption of risk; liability of participants (player sues player and spectator sues player); liability of facility operators (occupier’s liability to both participants and spectators; and owner’s liability in negligence); liability of schools, coaches, officials, and parents; liability of such organisations as amateur associations and professional teams; and medical negligence.

In each case the coverage is thorough and informative. Particularly commendable, in my view, is the index which not only provides the usual headings, such as “contracts” and “negligence,” but also allows the reader to search by sport – golf, hockey, rugby, football, gymnastics, etc. – and by type of injury.

My only complaint is that there is no discussion of the issues involved in the calculation of damages in sporting cases. This is only a minor complaint because there is, in my experience, only a small number of situations in which sports injuries raise unique concerns. Nevertheless, some recognition of these situations would have been useful.

One such case occurs when the plaintiff is a minor who claims that the injury has prevented him/her from becoming a professional athlete. As those with only a passing interest in sports will know, it is rare for even the number one draft pick to have a successful career in the NHL. How then to deal with the sixteen year-old who is third in scoring on a low-ranked junior A or university hockey team? Or the twenty year-old who is ranked twentieth among NCAA golfers? This is an issue which the courts have not faced clearly.

This minor quibble aside, I recommend Barnes’ book highly to anyone who is called upon to litigate a sports-related personal injury action.

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).

Economica

Assessment of damages in personal injury and fatal accident litigation

Year: 1997

Household Service Provider Rates

Assessment of damages in personal injury and fatal accident litigation

Contents:

Can a Company Claim When a Partner Is Injured?

Should a Business Partner be Altruistic?

Two Examples

Some Additional Complications

Distinguishing features of the occupational therapist

Cases meriting referral to an occupational therapist

Cost of the Evaluation

Case Study

What are Household Services?

Types of Service Providers

Average Rates Charged by Service Providers

Household Service Provider Rates

Generalist Rates for Replacement Household Services

Additional Complications

The Courts

Summary

Contents:

Establishing General Principles

Substantiating the Loss

Experts’ Evidence as to Loss of Hours

Are Household Services Replaceable and at What Cost?

Assumptions

The Dependency Argument

Conclusion

The Wage Gap

The Wage Gap: Changes Over Time

Implications

Contents:

The Socio-economic Indicators of Success

The Importance of Educational Attainment

Factors Enhancing or Impeding Mobility

Conclusion

Effects of Taxation

Design Development

The “Add-back” of Reported Business Expenses

The Deduction of the Return to Capital Employed

Forecasting Business Income

An Alternative Approach

Fatal Accident Claims

Method of Calculation

Income Tax “Gross Up”

Distinction Between the “Fatal Accidents Act” and the “Survival of Actions Act”

“Lost Years” Actions

Intergenerational Mobility

Factors affecting educational attainment

Factors affecting earnings

Summary of the findings

Bibliography

Contents:

What is an occupational therapist?

The evaluation

The report

Next issue

Individualised Data Collection

Data Analysis Based on National Statistics

Factors Affecting the Amount of Unpaid Work

Remaining Problematic Issues

When First-Best Is Not Possible

Conclusion