Winter 1999 issue of the Expert Witness newsletter (volume 4, issue 4)

Contents:

  • Fatal Accident Dependency Calculations
    • by Derek Aldridge
    • In this article Derek Aldridge examines the difference between using the sole- and cross-dependency approaches when estimating the loss of income dependency following a fatal accident. Chris Bruce wrote about this issue three years ago in the Expert Witness (Volume 1, Number 4). Derek’s article emphasises the specific differences between the calculations in the two different approaches.
  • Recent Canadian Court Decisions Concerning the Impacts of Child Sexual Abuse on Earnings
    • by Christopher Bruce and Matthew Foss
    • In this article Christopher Bruce and Matthew Foss discuss the response of the courts to lawsuits for loss of income resulting from sexual abuse. This is the second part of an article that began in the previous Expert Witness – in which Matthew Foss reviewed the academic literature concerning the impact of sexual abuse on the victim’s psychological well-being, education, and earning capacity.
  • Rates of Return to Advanced Education in Alberta
    • by Kelly Rathje
    • This article, by Kelly Rathje, is based on the thesis she wrote for her M.A. in economics from the University of Calgary. Her thesis concerns the costs and benefits of post-secondary education. In particular, she views education as an “investment” in oneself. The costs of that investment are tuition, books, and foregone income. The benefits are measured in terms of increased income. On this basis, she can compare the relative “rates of return on investment” for various types and levels of education.

Recent Canadian Court Decisions Concerning the Impacts of Child Sexual Abuse on Earnings

by Christopher Bruce and Matthew Foss

This article was originally published in the winter 1999 issue of the Expert Witness.

We reviewed approximately 35 Canadian tort cases involving sexual assault that had been decided in the last decade. In this section, we review the findings of those cases under three damage headings: loss of earnings, loss of opportunity to marry, and punitive damages.

No loss of earnings

In approximately one quarter of the cases we reviewed, the courts denied the plaintiff’s claim for loss of earnings (after sexual assault had been proven). In some, – for example, B(KL) v. B(KE), M(LN) v. Green, and H(JL) v. H(DH) – the courts concluded that the non-pecuniary damages were “adequate” and, hence, pecuniary damages were not necessary. In others, for example C(P) v. C(RJ) and A(T) v. K(R), it was concluded that the plaintiff had not offered sufficient evidence on which to base an award. Finally, in both Gray v. Reeves and S(T) v. P(JW), the court could find no difference between the income the plaintiff would have expected to earn had he or she not been assaulted and the income he/she was actually earning.

These cases strike us as being consistent with the academic literature, which found that many victims of sexual abuse had not suffered long-term effects, particularly on earnings. Hence, it is not unexpected that some plaintiffs would be denied damages on this ground, particularly if they had not provided strong evidence of long-term (significant) harm.

Loss of earnings

In approximately three quarters of the cases which proceeded to trial, the plaintiff was able to obtain damages for loss of earnings. This is a higher percentage than the literature would lead one to expect. However, it must be remembered that the cases that reach trial are not a random sample of all possible cases. Presumably, few individuals who suffered no loss of income would press a case to that point.

The most common basis for the calculation of loss of income was that the plaintiff had suffered a reduction in the level of educational attainment, or had suffered a delay in reaching his or her ultimate educational level. In A(C) v C(JW), for example, it was found that one of the plaintiffs would have become an automobile mechanic and would only do so now, if at all, after a significant delay. In C(PA) v. T(JC), it was found that the effect of the abuse had been to prevent the plaintiff from graduating from high school. In P(J) v. Sinclair, the plaintiff’s actual earnings were compared to those she would have made had she completed two years of post-secondary education. And in P(S) v. K(F), the court concluded that it was reasonable to assume that the plaintiff would have completed high school but would not now do so.

Alternatively, in many cases, the courts accepted the argument that the plaintiff had achieved the same level of education as she or he would have in the absence of the abuse, but that the plaintiff would now suffer from higher unemployment, increased part-time work, or reduced overtime work. In B(J) v. M(F), the abuse was so severe that the court concluded the plaintiff would now be unable to work at all. In C(H) v. C(GC), the court accepted the argument that the effect of the abuse would force the plaintiff to reduce working hours from full-time to part-time. And in J(A) v. D(W), the court found that the plaintiff had missed a considerable amount of time from work during the pre-trial period.

In many of the cases in which damages for loss of income were awarded, the court implicitly recognised the argument that the victim’s low income might be due not only to the sexual abuse, but also to a dysfunctional family background. In A(C) v. C(JW), for example, there were four plaintiffs. The court noted that four out of five of plaintiff LK’s siblings had criminal records, were drug abusers, or otherwise had exhibited “lack of vocational success.” It appears that the court reduced LK’s damages on this basis. In the same case, on the other hand, the court noted that all three of plaintiff CH’s brothers had been successful and it awarded substantially more to CH than it had to LK. Similarly, in K(W) v. Pornbacher, because the plaintiff had a pre-existing prognosis of attention deficit disorder, the court reduced the damages it would otherwise have awarded. And in T(KA) v. B(JH), the court reduced the past loss to take account of “other contingencies” that might have affected the plaintiff’s earning capacity.

A common thread running through many of the cases in which victims were awarded damages for loss of income was the expectation by the court that the victim would soon “recover” from the effects of the abuse. The incomes of individuals who had suffered abuse 10 or 20 years prior to the trial were expected to “catch up,” within a few years of the court’s decision, to the incomes of those who had never been abused. In D(PA) v. H(AE), for example, the court awarded damages for only two years future loss. In V(JL) v. H(P), the court accepted the contention that the plaintiff would fully catch up within 5 years. And in P(J) v. Sinclair, the court assumed that the loss would continue for only 10 years into the future.

Loss of opportunity to marry

In two cases, the plaintiff argued that the effects of the sexual abuse had impaired her ability to marry. In Gray v. Reeves, the court concluded that the plaintiff had failed to provide adequate evidence concerning this claim, and refused to award damages. In LMN v. M(MJ), however, the court accepted the claim. Unfortunately, the court awarded a single sum to cover both loss of income and loss of marital prospect. Hence, it is not possible to determine what the value of the award was for loss of marital prospect.

Punitive damages

We were able to identify six cases in which punitive damages were discussed. In three, M(TD) v. G(KS), N(JL) v. G(KS), and Glendale v. Drozdzik, the court refused to award punitive damages. In the latter, the British Columbia Court of Appeal quoted approvingly from Huff v. Price, to the effect that:

The award of punitive damages should not try to do again what has already been done by the compensatory damages, including the aggravated damages. … And, of course, if a criminal penalty has been imposed then that should be taken into consideration. (p. 300)

Nevertheless, the court in Glendale added that:

…the rule would be too absolute if it were that punitive damages cannot be awarded if there has been a criminal penalty. Sometimes the criminal penalty might be as little as a conditional discharge…

In none of the three cases in which punitive damages were awarded were the defendants jailed for their assaults on the plaintiffs. In B(JD) v. M(F), the defendant was charged criminally for offences against other children, but not for those against B(JD). In C(H) v. C(GC), no criminal charges were laid against either of two defendants. And in M(M) v. F(R), the defendant received only three years probation on the criminal charge. All three, therefore, appear to be consistent with the view that punitive damages should, generally, only be awarded when there have been no criminal penalties, or those penalties have not been severe.

Summary

To summarise, the courts have looked for evidence that the plaintiff’s past and future earnings were impeded by the sexual abuse. This involved examining factors such as the plaintiff’s likely education without the sexual abuse, work history, and foreseeable career path in the future. Other factors that were given weight in the decisions included the accomplishments of siblings and the environment that the plaintiff grew up in (excluding the sexual abuse). The courts have not, in general, been overly generous to plaintiffs in their awards for lost earnings.

References

A (C.) v. C. (J.W.), 1997, 36 C.C.L.T. (2d) 224, 35 B.C.L.R. (3d) 234 (BCSC)

A.(D.A.) v. B. (D.K.), 1995, 27 C.C.L.T. (2d) 256 (Ontario Court of Justice (General Division))

A (T.) v. K. (R.), 1995, 15 B.C.L.R. (3d) 274, [1996] 3 W.W.R. 720 (BCSC)

B. (J.D.) v. M. (F.) 1998, Docket: Bracebridge 233/96, (Ontario Court of Justice (General Division))

B. (K.L.) v. B. (K.E.), 1991, 7 C.C.L.T. (2d) 105, 71 Man. R. (2d) 265 (Man. Q.B.)

C. (H.) v. C. (G.C.) 1998, Docket: 101497/96, 101496/96, (Ontario Court of Justice (General Division))

C. (P.) v. C. (R.J.), 1994, 114 D.L.R. (4th) 151, (Ontario Court of Justice (General Division))

C. (P.A.) v. T. (J.C.), 1998, Docket: Courtenay S3229, (BCSC)

D. (P.A.) v. H. (A.E.), 1998, 49 B.C.L.R. (3d) 340, [1999] 2 W.W.R. 139, (BCSC)

Glendale v. Drozdzik, 1993, 77 B.C.L.R. (2d) 106, 101 D.L.R. (4th) 101, (B.C.C.A.)

Gray v. Reeves, 1992, 64 B.C.L.R. (2d) 275, 10 C.C.L.T. (2d) 32, [1992] 3 W.W.R. 393, 89 D.L.R. (4th) 315, (BCSC)

H. (J.L.) v. H. (D.H.), 1999, Docket: F/C/259/96 (NBQB)

H. (S.) v. L. (R.G.), 1993, 85 B.C.L.R. (2d) 232, [1994] 2 W.W.R. 276 (BCSC)

Huff v. Price, 1990, 51 B.C.L.R. (2d) 282 (B.C.C.A.)

J. (A.) v. D. (W.) 1999, 136 Man. R. (2d) 84 (Man. QB)

K. (W.) v. Pornbacher, 1997, 32 B.C.L.R. (3d) 360, 27 C.C.E.L. (2d) 315, 34 C.C.L.T. (2d) 174, [1998] 3 W.W.R. 149 (BCSC)

LMN v. M. (M.J.), 1998, Docket: New Westminster SO-41750 (BCSC)

M. (L N) v. Green Estate, 1996, Docket: Doc. Vancouver C932295, (BCSC)

M. (M.) v. F. (R.), 1996, 22 B.C.L.R. (3d) 18, [1996] 8 W.W.R. 704, (BCSC)

M. (T.D.) v. G. (K.S.) 1997, Docket: Vancouver C961248, (BCSC)

N. (J.L.) v. L. (A.M.),.[1989] 1 W.W.R. 438, 47 C.C.L.T. 65, 56 Man. R. (2d) 161 (Man. Q.B.)

P. (J.) v. Sinclair, 1999, Docket: Victoria 93/3581, (BCSC)

P. (S.) v. K. (F.), [1997] 3 W.W.R. 161, 1996, 150 Sask. R. 173, 32 C.C.L.T. (2d) 250, (Sask. QB)

P. v. F., 1996, 24 B.C.L.R. (3d) 105 (BCSC)

S. (J.E.) v. M. (P.D.) Estate, 1998, Docket: Victoria 97 2335, (BCSC)

S. (L.) v. R. (L.), 1996, Docket: Vancouver C942578 (BCSC)

S. (P.) v. S. (J.), 1996, Docket: Milton C12210/93, (Ontario Supreme Court General Division)

S. (T.) v. P. (J.W.), 1999, Docket: Victoria 98/1477, (BCSC)

T. (K.A.) v. B. (J.H.), 1998, 51 B.C.L.R. (3d) 259, (BCSC)

T. (L.) v. T. (R.W.), 1997, 36 C.C.L.T. (2d) 207, 36 B.C.L.R. (3d) 165, (BCSC)

V. (J.L.) v. H. (P.), 1997, 31 B.C.L.R. (3d) 155 (BCSC)

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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).

Matthew Foss is an M.A. student in the Department of Economics, University of Calgary. This is a continuation of his article “The Calculation of Damages in Sexual Abuse Cases” which appeared in the previous issue of this newsletter.

Fatal Accident Dependency Calculations

by Derek Aldridge

This article was originally published in the winter 1999 issue of the Expert Witness.

We occasionally review cases in which the defendant is arguing that, after a fatal accident, the surviving spouse is financially better off. This sort of argument can be somewhat appealing in certain circumstances, but upon closer examination the “logic” is always unsupportable. Of course, I am referring to the distinction between sole- and cross-dependency. In this article I will briefly explain what dependency rates represent, and then offer a fairly detailed explanation of the differences between the sole-dependency approach and the cross-dependency approach.

Dependency rates are used to estimate a person’s financial loss due to the death of his or her spouse or parent. In a two-person household, if the husband dies, then the wife will no longer benefit from her husband’s income. However, she does not need to be compensated for the loss of all of his income, since some would have benefited him only.

To properly compensate the surviving dependant, it is necessary to determine how much of the deceased’s income the survivor needs in order to maintain the same standard of living as if the accident had not occurred. To make this determination, one must estimate how much of the deceased’s income would be allocated to common expenditures (mortgage payments, for example), and how much would be allocated to each spouse’s personal expenditures (food, clothing, and hobbies, for example). Our research suggests that, in general, about 40 percent of after-tax family income is allocated to common expenditures, and 30 percent to each spouse’s personal expenditures. We make the reasonable assumption that each spouse allocates his/her income in this manner. Thus, the surviving spouse requires approximately 70 percent of the deceased’s “without-accident” income, in order to maintain the without-accident standard of living. That is, the survivor still needs the 40 percent of the deceased’s income that would have been spent on common expenditures, as well as 30 percent that would have been spent on the survivor’s personal expenditures, but does not need the 30 percent of the deceased’s income that benefited the deceased only. The 70 percent is the dependency rate. Thus, I would argue that if the deceased would have earned $30,000 per year (after taxes and contingencies), had the accident not occurred, then the survivor now needs 70 percent of this income, or $21,000 per year in order to maintain the without-accident standard of living.

This approach – known as the sole dependency approach – is very appealing in many cases, thanks to its simplicity and the intuitively reasonable results that it generates. However, it is often argued that it needs to be modified in order not to over-compensate the survivor. The issue is how to treat the survivor’s income that would have benefited the deceased only. One might argue that the survivor’s lost share of the deceased’s income should be offset against her financial “gain” because she no longer spends money on items which benefited her husband exclusively. This is known as the cross-dependency approach.

I will attempt to more clearly explain the distinction between sole- and cross-dependency through a series of tables in which we consider a range of possible incomes earned by a hypothetical couple. (For the purposes of this article, I ignore the effect of dependent children.)

Table 1 illustrates how a couple’s income is allocated among the three broad expenditure categories, for a range of different income levels. (The reason why several different income levels are presented will become apparent later.)

Table 1

We can take the examples shown in Table 1 a step further by examining the more general case in which we consider the income earned by both members of the household. This is shown in Table 2. Note that the “total family income” figures in Table 2 are exactly the same as those in Table 1. As are the spending allocation figures.

Table 2

We can take this example another step further by considering how each member of the household allocates his/her income. Presumably, both spouses follow the 40/30/30 percent pattern when spending their income. Thus, each allocates about 40 percent of his/her income to common expenditures, 30 percent to his/her own personal expenditures, and 30 percent to the spouse’s personal expenditures. In Table 3 I follow the examples from Table 2, except that I show the allocation of spending by each spouse. Note that the “total family income” figures in Table 3 are exactly the same as in Tables 1 and 2, as are the totals of the individual spending allocation figures.

Table 3

Using the figures shown in Table 3, I can estimate the survivor’s financial loss upon the death of his or her spouse. It is clear that for the survivor to maintain the same standard of living as if the accident had not occurred, he or she will need enough income to fund the common expenditures shown (columns c & d), as well as the expenditures that were for his/her own personal benefit (columns g & h). Thus, what the survivor has lost, due to the death of his or her spouse is the sum of columns c and g. (The survivor has not lost columns d and h because he or she is still earning the income to pay for those expenses.) This is the sole-dependency approach.

The cross-dependency approach asks the question, “What should happen with the share of the survivor’s income that the survivor would have spent on the deceased (column f)?” The cross-dependency approach finds that this income has been saved, and should be offset against the sum of columns c and g. It finds that the survivor’s loss equals c + g – f. (Instead of just c + g, which is the finding of the sole-dependency approach.)*

Note that the dependency losses using either sole- or cross-dependency are always reported as the total of c + g – f (for cross-dependency) or the total of c + g (for sole-dependency). This is conventional, but it would be equally reasonable to report the individual components under separate heads of damage. For example, considering the top row of Table 3, the results could be reported as follows:

Results Table

With the total cross-dependency loss separated into its individual components (above), it is clearer why I disagree with that approach. First, I do not believe that it is economically correct to deduct the portion of the survivor’s income that would have been allocated to the deceased’s personal expenditures ($10,500) from the other components of the loss. Second, I do not believe that this deduction is consistent with other forms of personal injury damage assessment.

From an economic standpoint, I do not agree that the survivor’s income that would have been allocated to the deceased’s personal expenditures ($10,500 in the above example) should be deducted from the other components of the loss. I think most would agree that individuals spend part of their income on their spouses because they want to – in economic terms, they receive an offsetting benefit. Following the death of a spouse, the best that a survivor can do is spend this money on alternative goods. But, since the survivor had previously chosen to spend this money on his or her spouse rather than these alternative goods, these goods must represent a “second-best” choice. For example if a surviving wife had previously been spending $3,000 on goods which benefited her (now deceased) husband alone, and she now spends that money on alternative goods then, at best, that expenditure leaves her no better off than before. She has simply transferred the $3,000 from one set of expenditures to another. Hence, the $3,000 should not be offset against her loss of dependency.

It is my view that the correct way to compensate the survivor in this case is for the defendant to provide her with the income contribution that her husband would have made, had the accident not occurred (that is, the contributions to common expenses and to expenses which benefited the survivor only). The portion of the wife’s own income that would have been spent on her husband should remain available to be spent elsewhere at its second-best use (on holidays, gifts, charitable contributions, or whatever). From an economic standpoint, this will not leave the survivor financially better off. To argue in favour of cross-dependency, one must surely explain why the survivor is expected to use a portion of her own employment income to offset the defendant’s obligation.

I also do not believe that the deduction component of the cross-dependency approach is consistent with other forms of personal injury damage assessment. Cross-dependency requires that a plaintiff’s losses due to an accident should be reduced by any “savings” due to the accident (see the discussion above). Similar “savings” are seen in other forms of personal injury damage assessment, but are not deducted from losses. For example, plaintiffs who will be forced to retire early (or are unemployable) due to their injuries will “gain” a great deal of leisure time during the years when they otherwise would have worked. The value of this gain in leisure is not deducted from their losses. A father who was injured in a car accident that killed his son will now “save” the money he would have spent on his son. That savings is not deducted from the father’s loss of income award. Quadriplegics will “save” money on shoes, golf memberships, ski passes, and so forth. That savings is not deducted from their other losses.

Another difficulty with the cross-dependency approach is that if one follows the methodology consistently, it leads to indefensible results in many cases. Following the examples shown in the tables above, we see – below – that if the deceased’s income was much less than the survivor’s then cross-dependency will show that the survivor’s loss is negative (a net gain).

Table 4

As shown by the examples in Table 4 (above), the sole dependency approach yields results that are, intuitively, much more reasonable, given a wide range of income assumptions. The sole-dependency approach will never find that a survivor is financially “better off” following the death of his or her spouse. As shown, the cross-dependency approach will yield such a result in cases in which the deceased earned much less than the survivor.

The “negative loss” results generated by the cross-dependency approach are often ignored, and it is stated that the survivor has suffered “no net financial loss”. Of course the true result implied by the cross-dependency approach is that the survivor has experienced a net financial gain. Cross-dependency is always ignored when the deceased did not earn any income (and the survivor was the sole income earner), since the method – if followed – will always show that the survivor is financially better off. If the cross-dependency approach was accepted, it would seem that in such a case the survivor’s gain in net income should be offset against his or her loss of dependency on household services. Of course it is not. In my view, part of the reason why the cross-dependency approach has enjoyed some level of acceptance is because its supporters only use it when it yields results that seem intuitively reasonable. When cross-dependency leads to the nonsensical results described here, it is usually (if not always) abandoned.

Footnotes

* Note that the above description of cross-dependency is sometimes stated differently, although mathematically it is the same. The other way to describe cross-dependency is that it is 70 percent of the couple’s combined pre-accident income, less the survivor’s income. That is, 0.7[a + b] – b, using the above table. This is the same as 0.7a + 0.7b – b. Note also that 0.7a = c + g; 0.7b = d + h; and b = d + f + h. Thus the cross-dependency loss equals c + g + d + h – [d + f + h]. This reduces to c + g – f, which is exactly the same as I noted above. [back to text of article]

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

Autumn 1999 issue of the Expert Witness newsletter (volume 4, issue 3)

Contents:

  • The Current Status of Survival of Actions Act Claims
    • by Christopher Bruce
    • In this article Christopher Bruce discusses two trial court decisions concerning the method by which claims for loss of earnings are to be calculated under the Survival of Actions Act. He argues that, although these two decisions clarify many of the outstanding issues in this area, a number of crucial problems remain unresolved.
  • The Calculation of Damages in Sexual Abuse Cases
    • by Matthew Foss
    • In this article Matthew Foss offers a brief review of the academic literature concerning the impact of sexual abuse on the victim’s psychological well-being, education, and earning capacity. This is the first of a two article series. The second part, to be published in the next issue of the Expert Witness, will discuss the response of the courts to these lawsuits.
  • Increased Earnings After Injury
    • by Michael Behr
    • In this article Michael Behr – a forensic economist from Northfield, Minnesota – asks whether or not an injured person has sustained a loss if the injury forces a change in occupation which produces higher income. He argues that any suggestion that injury is beneficial contradicts fundamental economic principles.

Rates of Return to Advanced Education in Alberta

by Kelly Rathje

This article was originally published in the winter 1999 issue of the Expert Witness.

Conventional wisdom appears to suggest that, if young Canadians wish to be competitive in today’s economy, they should concentrate on the relatively technical disciplines, such as engineering and business. I have tested this “wisdom” using information about post-secondary education in Alberta.

In my study, I assume that post-secondary education represents an investment that the individual makes in him- or herself. As with any investment, the investor expects to receive a return on that investment. By calculating the implicit “rates of return” on investment in various types and levels of post-secondary education, and then comparing those rates with the interest rate one could expect to receive on a secure financial investment, I hope to answer the question: “does higher education pay off”?

To understand what is meant by a rate of return on “investment” in education, consider the following simple example. Assume that, at age 20, you were told that if you spent $10,000 on a particular investment, you would be paid $500 per year for the rest of your life. It is easy to see that that investment was equivalent to spending $10,000 on a bond that paid 5% interest (for the rest of your life). Similarly, imagine that if you were to spend $10,000 on education at age 20, that education would result in an increase in your income of $500 per year (for the rest of your life). The purchase of that education could be thought of as yielding an annual rate of return of 5%.

I calculate the rates of return on various types of educational investments and compare those rates of return to the interest rates that one can obtain on secure financial instruments. For the latter purpose, I use a real interest rate of 4.25 percent, (the usual discount rate in personal injury assessments). If the rate of return on a particular level of education is greater than 4.25 percent, then I consider that level of education to be a worthwhile investment for the individual.

When thinking of education as an investment, it is first necessary to identify the “costs” of that investment and the benefits. The cost component of my analysis is composed of tuition fees, the costs of books and supplies, and, most importantly, the income that is “given-up” by choosing to attend school rather than enter the labour force. The benefit component is measured by the increase in income from having one level of education rather than another. For example, the benefit of having a bachelor’s degree over a high school diploma would be measured by the difference in the earnings stream, after the completion of the bachelor’s degree, over the earnings stream of a high school diploma holder.

Before the rates of return were calculated, I examined average incomes by level of education. From my results, the average incomes for males are greater at all levels of education (high school to Ph.D. degrees) than for females. High school resulted in the lowest income, followed by trade school, then college. For the different university degrees available, average income increases with education. The Ph.D. graduates earned the highest incomes, for both males and females.

These results were not a surprise, there have been many studies and articles written about the relationship between education and income. Post-secondary education results in increased average incomes, and the higher the level of education, the higher the average income. Also, the male incomes are higher than the female incomes, another result that is not surprising.

Turning to the rates of return, I found that overall, the highest return on investment (that is the highest benefits relative to the costs) results from university education. (See Table 1.) Among university graduates, bachelor’s degrees resulted in the highest rate of return. (See Table 2.)

Table 1: Private Rates of Return from Post-secondary Education: Alberta

Table 1

Table 2: Private Rates of Return from University Education: Alberta

Table 2

Overall, the graduate degrees do not offer rates of return on investment that are as high as the rates earned on undergraduate degrees, either for males or females. Many programs at the graduate degree level did not meet my 4.25 percent benchmark, implying that the cost of obtaining this level of education is not justified by the return on investment.

The highest returns for males result from the science and technical programs such as commerce, engineering, and science. (See Table 2.) Females, by comparison, receive the highest returns from the commerce, nursing and health programs – again the more technical programs. The same result occurred at the master’s level, where the science and technical programs offered the highest returns for males. For females, commerce offered the highest return. The next highest resulted from the education and social sciences programs – liberal arts programs, rather than the more technical programs. At the Ph.D. level, the humanities program for males and the fine arts program for females result in the highest return on investment. Thus, at the Ph.D. level, the highest returns result from the liberal arts programs, not the science and technical programs that fared well at the undergraduate and master’s levels.

Females generally receive a higher return on investment than males, even though the resulting incomes are lower than for males. The lower average incomes for females means that the amount of income “given up” while attending post-secondary institutes is less for females than for males, making the costs for females lower. Since costs are lower, it does not take as long to recoup the investment.

A surprising result is that the return to college and trade education falls just short of my 4.25 percent benchmark. This implies that an individual considering investing in this level of post-secondary education would receive a higher return on their money by allocating the funds to an alternative investment, or attending university. Although the average incomes do increase with any type of post-secondary education, from an investment perspective, the returns resulting from trade and college education are not as high as from a university education.

My results indicate that individuals planning to “invest” in post-secondary education would receive the highest return from an undergraduate degree, especially the science and technical programs. The increase in income will more than cover the cost of attaining the degree, meaning the investment will “pay-off”. Diploma and certificate programs offered by trades and colleges do increase average incomes, but it is questionable whether or not these “pay off” from an investment perspective based on my assumptions. The average income these graduates receive is higher than income received by high school graduates, but the increase may not cover the entire cost of acquiring the education.

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Kelly Rathje is a consultant with Economica and has a Master of Arts degree (in economics) from the University of Calgary.

Increased Earnings After Injury

by Michael Behr

This article was originally published in the autumn 1999 issue of the Expert Witness.

Has an injured person sustained a loss if the injury forces a change in occupation which produces higher income? Definitely. Any suggestion that injury is beneficial contradicts fundamental economic principles.

Resources

Economics allocates resources to competing uses which forces choice. The possession of a higher quantity and quality of resources is the power to realize more valuable choices. Injury, virtually by definition, is a reduction in the quantity or quality of resources possessed by the injured party. Therefore, injury constitutes economic loss.

Cross Section versus Time Series

Sleight of intellect puts damages into time series and concludes that higher post-injury income shows no loss. But the issue in damages is not the time series difference between yesterday without injury versus today with injury. Rather, damages are the cross sectional difference between today without injury and today with injury. Time series violates the required ceteris paribus conditions because the passage of time incorporates many changes in addition to the injury itself, most notably of course, the occupational change producing the higher income.

The naïve are seduced by the replacement of cross section with time series because life is lived in time series, whereas the cross section requires abstraction from experience to comprehend the alternative condition after injury but without the injury. The skilled tortfeasor defendant can be expected to attempt to substitute time series for the cross section if it leads to a lower or negative loss conclusion because of higher post-injury income. That defendant is emboldened by the realization that time series will probably have intuitive appeal to a jury. Plaintiff must therefore be vigilant and unyielding in preserving the cross section. If not, the defendant making an invalid argument to an economically naïve jury has an excellent chance of producing a perverse verdict to the detriment of plaintiff. Perverse verdicts are inconsistent with market values and therefore also reduce the general welfare of society.

Information

The thoughtful may attempt to rebut the above, arguing that information is central to the allocation of resources to their most valuable ends, citing the role of information as a condition of a competitive economic system. Inasmuch as it was the injury that “informed” plaintiff of the higher income opportunity, it is argued the damages should be credited with the higher income itself. This argument contradicts fundamentals underlying a market economic system in a society valuing individual liberty.

Noneconomic Values

The higher income opportunity undoubtedly existed prior to
the injury, but may have been rejected for noneconomic reasons. The disutility of the higher income employment may exceed the value of the higher income itself in the eyes of plaintiff. If so, forcing plaintiff to credit the damage with the higher income is to force plaintiff to substitute uncompensated noneconomic loss for what would otherwise be compensated economic loss.

Antisocial Incentives

Accepting the argument for crediting the damage with the higher income leads to the conclusion that I should waken my sleepy neighbor by disabling him to force him to replace his physical occupation with more sedentary higher employment. Further, he should pay me for this valuable service. This absurdity is a direct incentive to destroy resources, which in a world of resources insufficient to satisfy all competing ends is inimical to the interests of society.

Collateral Source

The economic essence of collateral source is compensation for injury occasioned by the injury itself. Generally, defendant is barred from a credit against liability for damage from collateral sources on the grounds that the social interest is served by not allowing a tortfeasor to escape the cost of his acts. This position is consistent with market economics where parties bear the cost of their actions in exchange for reaping the benefits. Although the discovery of a higher income occupation occasioned by an injury is not included as a collateral source in the law, its economic character is that of collateral source. The tortfeasor may not benefit from it as a matter of economics-and ideally in the law as well for whatever reason.

Mitigation

At some point collateral source comes into tension with the economically valid legal requirement that plaintiff must make the best of it under the circumstances. The market expects resources to find their way to their highest and best uses, including those held by injured plaintiff. This works to the benefit of tortfeasor and may include some obligation by plaintiff to move to a more suitable post-injury occupation which may turn out to be higher paying. How much disruption of plaintiff’s life to accommodate his/her injury is a reasonable obligation of plaintiff? Is he/she required to move to another planet, so to speak, to realize the higher income?

The consequence of this tension is that the damage will be bounded by the cross sectional differences between pre-and post-injury income in the pre and post-injury occupations. Inasmuch as the adequacy of plaintiff’s mitigation is inevitably directly or indirectly a jury question, the economist may be well advised to provide a damage conclusion based on the effect of the injury on both the pre-injury earning capacity in cross section and on the higher post-injury earning capacity in cross section. The injury’s hindrance of performance in the higher income employment may actually be greater than its hindrance of the pre-injury occupation in cross section. An expert vocational opinion may be a foundational requirement for each occupation.

If there are retraining or other costs to plaintiff necessary to realize the higher post-injury income, the value of the higher income must, of course, be net of those costs.

Conclusion: The destructiveness of an injury establishes the fact of an economic loss irrespective of pre and post-injury incomes or earning capacity. Plaintiff’s competitive position, and therefore his range of choice in the market is reduced by the injury, legal prohibitions of discrimination against the disabled notwithstanding. The forensic economist’s damage conclusion is, at its core, the value of that reduced range of choice.

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Michael Behr is a forensic economist located in Northfield, Minnesota. He holds a Ph.D. in Agricultural Economics from the University of Wisconsin-Madison. From 1969 to 1983 he was Associate Professor and Professor of Business and Economics at the University of Wisconsin-Superior teaching most undergraduate economics courses and statistics. Tired of University meetings, memos and the same old track by 1983, he resigned his University position for the greater fun and profit of full-time self-employment as a forensic economics sole practitioner. He has been involved in about 1,300 cases, about half of them small business matters with the majority of those farms and other agricultural matters. He may be reached at P. O. Box 430, 813 N. Linden St., Northfield, MN 55057. Phone 507-663-7124. Fax 507-663-1735. mbehr@mrb.com.

The Current Status of Survival of Actions Act Claims

by Christopher Bruce

This article was originally published in the autumn 1999 issue of the Expert Witness.

In Duncan v. Baddeley, Alberta Court of Appeal ruled that claims for loss of earnings were to be permitted under the Survival of Actions Act. Since that time, two trial court decisions have commented on the method by which this claim is to be assessed – Duncan v. Baddeley (Justice Doreen Sulyma) and Brooks v. Stefura (Justice Paul Belzil). In this note, I will argue that, although these two decisions clarify many of the outstanding issues in this area, a number of crucial problems remain unresolved.

Issues Clarified

The Duncan and Brooks trial decisions provided clear signals concerning the elements of the Court of Appeal decision that would be given greatest weight. In particular, two paragraphs from the latter decision were quoted by both Sulyma, J. and Belzil, J.

[37] The flaw in the “lost saving” approach is that it is heir-centred, not victim-centred. It asks what the heirs lost, not what the victim lost. But the suit here is not for the loss to the estate, it is a suit by the victim for his loss, a claim that by operation of statute survives his death and can be made by his estate for him. Worse, it has the air about it of an attempt to undermine the statute. As a result of this flaw, the approach will fail to take into account what has been called “discretionary” spending, like holidays and entertainment and other “treats.” It will also fail to take into account gifts to children and spouses, and thereby underestimate even an heir-centred award.

[42] In sum, Ms. Taylor in her excellent submission persuades me to accept in large the “available surplus” approach accepted by the U.K. Court of Appeal in Harris v. Empress Motors; Cole v. Crown Poultry Packers, [1983] 3 All E.R. 561, and adopted by the British Columbia Court of Appeal in Semenoff et. al. v. Kokan et. al. (1991) 4 B.C.A.C. 191; 84 D.L.R. (4th) 76. But it seems to me that it follows that a further deduction should be for expected income tax…

Lost Savings

In Galand, the Court of Appeal had directed that in Survival of Actions Act cases the estate was to be compensated for the value of the deceased’s (after-tax) income net of “personal living expenses.” Following Galand, some defendants argued that, as all expenditures could be considered to be directed to personal living expenses, the only portion of an individual’s income that would remain after deduction of those expenses was savings. Hence, the Survival of Actions claim was simply for lost savings.

Both Belzil, J. and Sulyma, J. concluded that the Court of Appeal decision in Duncan v. Baddeley required that “personal living expenses” were to be something less than total expenditures on consumption; and that the Survival of Actions claim was to be for something more than “lost savings.”

Available Surplus

In particular, that “something more” was to be calculated by deducting the “available surplus,” as calculated in Harris, from total after-tax income.

Justice Sulyma clarified that the “available surplus” approach was to be employed in the following manner. First, determine the deceased’s expected marital status and expected number of children. Second, estimate the percentage of the after-tax income of the deceased that would have been spent on: items specific to the deceased; and the percentage that would have been spent on items common to all members of the family (often called “indivisibles.”) Third, divide the indivisibles figure by the number of individuals in the family. Finally, deduct the sum of that figure and the figure for the deceased’s expenditures on him or herself from after-tax income. The result is the “available surplus,” that is, the amount to be compensated.

As an example, assume that it has been determined that a deceased male would have married and had two children. Assume also that evidence has been led to indicate that, of his after-tax income, 20 percent would have been spent on items that benefited the deceased alone (for example, expenditures on food and clothing) and that 30 percent would have been devoted to indivisibles. One quarter of the latter, or 7.5 percent, would be attributed to the deceased. Hence, it would be concluded that 27.5 percent of the deceased’s after-tax income would have been devoted to his maintenance and the estate would be compensated for the remaining 72.5 (= 100 – 27.5) percent, (the available surplus).

Two Technical Issues

At least two “technical” issues remain unresolved. First, the court has not turned its mind to the question of how to vary the available surplus over the individual’s lifetime. For example, if it has been assumed that the deceased would have had two children, it would seem reasonable to reduce the available surplus once the children left home. The general assumption is that, for a couple without children, 30 percent of family income is devoted to items that benefit one partner alone and 40 percent is devoted to indivisibles. Hence, once a couple’s children have left home, the available surplus should be assumed to fall from 72.5 percent to 50 percent (= 30 + (0.50 x 40)).

Second, it might be argued that the appeal court’s ruling that the available surplus was to be more than “lost savings” implied that all of the deceased’s expected “savings” should be included in the award. As a significant portion of the indivisibles represents purchases of capital assets, such as the family home, it might be argued that expenditures on those purchases are “savings.” As such, they should not be deducted from the award. This issue has not been resolved.

Two Conceptual Issues

In addition, the Court of Appeal decision in Duncan raises two conceptual issues that have not, as yet, been dealt with satisfactorily. First, that decision concludes both that the award should be something more than lost savings and that the available surplus approach is to be used. But, in certain circumstances, the latter approach yields results that are identical to the lost savings approach.

In particular, assume that the deceased was not married and that evidence has been led to suggest that he or she would never have married. In that case, the available surplus approach requires that all of the individual’s expenditures on personal items, plus all of his or her expenditures on indivisibles, be deducted from after-tax income. But the residual from that calculation is simply the individual’s savings. Does the Court wish us to compensate this individual’s estate for his/her savings, after explicitly rejecting the lost savings approach? The answer is not clear.

Second, note that the Court of Appeal ruled that the lost saving approach was flawed, in large part, because it “… will fail to take into account what has been called ‘discretionary’ spending, like holidays and entertainment and other ‘treats,’ … [and because it] … will also fail to take into account gifts to children and spouses.” [para. 37]

The simplest interpretation that can be given to this wording is that expenditures on holidays, entertainment, and other “treats” are not to be deducted from the estate’s claim. That is, if the lost saving approach is flawed because holidays, entertainment, and other treats are excluded, it surely must follow that, in the non-flawed approach, those items are to be included.

But the available surplus approach excludes these expenditures from the claim. The percentage of income that is devoted to expenditures exclusively for the benefit of the deceased includes expenditures that the deceased would have made on holidays, entertainment, etc. And the available surplus approach explicitly deducts expenditures made for the sole benefit of the deceased. Again, the Court ruling is found to be internally inconsistent.

Conclusion

The long saga that was initiated with the Court of Appeal ruling in Galand continues. Although the recent trial court decisions in Duncan and Brooks provide some clarification concerning the manner in which Survival of Actions Act claims are to be calculated, many issues remain to be resolved. Further rulings, perhaps from the Court of Appeal, will be required before a clear picture emerges.

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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).

The Calculation of Damages in Sexual Abuse Cases

by Matthew Foss

This article was originally published in the autumn 1999 issue of the Expert Witness.

In the last decade, there has been a dramatic increase in the number of sexual assault victims who have sued their abusers in tort. The purpose of this article is to offer a brief review of the academic literature concerning the impact of abuse on the victim’s psychological well-being, education, and earning capacity. A second article, to be published in the next issue of this newsletter will discuss the response of the courts to these lawsuits.

Caveat

Any survey of the sexual abuse literature must begin with a caveat concerning the reliability of the research – that being that much of this research is unreliable due to the use of naïve or biased techniques.

One type of research investigates samples of adult patients in therapy. Since participants in these surveys are already in treatment, there is little doubt that the studies will find that the victims of abuse have disorders. In most cases, adequate control groups are not used to compare the results with, nor are measures taken to find the proportion of sexual abuse victims that sought out clinical treatment. Therefore, most of the results from these studies are questionable at best.

The other major type of research is biased in the other direction. Samples from the general population are taken. Although this gives a slightly more representative sample, in that it has a built-in control group, those that might have been most seriously affected by sexual abuse, the patients at mental institutions, are excluded.

Also, many of these samples use data that were not collected using consistent definitions of sexual abuse. Koverola et al argued that making a distinction based on the severity of the type of sexual abuse is arbitrary, and is likely meaningless. The magnitude to which intercourse is more damaging than manual penetration is difficult to determine, if it exists.

Moreover, the data are often based on subjective recall by survivors, with no objective methods to validate responses. Wachtel and Scott assert that many studies do not differentiate between the different forms of child sexual abuse, nor have they used a standardized outcome measure for cognitive or psychological functioning.

Wachtel and Scott further argue that researchers have an incentive to exaggerate the consequences of the sexual abuse. Their reason for this is to induce more support. If the effects are seen to be minor, then the need for response is also small

Impacts on Psychological Well-Being

Finkelhor and Browne reviewed the child sexual abuse literature. They found that at least eight non-clinical studies had reported that women within the general population, with a history of child sexual abuse, had identifiable mental health problems. They also found that only one study that attempted to find mental health impairment, in a non-clinical sample, had failed to find it.

According to the authors, among the more commonly found problems were: depression, self destructive behavior, anger and hostility, poor self esteem, feelings of isolation, difficulty trusting others, marital and relationship problems, and a tendency towards revictimization. Moreover, Finkelhor and Browne found that child sexual abuse was frequently cited as a background to substance abuse, prostitution, multiple personality disorders, and borderline disorder.

They further found that five empirical studies had shown that child sexual abuse was associated with increased likelihood of subsequent victimization Moreover, sexual abuse victims were more likely to be in abusive relationships. Their hypothesis was that sexual abuse makes victims more vulnerable to abusive individuals, or perhaps unable to anticipate dangerous sexual situations.

Conte, Berliner, and Schuerman employed a sample of 369 child sexual abuse victims that were assessed at the time of disclosure, and seen at a sexual abuse center. Two measures were used to assess the subjects, a symptom checklist was completed by the health care worker and a child behavior profile was completed by the non-offending parent. The victims ranged in age from four to seventeen years of age. The definitions of sexual abuse and their reported frequencies, within the sample, included: oral sex, 18% of the population; vaginal-penile intercourse, 19% of the population; and fondling, 62% of the population.

The results, as measured by the symptom checklist completed by the health care workers, showed that 18.7% of the sample had signs of depression, 32.8% exhibited low self esteem, and 15.4% had signs of academic problems. The authors found that victims of child sexual abuse differed from a comparison group, in a statistically significant manner, in a number of areas. These areas included: a lower self-esteem, more aggressive behavior, more fearful, and more difficulty in concentrating.

Wachtel and Scott concluded that there were three types of effects. The first of these are direct impacts, such as anxiety and low self-esteem. Second, there may be manifestations of these direct impacts, like school problems or sleep disorders. Finally, symptoms may arise from unsuccessful or dysfunctional attempts to cope. Among these are delinquency and prostitution.

Sauzier, Salt, and Calhoun used a sample of children entering the Family Crisis Program. Examining the preschool children in their study, they found that compared to a control group of “normal” children, their sample exhibited significantly higher overall pathology, and more specific difficulties. Most importantly, cognitive ability was significantly lower for the sample group than for the ‘normal’ group. However, there were not significant differences with respect to antisocial behavior, intellectual deficit, and hyperactivity.

Looking at a pre-adolescence group, the seven to thirteen year olds, a similar trend was evident. The abuse victims exhibited more psychopathology than did the normal group. However, in this age group, both academic disability and learning disability were not statistically different from the treatment group.

Sauzier, Salt, and Calhoun reached several postulates as a result of their study. First, children that suffered physical injuries during the sexual abuse were at greater risk for exhibiting behavioral problems. Moreover, those suffering aggression would be likely to be hostile and have fears about the aggressiveness of others. They observed that the age of onset and the duration of abuse were not related to negative effects on the child.

Suprisingly, they found that children who were sexually abused by stepfathers exhibited lower self-esteem than those children that were abused by their biological fathers. Their explanation for this result was that children with stepparents were more likely to have suffered from disrupted family environments. Angry reactions on the part of the mother after learning of the abuse were related to lower self-esteem, as should be expected.

Nash, Zivney, and Hulsey investigated a sample of 102 randomly selected sexual abuse cases that were being treated at a clinic in Dallas. The results of their study showed that children who were abused by more than one perpetrator were the most likely to suffer impairments. Other factors that made the abuse more likely to generate severe outcomes included: the earlier the abuse started, the greater the number of incidents, and the frequency not the duration of the abuse.

Crucially the authors found that the prognosis was worse when the family had been disrupted. They concluded that a child facing sexual abuse might be a product of a very neglectful household. Given this factor, it may be very difficult to determine where the effects of the neglect end and the effects of the sexual abuse begin.

Wachtel and Scott argue that it is important to examine the environment within which child sexual abuse occurs. Factors that often are associated with child sexual abuse are physical abuse, neglect, and parental alcoholism. It may be that the apparent symptoms of the abuse would have arisen even if the abuse had not occurred, because of the presence of these other negative influences on the child’s well-being. Furthermore, even if these other factors did not themselves “cause” psychological harm, they may have inhibited the victim’s ability to cope with abuse.

Wachtel and Scott also argue that if we accept that child sexual abuse is a complex situation that includes other factors beyond the sexual abuse, then we need to re-examine the question that we are asking. Instead of asking does child sexual abuse result in negative outcomes for victims, or what are the impacts of child sexual abuse, the questions need to be refined. Questions such as what effects are specific to child sexual abuse, and what are the incremental effects of child sexual abuse when neglect or physical abuse are also present, need to be examined.

Finkelhor and Browne argued that most studies were better at establishing the fact that sexual abuse constitutes a risk factor for later long-term effects than at determining the magnitude of the risk. They argued that less than one third of victims of child sexual abuse show serious psychopathology, although the remaining two thirds are not symptom free.

In an attempt to determine what the more significant factors were that made a victim more likely to suffer more serious outcomes, Finkelhor and Browne considered several possible factors. They cited Russell’s finding that 59% of victims suffering completed or attempted intercourse, or oral sex said that they were extremely traumatized. They also argued that not all studies established a difference between the impacts of abuse by a relative compared to a non-relative. Their speculation was that this distinction might not model the closeness of the relationship. It may be possible that a friend of the family may have more of a bond with the child than a distant relative.

They did find that the use of force was an important traumatic factor. Victims that suffered physical coercion had increased trauma. The duration of the abuse was associated with increased trauma in only three of eight studies that examined this relationship. Perhaps this is due to the fact that duration does not always capture frequency. For example, it is possible that an abusive situation might last for a period of years with only two or three incidents. Compare this to a situation where the abuse takes place over a week but involves a dozen or more instances of sexual abuse

The Effects on Education and Standard of Living

Reyome studied the school performance of sexually abused and neglected children. These were compared with non-abused children drawn from two groups -from families on public assistance and from lower middle-class families. Information was gathered on the cognitive achievement of all the subjects.

When school-based measures were used, the sexually abused children were more likely to have received lower grades than the control groups. Spelling and math achievement exhibited the largest differences. Moreover, almost half of the sexually abused students had repeated a grade, compared to less than one-third of the matched public assistance, and one-sixth of the matched lower middle class students.

Macmillan argued that the consequences of abuse included both the amount of education a victim hopes to attain, and the amount of time and energy that is given to schoolwork. This lowered investment in education was expected to both lower grades and interfere with the level of education that a victim would attain. Moreover, he argued that since educational attainment is a key determinant of occupational status, victimization would have the effect of lowering occupational status.

To test his model, Macmillan made use of two data sources: the U.S. National Youth Survey, a longitudinal study involving 1725 youths aged 11-17 that took place over a ten year period; and the Canadian General Social Survey (1993).

Using the National Youth Survey, Macmillan reported that adolescent victimization has a negative impact on earnings. Using three measures of violent victimization, he found that earnings per hour were one dollar lower for those that were victims. However, he did not find, when looking only at sexual assault, that there was a statistically significant difference over non-victims.

When Macmillan used the GSS data, he found that sexual assault victims suffered an income deficit of about $6000 per year. Again, the data supported his model showing that an additional year of education was associated with an increase in income of $1500 per year.

Macmillan further tested to see whether there was an impact of age of the victim at the time of abuse. His findings were that when the victim was in adolescence during the victimization, annual income was decreased by $6000 using CGSS-93 data. This is compared to an annual decrease of $3700 when the victim was eighteen or nineteen at the time of the violence. Macmillan argued that this again was consistent with the life course model. The greatest damage to earnings is done during adolescence, when the victimization has more impact on the socio-economic life course.

Summary

Briefly, I believe that the following conclusions can be drawn from a review of the academic literature:

  • Not all victims of sexual abuse suffer long-term, observable psychological harm. Indeed, as many as two-thirds of victims show no significant effects.
  • Abuse may be more harmful if it is prolonged or violent.
  • Victims suffer from depression, anger, hostility, marital problems, and self-destructive behavior.
  • Victims of sexual abuse are at increased risk for further sexual assault, such as rape; and show a high risk for substance abuse and prostitution.
  • In many cases, it is not clear whether it was the sexual abuse itself, or the unhealthy psychological climate in which the child lived that led to the perceived psychological damage. Many victims of sexual abuse live in dysfunctional families, often with long histories of substance abuse and marital discord.
  • Evidence of the long-term effects of abuse on educational attainment and labour market earnings is not strong. Some studies have found significant effects, but the number of statistically reliable studies is extremely small.

References

Asher, S.J. “The Effect of Childhood Sexual Abuse: A Review of the Issues and Evidence” In Walker, L. E. A. (Ed) Handbook on Sexual Abuse of Children, (New York: Springer Publishing Company, 1988) pp. 1-17

Bagley, C. and K. King Child Sexual Abuse: The search for healing, (London: Tavistock/Routledge, 1990)

Bell, D. and K. Belicki “A Community-Based Study of Well-Being in Adults Reporting Childhood Abuse” Child Abuse and Neglect Volume 22 No. 7 (1998) 681-684

Cantwell, H.B., “Sexual Abuse of Children in Denver, 1979, Child Abuse and Neglect, 5, (1981), 75-85.

Chandy J. M., R. Wm. Blum., M.D Resnick, “Gender-specific Outcomes for Sexually Abused Adolescents” Child Abuse and Neglect, Volume 20 No.12, (1996), 1219-1231

Conte J. R. and L. Berliner “The Impact of Sexual Abuse on Children: Empirical Findings” In Walker, L. E. A. (Ed) Handbook on Sexual Abuse of Children, (New York: Springer Publishing Company, 1988) pp. 72-93

Conte, J. R., L. Berliner, and J. Schuerman, Impact of Sexual Abuse on Children, unpublished: University of Chicago School of Social Service Administration, (1986).

Finkelhor, D. and A. Browne “Assessing the Long-Term Impact of Child Sexual Abuse: A Review and Conceptualization” In Walker, L. E. A. (Ed) Handbook on Sexual Abuse of Children, (New York: Springer Publishing Company, 1988) pp. 55-71

Koverola, C. et al “Relationship of Child Sexual Abuse to Depression” Child Abuse and Neglect Volume 17, (1993) 393-400

Macmillan, Ross “Adolescent Victimization and Income Deficits in Adulthood: Rethinking the Costs of Criminal Violence from a Life Course Perspective”, Working Paper Department of Sociology University of Minnesota, (1999)

Nash, M. R. , O. A. Zivney, and T. Husley “Characteristics of Sexual Abuse Associated With Greater Psychological Impairment Among Children” Child Abuse and Neglect Volume 17 (1993) 401-408

Reyome, N.D. “Comparison of the School Performance of Sexually Abused, Neglected and Non-Maltreated Children”, Child Study Journal, Volume 23 No. 1 (1993), 17-38

Russell, D.E., “The Incidents and Prevalence of Intrafamilial and Extrafamilial Sexual Abuse of Female Children” Child Abuse and Neglect, 7 (1983), 133-146.

Schwartz, B.G. et al Child Sexual Abuse (Newbury Park: Sage Publications, 1990) pp. 75-108

Wachtel, A. and B. Scott “The Impact of Child Sexual Abuse in Developmental Perspective” In Child Sexual Abuse Critical Perspectives in Prevention, Intervention, and Treatment (Eds) Bagley, C.R. and R.J. Thomlison (Wall & Emerson Inc: Toronto, 1991) pp 79-120

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Matthew Foss was an MA student in the Department of Economics at the University of Calgary

Injured, Yet Better Off?

by Scott Beesley

This article was originally published in the summer 1999 issue of the Expert Witness.

We occasionally encounter the claim that a plaintiff is better off financially than before the accident, or at least will be better off in the future. The evidence for this is usually that they are now earning more than they did at the time of the accident. Therefore how can there be any loss? This is not really very hard to respond to, and there are several reasons why there may still be a modest, or very substantial, loss of future income.

In an article in the March 1999 Barrister, Mr. Cameron J. Ashmore of Russell & Company provided a discussion of this issue, within a broader analysis of possible approaches to future loss assessment. Mr. Ashmore listed four reasons why a person who was apparently earning more might still have a loss of future income: early retirement, increased risk of unemployment, reduced future wage growth, and the prospect of time missed from work over the years. All of these are certainly legitimate concerns, and we commonly address them in our work. They all require, however, subjective judgments regarding the future effects of injury, which are difficult even for vocational experts to assess. If vocational opinions are not provided, or if the plaintiff’s outlook is less than clear, then we commonly consider a range of alternatives
(i.e. various growth, contingency and retirement assumptions). The court can then choose the figures it finds most reasonable in the pre- and post-accident cases, and the loss follows from that. If the court, for example, finds that all of these effects are fairly minimal, then indeed a small future loss is all that will result.

There is another issue to consider in these cases, and that
is wage growth between the date of the accident and the date of the evaluation. I would suggest that in some cases, a future loss is denied on the basis of faulty logic, in that
post-accident wage growth in that period is accepted as a fact, while pre-accident wage growth is implicitly or explicitly not considered. We refer now to wage growth in the general sense of any career progression, either incremental or sudden (such as when improved educational standing leads to a quick increase in income). It should be quite obvious that, no matter how minimal the injury, a plaintiff is never more capable of vocational progress after an injury than before, yet that is commonly implied or suggested outright.

Consider the example of an average male college graduate, injured at the age of 27, when he was earning $32,000. Five years later, at age 32, he is earning $33,000. First, we note that inflation alone applied to the older figure would probably predict an income of roughly $34,500, so even with just that adjustment there is an immediate loss. Much more important is the fact that 1996 Census data would predict that over those 5 years, the plaintiff’s income would have grown by approximately 22.56 percent, plus inflation. Assuming cumulative inflation of 8 percent over the five years, the total estimated increase in pre-accident income is 32.36 percent, and the value of pre-accident income at age 32 is
$42,355. The loss from age 32 to 33 is seen to be approximately
$9,355, and of course this loss may continue through to retirement. (In many cases the annual loss will decrease over time, simply because an average income curve starts with higher growth and levels off, such that a plaintiff who is five years behind, for example, will eventually get closer to their pre-accident level.)

I realize that the above example seems quite trivial, but we have repeatedly seen analyses in which post-accident figures are compared to pre-accident income from several years before, and inflation, or pre-accident wage growth, or both, are ignored. While there is certainly room for argument regarding how much more pre-accident wage growth a plaintiff might have enjoyed, it can never be considered logical to say that they will enjoy better prospects and wage growth after being injured. It is also flatly wrong to compare a post-accident figure to a pre-accident figure from several years before, without adjusting for inflation.

When a high school graduate plaintiff, in another example, retrains 4 years after the accident, and obtains a diploma in technology, their income could easily be far greater than before the accident. I would suggest that it is generally wrong to suggest that there is no future loss. I would further suggest that one fair way to assess the loss is to assume that the plaintiff would have completed the same given diploma one to three years sooner, in the absence of the accident. The loss then is the gap between pre- and post-accident income curves, which, as noted above, could almost vanish when growth slows in the later years of the person’s career. If the plaintiff had had no plans to enter such training until the accident occurred, that should not prevent the use of the method: clearly he/she had the potential to enter some form of training, and any such upgrade would have resulted in increased income. In addition to the loss resulting from a lag of some years, it is also possible that some of the four factors Mr. Ashmore listed will also be found to apply, and a more substantial loss might result.

In the absence of evidence regarding the plaintiff’s intentions prior to the accident, it is reasonable, I would argue, to assume that the plaintiff would have followed the same career path had the accident not occured as he/she has been observed to follow after the accident. If the new field is about as lucrative as any they could have entered, without injury, then there is probably no loss beyond what is due to the time lag and, possibly, some increased contingency risk. The loss is limited to the delay and probably some increased contingency risk. Conversely, the defense should not be able to claim that, because of the accident, the plaintiff has entered a new and better-paying field. To do so is, I repeat, to deny that the given path was possible before the injury, which makes little sense.

Two other examples merit brief mention. The first concerns women who are becoming more involved in work, after their children reach some particular stage (e.g. into grade 1). In such cases we might see a woman who had had very minimal income enjoy significant increases, even after an accident. This is occurring because they can now use their earlier training, or commit to full-time work, or move, or simply devote time to retraining and adding to their employability. It is again false to compare the income such a woman is now earning to what they were earning perhaps 6 years ago, yet this has been done at times. Any correct pre-accident scenario must be an answer to the question “What career path would have been open to Ms. Plaintiff, in the absence of the accident, and considering that her children are older and she can devote more time and energy to work?” One cannot use a pre-accident income level from the past, as if, in the absence of the accident, the children would never have grown up!

A final example is similar in principle to the case of the
“returning mother.” I have handled a fatal case in which pre-accident business income was assessed using the average of several years prior to the accident. As it happened, these were very poor years for the type of business in question, with returns well below the historical average. At about the same time as the accident, the business climate improved dramatically, producing higher returns for the surviving spouse, who was using a family member to replace some of the deceased’s labour. The opposing expert used income from the poor, before accident years to estimate pre-accident income, and an average in the later good years to define post-accident income. The plaintiff was said to be better off, before accounting for the (inadequate) wage paid to the family member to replace the deceased’s labour. After that was subtracted, the plaintiff was said to have suffered only a very slight loss. Note that this entire treatment is fatally flawed, as it assumes that the deceased would never have benefited from the improved business climate. Alternatively, it amounts to claiming that the accident
caused that improved business climate, which seems even more indefensible.

Any loss assessment should properly address the financial effects of changes which are due to the accident, and those alone. Other unrelated changes must be applied in both the pre- and post-accident analyses. Failure to compare apples to apples is an objective wrong, not simply a point of legitimate subjective dispute, like many of the assumptions made in most loss of income reports.

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

Summer 1999 issue of the Expert Witness newsletter (volume 4, issue 2)

Contents:

  • Advice for Experts Facing Cross-Examination
    • by Steve Babitsky and James Mangraviti, Jr.
    • This article was written by Steve Babitsky and James Mangraviti, Jr. of SEAK Inc., a consulting firm in Massachusetts. Their article contains some excellent advice for experts who are testifying in court.
  • The Role of Expert Evidence
    • by Christopher Bruce
    • In this article Christopher Bruce examines the difference between experts and lay witnesses. He summarizes some of the leading decisions concerning “The Role of Expert Evidence” from both the Canadian and American courts.
  • Injured, Yet Better Off?
    • by Scott Beesley
    • In this article Scott Beesley discusses the proposition that a plaintiff is better off as a result of an accident, explains why it is false, and provides some examples.

The Role of Expert Evidence

by Christopher Bruce

This article was originally published in the summer 1999 issue of the Expert Witness.

The readers of this newsletter are familiar with the use of expert testimony in the Canadian court system. Nevertheless, most of us would be hard pressed to provide a clear definition of the difference between experts and lay witnesses. On a day-to-day basis, the best many of us could do would be to paraphrase the old saw, “an expert is what an expert does.” On occasion, however, it may behoove counsel to examine closely the witness being put forward by opposing counsel and ask “is that individual truly an expert?” In this article, I summarise some of the leading decisions concerning this question from both the Canadian and American courts.

The classic Canadian statement of the role of expert evidence is found in Kelliher (Village of) v. Smith, ([1931] S.C.R. 672), in which the Supreme Court of Canada, quoting from Bevan on Negligence, concluded that in order for testimony to be considered “expert”

[t]he subject matter of the inquiry must be such that ordinary people are unlikely to form a correct judgment about it, if unassisted by persons with special knowledge. (p. 684)

Recently, in R. v. Mohan, ([1994] 2 S.C.R. 9, at 23) the Supreme Court elaborated on this requirement. There, Sopinka JJ stated that expert evidence must be both necessary in assisting the trier of fact and relevant. (Emphasis added)

Under the heading of “necessity in assisting the trier of fact” the Court made it clear that expert evidence was not to be admitted if the subject of the testimony concerned an issue which was within the common knowledge of the trier of fact. In particular, Sopinka JJ quoted approvingly from R. v. Turner, ([1975] Q.B. 834, at 841) in which Lawton, LJ concluded

An expert’s opinion is admissible to furnish the court with scientific information which is likely to be outside the experience and knowledge of a judge or jury. If on the proven facts a judge or jury can form their own conclusions without help, then the opinion of an expert is unnecessary. (R. v. Mohan, at 24)

Similarly:

…the evidence must be necessary to enable the trier of fact to appreciate the matters in issue due to their technical nature. (p. 23)

The Court ruled that, prima facie, expert evidence was “relevant” if it was “…so related to a fact in issue that it tends to establish it.” (p. 20) However, that was not to be the only criterion. In particular,

Evidence that is otherwise logically relevant may be excluded … if it involves an inordinate amount of time which is not commensurate with its value or if it is misleading in the sense that its effect on the trier of fact, particularly a jury, is out of proportion to its reliability. (p. 21)

Furthermore, relevance was also to include a test to determine whether the evidence was “reliable” and “essential.”

[E]xpert evidence which advances a novel scientific theory or technique is subjected to special scrutiny to determine whether it meets a basic threshold of reliability and whether it is essential in the sense that the trier of fact will be unable to come to a satisfactory conclusion without the assistance of the expert. (p. 25)

In short, the hallmarks of expert evidence were (a) that it concern matters of such a technical nature that the judge or jury could not be expected to reach a “correct” conclusion without assistance; and (b) that it be able to withstand close scrutiny to determine whether it was “reliable.” But those with some experience with litigation will recognise that this decision left many issues unresolved. Most importantly, a number of the terms that were crucial to the application of the Court’s decision were not defined. Without definitions of terms such as “special knowledge,” “reliability,” “novel scientific theory,” and “technical matters,” the lower courts were provided with little direction concerning the characteristics of “expert” testimony.

Some insight into the issues which can arise, and how the courts might resolve them, may be obtained by reviewing the interpretation which the courts in United States have given to Rule 702 of their Federal Rules of Evidence:

Rule 702. Testimony by Experts

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

As the wording of this Rule reflects the wording chosen by the Supreme Court of Canada in R. v. Mohan, the issues faced by the courts in both countries are similar.

Two recent decisions of the United States Supreme Court – Daubert v. Merrell Dow Pharmaceuticals, Inc. ([1992] 509 U.S. 579) and Kumho Tire Co. v. Carmichael, ([1999] 131 F.3d 1433) have ruled on the interpretation of the terms “scientific, technical, or other specialized knowledge” contained in Rule 702. In Daubert the court set out four criteria for determining whether expert testimony met the requirement that it constitute “scientific knowledge.” These are:

  1. Whether the theory or technique “can be (and has been) tested.”
  2. Whether the “theory or technique has been subjected to peer review and publication.”
  3. In the case of a particular technique, what “the known or potential rate of error” is or has been.
  4. Whether the evidence has gained widespread acceptance within the scientific community.

All of these criteria appear valuable for determining the admissibility of “scientific” evidence, such as the testimony of medical researchers. (The issue in dispute in Daubert was whether the drug Bendectin, when taken by pregnant women, had caused birth defects.)

These tests can also be applied to economic and psychological testimony, with some modifications. For example, the test of an economist’s or psychologist’s prediction that a particular child will graduate from university is not the usual “scientific” test, of waiting to see whether child does, in fact, graduate. Rather, it is a reference to the numerous statistical studies which have shown that a child’s ultimate educational attainment is significantly influenced by traits inherited from his or her parents and by such socio-economic factors as the child’s sex and his/her parents’ income and religion.

The second and fourth criteria are also applicable to testimony that is based on the use of theoretical constructs. For example, the concept of “opportunity cost,” which is the basis for one of the methods of valuing household services, has been developed by economists. Although it would be difficult to find direct empirical “tests” of this hypothesis, and its “potential rate of error” is not known; it has been “subjected to peer review and publication” and has “gained widespread acceptance within the scientific community.”

Similarly, whereas there is, to my knowledge, no published theoretical support for the use of the cross dependency approach to valuing fatal accident claims, a number of refereed articles provide such support for the use of the sole dependency approach. Again, although no “scientific evidence” can be offered that the latter approach is superior to the former, those who employ the latter can point to evidence of “peer review and publication.”

The Daubert criteria proved less applicable to issues involving “technical” knowledge, such as that often proffered by engineers, however. Accordingly, the United States Supreme Court agreed to hear Kumho Tire. In that case, a number of passengers in the plaintiff’s vehicle were injured when a tire blew out. An expert in tire failure analysis relied in part on his own (extensive) experience to conclude that the blow out was caused by a defect and not by misuse on the part of the plaintiff. As the expert’s testimony did not meet any of the criteria set out in Daubert, the issue in Kumho was whether “technical and other specialized knowledge,” as defined in Rule 702, was to be subjected to the same criteria as was “scientific knowledge.” The Court ruled that it was not. Testimony about a technical matter could be considered to be “expert” if it

…. focuses upon specialized observations, the specialized translations of those observations into theory, a specialized theory itself, or the application of such a theory in a particular case.

The function of Rule 702 was not to restrict expert testimony to a narrow set of “scientific” disciplines, but to

… make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.

This requirement, that “intellectual rigor” be applied, offers one of the most important “gatekeepers” when evaluating the testimony of those who have been put forward as expert witnesses. Too often “experts” offer no justification at all for their choice of a particular approach; or they offer little more justification than that it has “always been done that way” or that “a number” of courts have employed that approach. This is not evidence of intellectual rigor; nor does it meet any of the criteria for reliability or relevance set out by the Canadian and American Supreme Courts.

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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).

Advice for Experts Facing Cross-Examination

by Steve Babitsky and James Mangraviti, Jr.

Steve Babitsky and James Mangraviti, Jr., of the Massachusetts consulting firm, SEAK, have written a book entitled, How To Excel During Depositions: Techniques For Experts That Work. They have graciously given us permission to reprint the following excerpt from that book. Although their tips are specifically concerned with answers to questions at depositions, most of their advice applies equally well to cross-examination.

This article was originally published in the summer 1999 issue of the Expert Witness.

Avoid Absolute Words

You are well advised to avoid, where possible, absolute words such as “always” and “never.” Absolute words are frequently an invitation to, and fertile grounds for, cross-examination by counsel. Counsel will attempt to damage your credibility by first getting you to make an absolute statement. She will then use counterexamples in an effort to show the falsity of your statement.

Don’t Elaborate or Volunteer

Volunteering information can be one of the biggest mistakes an expert makes at deposition. Generally, an expert should answer only the questions she is asked and not volunteer information. The volunteering of information will almost always result in new lines of cross-examination. It may also disclose information to which counsel otherwise never would have become privy.

Be Careful When Using Hedge Words

You need to be careful when using hedge words when expressing your opinion. Such words include “I guess,” “I believe,” “it seems,” “it’s possible,” and “I would say.” The only reason that you are testifying is to give an opinion. Hedge words and phrases can quickly undermine your opinion and are an invitation for additional cross-examination. Worse, counsel may be able to make a motion to have your entire testimony stricken because expert guessing is not allowed under the rules of evidence.

Example:

Q: That’s your “guess,” sir?

A: Well, what I meant to say, that it was my opinion that….

Lesson: The expert needed to avoid the hedge words. If he had an opinion he believed in, he should have stated it without employing the hedge words.

Concessions

In answering questions honestly, you may have to make an occasional concession. If you make the concession graciously and move on, you will exude confidence, integrity, and flexibility. If, on the other hand, you doggedly refuse to give an inch, you may come off as rigid and partisan.

The most common error the beginning expert makes in a deposition is the failure to concede an obvious and irrefutable point out of misguided loyalty to his or her side of the case…. Quibbling over the possible exceptions or equivocating in some way helps no one.

“I Don’t Know”

If you are asked a question that you do not know the answer to, your answer should be, “I don’t know.” There is absolutely nothing wrong with this response if you genuinely do not know the answer to the question. There are probably thousands of questions that can be asked of experts in any discipline to which they have no answer. The more the expert hesitates or tries to avoid saying, “I don’t know,” the more emphasis is given to this “lack of knowledge” by the jury or fact finder. No amount of hesitation will bring the answer to you if you do not know it.

Example:

Q: If those wrist rests were unavailable prior to 1991, would you agree she had a higher probability then of being in a neutral position?

A: I don’t know. That’s an interesting question. I don’t know. I mean I guess that’s my answer, I don’t know. But I think the wrist rests certainly emphasizes, even though you have the Ridyard’s ergonomic assessment of 1994, if Miss Sanford and/or her supervisor were trained, that would not have been a product of choice.

Lesson: If you allow yourself to get flustered, your lack of knowledge will be emphasized to the jury. The expert in this example would have been better served by replying, “I don’t know” and then sitting quietly and waiting for the next question.

“I Don’t Recall”

When asked about a fact, situation, or occurrence that you honestly do not remember, the best answer is, “I do not remember” or “I don’t recall.” This is only an appropriate answer when you honestly have no recollection. Perjury ramifications aside, an endless string of “I don’t recalls” (or even one that may seem hard to believe) may tend to damage your credibility. If your response is that you do not recall, counsel may then attempt to refresh your memory. This is permissible under the rules of evidence.

Beware of Open-ended Questions

You should be cautious when dealing with open-ended questions. These questions invite long, rambling answers. Counsel may be trying to get you to volunteer information not called for by the question. If you do volunteer information, it is likely that this information will be used against you during cross-examination. You should therefore answer open-ended questions as concisely as possible, being careful not to provide information that was not asked for. Experts are better served by brief, succinct replies to open-ended questions. If counsel has follow-up questions, let her ask them. Don’t do the lawyer’s job for her.

Avoid Slang

Avoid slang expressions when replying to questions. When they are transcribed and read back to a jury, these expressions diminish the value of your reply and can make you sound almost illiterate. Most slang expressions slip from experts unintentionally. To avoid making such a slip, you will need to maintain your concentration and focus.

Example:

Q: Now, sir, you were asked on direct examination about the history that you took from Ronald Evans, right?

A: Uh-huh.

Q: And the history is the story that he tells you, correct?

A: Uh-huh.

Q: Is that a yes?

A: Yes, it is

Q: Are you familiar with an organization called M.O.R. Incorporated, sir?

A: Nope.

Lesson: The expert’s use of slang cheapens his testimony and diminishes his credibility.

Counsel’s “Bumble and Fumble” Gambit

Do not help counsel when he is apparently bumbling or fumbling with some type of technical question. Experts are frequently tricked into volunteering key information by such real or feigned ignorance. Let counsel bumble or fumble all they want. Remember, you are there to answer questions, not to assist counsel in framing them correctly.

Yes or No Responses

If counsel asks for a yes or no response and you can answer the question with a yes or a no, endeavor to do so. If counsel attempts to insist on a yes or no answer to questions that cannot be answered in that fashion, you can state, “I cannot answer that question with a yes or no reply.” It will then be up to counsel to either let you explain your answer or rephrase his question.

What to Do When You Make a Mistake

Expert witnesses are not expected to be perfect. During a long and arduous deposition, you may misspeak or make a mistake or error. If you do make a mistake, you should correct the error on the record as soon as you recognize your error. “I want to correct a statement I made a few minutes ago. I stated that the 1991 EMG was related to the surgery. That is incorrect.” Counsel may quickly challenge you on your mistake before you have an opportunity to correct it. In that case, admit your error graciously. What you want to avoid after making a mistake is making the matter even worse by your inability or unwillingness to admit the mistake. This could make you look biased. If you discover your mistake after the deposition concludes, notify counsel and correct the deposition transcript when it comes for your signature.

“I Don’t Know, But…”

As an expert witness, you are under oath to tell the truth. You should not speculate, but should testify with a reasonable degree of certainty. At trial, many experts do not practice this principle and, in fact, speculate freely. One of the most common forms of speculation by experts at trial is the “I do not know, but…” reply. It is usually a mistake to use this response. First of all, if you don’t know, then any information you provide after the “but” is mere speculation. Secondly, you may volunteer damaging information after the “but.”

The simple, direct, and best response is, “I don’t know.” The throwaway statements that come after the “but” or “I don’t know” reply help counsel by providing him or her with additional information. This type of reply frequently results in new lines of inquiry and detailed questioning by counsel.

“Hoping”

Sophisticated counsel may attempt to trap the expert witness by the use of the word hope. If you inadvertently agree with a characterization, you may allow the lawyer to successfully call into question the reliability of your opinion. When you are confronted with an “And you are hoping…” question, it may be best to actively refute that characterization. Remember that when you are passive and agree to an attorney’s characterization or mischaracterization, you are in effect letting the attorney put words in your mouth.

Refusal to Speculate

You should not permit yourself to be tricked, cajoled, or forced into speculating when answering questions under oath. There is nothing wrong with the response, “I’m sorry, but I’m not going to speculate on that.”

“Possibility”

Beware of the use of the word possible. Testifying that something is merely “possible” is most likely legally insufficient. If your opinion is only a mere possibility, the judge will most likely not allow it to be presented to the jury as evidence.

“I Guess”

As an expert, you are testifying under oath. Your testimony will help resolve the rights and liabilities of parties who are involved in a legal dispute. Accordingly, there is no place for you to guess. Experts are well advised to leave the guessing to financial advisers, political pundits, and meteorologists. Your “guesses” are not admissible in evidence. Guessing can only hurt your credibility. It should be avoided.

“I Don’t Understand the Question”

You need not answer questions that you do not understand. If the question propounded to you is confusing, the preferred answer is, “I don’t understand the question.” Exercise caution in giving “I don’t understand” replies to avoid answering questions improperly. For example, if you are one of the leading computer experts in the world and have testified that you didn’t understand a question about a browser, it is likely that your credibility will be impaired. You must answer truthfully and are permitted to answer, “I don’t understand” only when that is the actual case.

Compound Questions

Frequently, attorneys attempt to confuse the expert at deposition by asking compound questions; that is, two questions combined. Sometimes the question is asked in a stream of consciousness manner that is difficult to comprehend, let alone answer accurately. When faced with such questions, appropriate responses include: “Counsel, you have asked several questions. Can you simplify the question so I can answer it accurately?” and, “Counsel, I’m sorry, I don’t understand the question. Could you please rephrase it?”

“I Assume”

You should not make unfounded or unsupported assumptions in an attempt to answer a question. If you can’t answer or don’t know the answer, say so. Expert witnesses need not and should not make unsupported or unsubstantiated assumptions in an attempt to answer questions at deposition.

Example:

Q: Does the computer program have the capability of printing out a master index of all of the crash tests?

A: I don’t know, but I would assume that some computer person set this system up and can go in and generate a list of all of the data in there….

Lesson: Assuming in a case like this is akin to guessing and should be avoided. A better answer might have been, “I don’t know.”

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Steve Babitsky is President, and James Mangraviti, Jr. is vice-president, of SEAK Inc. SEAK is a provider of “inter-disciplinary seminars, distance learning resources, and publications” in the areas of workers compensation, occupational health and, medical-legal issues. Further information about them can be obtained from their excellent website: www.seak.com or telephone 508-548-7023.

Spring 1999 issue of the Expert Witness newsletter (volume 4, issue 1)

Contents:

On “Format of Expert Evidence of Economic Loss of Damages”

by Christopher Bruce

This article was originally published in the spring 1999 issue of the Expert Witness.

The Issue

Justice M. Bielby has invited comment concerning a proposed set of guidelines which deal with the presentation of expert evidence at trial. These guidelines, which were drafted by the Civil Practice & Procedure Committee of the Court of Queen’s Bench, attempt to ensure that the court receives enough information to permit it to calculate general damages in those cases in which it rejects the assumptions made by both sides to the dispute. The purpose of this article is to provide comment on these guidelines – which the Committee entitled “Format of Expert Evidence of Economic Loss of Damages” – from the point of view of an economist.

In a memorandum dated January 20, 1999, Justice Bielby offered the extreme example in which the plaintiff’s expert has been instructed to assume that the accident had left the plaintiff unable to work again; whereas the defendant’s expert has been instructed to assume that the plaintiff would not have worked even if the accident had not occurred. Thus, the plaintiff’s expert, in good faith, testifies that the plaintiff has lost, say, $800,000 of potential earnings; whereas the defendant’s expert, in equally good faith, testifies that the plaintiff has lost nothing.

This type of conflicting evidence does not create concerns for the court if there is a finding of fact that one or the other of these two extremes is correct. In that case, the court has sufficient evidence on which to base its calculation of damages.

When the court determines that the facts lie somewhere between the extremes offered by the two parties, however, the court may be left with little expert evidence on which to base its decision.

Assume, for example, that the plaintiff’s expert had been instructed that counsel would show that the plaintiff would have become an oil rig worker had the accident not occurred. The court, however, accepts the defendant’s argument that pre-existing disabilities would have prevented the plaintiff from entering such a physically demanding occupation; but rejects the defendant’s argument that the plaintiff had been incapable of earning any income at all.

Now, the only evidence available to the court is that the plaintiff’s damages lie somewhere between $0 and $800,000. The court has little or no information concerning what occupation the plaintiff could have entered; and even if it had received such information, say from a vocational psychologist, it has no evidence concerning the income which could have been earned in that alternative occupation.

The Proposed Guidelines

The guidelines suggested by the Civil Practice & Procedure Committee are designed to avoid leaving the court in this awkward position. In summary, these guidelines are:

  1. The expert’s report must list each of the factors upon which findings of fact must be made; identify, for each such factor, the assumption which the expert has chosen to make concerning that factor; and provide the reasons for making each such assumption. (For example, if the expert suggests that it is important to determine what the plaintiff’s level of unemployment would have been, the expert must also report the assumption which has been made with respect to that level and must explain why that particular level has been chosen).
  2. In any rebuttal report, the expert must expressly identify all of the factors employed by the other expert with which he or she disagrees; and must provide reasons for that disagreement.
  3. If the testimony of the expert(s) is insufficient to allow the court to determine the set of damages, based on that court’s findings of fact, those findings may be remitted to any expert for calculation of the damages. (In such a case, all parties have the right to be heard concerning the accuracy of the expert’s calculations).

Commentary

The goal of the Procedure Committee appears to be to ensure that the court is provided with expert testimony which is sufficient to allow it to choose from any one of a number of possible combinations of findings of fact. If so, I believe that the proposed guidelines will not achieve their desired results.

The first proposal will not change experts’ testimonies for two reasons. First, it has been my experience, in well over 2,000 personal injury and fatal accident actions, that the actions “directed” by the first guideline are already followed by virtually all expert economists in Western Canada. Hence, the guideline simply directs experts to continue doing what they have been doing all along.

Second, even if an expert was to follow the first guideline, the Committee’s goal would not be achieved. In the example developed by the Committee, the differences between the experts did not arise from some disagreement between them concerning the “facts”. It arose from differences in the instructions which they were provided by counsel. For example, assume that one expert is told that plaintiff’s counsel will prove that the plaintiff would have worked on the oil rigs and the other is told that defendant’s counsel will prove that the plaintiff would not have worked at all. In that case, the first guideline proposed by the Committee will have no influence on the opinions and assumptions employed by either of them. Hence, the problem identified by the Committee will not be resolved.

Equally, the second guideline will simply result in the two experts reporting that they had been asked to employ mutually inconsistent assumptions. The experts, however, will be unable to resolve those inconsistencies. Hence, once again, the guidelines will offer them no incentive to provide evidence concerning “compromise” outcomes.

The third guideline encounters the drawback that it offers no incentive for the experts to modify their testimony in court. It is strictly a method for dealing with the problems contemplated by the Committee ex post. I think all would agree that it would be preferable to find some way of altering expert testimony at, or prior to trial. Not only would that simplify the court’s role in calculating damages, it would also increase the probability that cases would be settled before reaching the trial stage.

A Modest Proposal

It is my observation that most inconsistencies between economists arise from differences in the “facts” which have been presented to them. If this contention is accepted, then the solution is to find a method by which those differences can be resolved. I can think of two possibilities:

First, a pre-trial conference could be held to determine whether differences between the economists’ calculations were based on inconsistent understandings of the “facts”. If so, judicial mediation or a “mini trial” could be employed to resolve those inconsistencies.

Second, if it became apparent, at trial, that the parties disagreed concerning certain important facts, both economists could be asked to delay their testimony until the end of the trial. By that time, the testimony of the lay and medical witnesses will often have cast sufficient light on the unresolved factual issues that the economists will be able to make their calculations on the basis of largely similar assumptions.

Or, failing that, the court could, prior to the entering of the economists’ evidence, rule on the findings of fact. With perhaps a day or two delay, the economists could recalculate the losses bases on those findings and enter their calculations as “examinable” testimony, (rather than as written reports, as envisioned by the Committee).

Use of a “Multiplier”

An alternative approach would be to have the economists provide a sufficiently broad set of “multipliers” that most findings of fact could be accommodated within them. Multipliers arise in the following way: Assume that, for a given set of assumptions concerning the discount rate and the plaintiff’s starting salary, current age, rate of growth of earnings, and retirement age it is found that the present discounted value of his future earnings stream is $400,000. Assume also that the starting salary which has been assumed is $20,000. If all other assumptions could be held constant, it is readily seen that if the plaintiff’s starting salary was to increase by 50 percent, to $30,000, the present value of his lifetime earnings would also increase by 50 percent, to $600,000. Similarly, if the other assumptions were to remain unchanged, but his starting salary was to decrease by 25 percent, his lifetime earnings would also decrease by 25 percent.

An alternative method of representing this same set of facts would be to recognize that, in the case cited above, the present value of the plaintiff’s lifetime earnings was 20 times his salary. This figure is referred to as the “multiplier”. It is often provided to the court when the facts concerning rate of growth of earnings, discount rate, and age of retirement are not in dispute, but there is some disagreement concerning the plaintiff’s starting salary. If the court is told that the relevant multiplier is, say, 20, then, once the starting salary has been determined, the court can readily calculate the present value of the loss of earnings. For example, if the court in this case was to decide that the plaintiff’s starting salary would have been $25,000, it would be able to determine that the damages were $500,000 (= 20 x $25,000).

My suggestion is that the experts be asked to provide a different multiplier for each plausible set of assumptions concerning rates of growth of earnings, discount rate, and retirement age. Then, the only finding of fact which the court would have to make, before it could determine the appropriate level of damages, would be the plaintiff’s starting salary.

The determination of this set of multipliers will be less onerous than it may sound for two reasons. First, experts rarely differ significantly with respect to the discount rate or the plaintiff’s retirement age. Thus, multipliers would have to be provided only for a selection of growth rates of earnings.

Second, growth rates of earnings tend to be associated very closely to education level. A comprehensive set of multipliers can be provided simply by calculating a multiplier for each of four education levels: university, college or trade school, high school, and less than high school. In the table on page 13, I provide sample multipliers for each of these education levels, first for a 25 year old male and a second for a 45 year-old male. What is readily seen is that three such multipliers would generally be adequate to cover most possible scenarios for a 25 year-old: roughly 28.5 for non-high school graduates, 31.0 for high school and university graduates, and 37.0 for university graduates. Furthermore, because growth rates of earnings tend to approach zero for all groups in later years, one multiplier – approximately 12.5 – may be sufficient for most 45 year-olds. Only in unusual cases, such as those in which the plaintiff might have been able to obtain a post-graduate degree, would more than three multipliers be required.

Sample Multipliers

Table 1

This is not to say that provision of such a set of multipliers would resolve all of the problems contemplated by the Committee. Disputes may still occur with respect to the plaintiff’s starting salary, fringe benefit levels, labour force participation, retirement age, or unemployment rate; and disputes may also occur with respect to the discount rate.

Nevertheless, if a complete set of multipliers was provided, and if the courts were properly trained in the use of those multipliers, I believe that many of the Committee’s concerns could be mitigated.

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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).

Issues Arising in the Calculation of Damages under the Survival of Actions Act (Part 2)

by Scott Beesley

This article was originally published in the spring 1999 issue of the Expert Witness.

Note that this article is the second of a two-part article. You will find part 1 here

Methodology of the Calculation

Damages in fatal accident actions are calculated in two steps. First the lump-sum value of the deceased’s income after taxes and after deduction of personal expenses is determined. Then, to this is added a tax “gross up,” to account for the tax liability the survivors will incur when the settlement earns interest.

Injury claims, on the other hand, are calculated using before-tax income, but no gross-up is added. The law implies that the fraction of the injured party’s income which would have gone to tax will now roughly equal the tax liability incurred because of interest on the lump sum awarded (through all future years). This equivalence is only roughly correct, though, and it would in fact be more accurate to calculate injury claims in the same manner as fatalities.* One reason that this is not done is that the tax rate any one person would have paid would have depended on their choices in life, including the presence or absence of children, the amount they would have saved or donated, and even the occupation chosen itself (some allow income to be shielded from tax more easily). The injury protocol finesses this uncertainty by working in pre-tax income.

In the case of Survival of Actions (SAA) cases, there may be an alternative method of dealing with this uncertainty. First, recognise that, as income increases, the percentage of income required for “expenses incurred in the course of earning income” is likely to decrease. That is, the necessities component of the deduction (by which I now mean expenses other than tax) declines as a percentage with increasing income. Second, at the same time, the percentage of income devoted to income tax will definitely increase. The two components of the deduction are therefore moving in different directions as income is increased: The tax percentage increases while the percentage cost of other necessities decreases. The overall total could be relatively constant with respect to income, depending of course on what sort of dependence is assumed for the necessities cost as a function of income. In most cases the total deduction (and therefore the award) may not vary far from 50 percent of gross income.

If the courts wished to simplify loss calculations somewhat, the above argument would justify calculating damages under the SAA in the same manner as in injury cases (i.e. using before-tax income), but with a deduction on the order of 50 percent. Note that this would exactly split the difference between the former common law result, which would have awarded nothing in the absence of dependents, and the awarding of 100 percent of before-tax income that would occur in the case of a surviving but completely unemployable plaintiff. One could then say that the pro-deterrence and anti-windfall gains positions had been given approximately equal weight. The error of such a simplification is that the calculation would not account for differences in tax rates across the income scale, nor would it correctly deduct necessities, if it was determined that the true cost of necessities is a flat dollar figure, not some percentage of income. As discussed in the previous paragraph, across the broad centre of the income distribution, the error is actually quite small. At very low incomes, a flat deduction would overstate tax and understate necessities, while the reverse occurs at high incomes.

To Gross-up or not to Gross-up?

We note that in an opinion recently provided to Economica regarding a case in progress, former Justice Kerans stated that he felt that a gross-up continued to be appropriate as part of the process of capitalising the award, assuming the goal is to replicate the year-by-year loss. If it is eventually decided that the Survival of Actions Act should require that in each future year, the estate should receive (for example) 50 percent of pre-accident after-tax income, then a gross-up is necessary. If, on the other hand, it is decided that only a one-time lump payment is needed, then the gross-up should be omitted.

Some may object to the idea that the size of the final award should depend on the financial status of the recipients of the award, yet that is already the case in the current fatal accidents methodology. A surviving spouse whose income is higher receives a higher award because of a larger gross-up, even if all other case facts are identical.

Finally, we note that in the recent further Duncan decision, no gross-up was applied. Please refer to page 8 for details regarding this decision.

Simultaneous Fatal Accidents Act and Survival of Actions Act Claims

The Rationale and the Calculation

It may be possible to make a joint claim under the Survival of Actions Act (SAA), and the Fatal Accidents Act (FAA), to the extent that some part of a deceased person’s income is claimable under the SAA and not already claimed under the FAA. We provide an example of how such a claim might be estimated. First, assume that the dependency is the usual spousal figure of 70 percent, which, though not mandated in any way, appears to have been accepted as reasonable in most cases. That dependency consists of 40 percent (of the deceased’s after-tax income) for common expenses, and 30 percent for expenses that benefit the survivor alone. The 30 percent which is deducted from the FAA award represents the amount which would have benefited the deceased alone, and hence is not relevant for the FAA calculation. We assume a necessities deduction of 33 percent, with 15 percent contained in the 30 percent FAA deduction, and 18 percent within the 40 percent allotted for common expenditures. With these assumptions, half of the 30 percent deducted under the Fatal Accidents Act cannot be claimed under the Survival of Actions Act, since it covers necessities and is to be deducted. The remaining 15 percent, however, is claimable under the Survival of Actions Act, and has not already been claimed under the FAA, since it did not go to support dependents. (Of course, this entire interpretation is only possible if the courts eventually settle upon a lost years deduction which reflects some measure of necessities, and further clarify how that deduction overlaps with the division of after-tax income under the Fatal Accidents Act.)

Table 1 below will, hopefully, clarify the above example.

Table 1: Combined Claims under the Fatal Accidents Act and the Survival of Actions Act

Table 1

Divorce and Remarriage

Fatal Accidents Act calculations are commonly reduced by the use of contingencies for divorce and remarriage. A pre-accident divorce would obviously have ended a spousal dependency relationship (subject perhaps to a loss of support claim), while a post-accident remarriage may be presumed at times to reduce or eliminate the dependency by replacing the deceased’s income with that of a new spouse. Claims under the Survival of Actions Act are not subject to these reductions, it would appear, since the law allows claims by the estate, not FAA dependents. Of course, the beneficiaries of the estate and the dependents will often be one and the same. If SAA claims are interpreted as not subject to divorce and remarriage, then a large fraction of any amount deducted from an FAA claim because of those contingencies is simply added to the SAA claim. We note that not all of the deduction is added back, because the necessities component of common income (the 18 percent in Table 1) cannot be claimed under the Survival of Actions Act.

Continuing with the Table 1 example, assume that the 70 percent dependency claim had been reduced by 40 percent as a result of the divorce and remarriage contingencies. The reduction as a percentage of after-tax income is 28 percent (40 percent of 70 percent). Of that reduction, a fraction equal to 52/70 can be reclaimed under the SAA, since all but 18 of the 70 percent is claimable using that Act. Table 2 below provides an example of the calculation, presuming that after-tax income has a present value of $1,000,000. It continues the assumptions on Table 1 regarding dependency and the division of necessities across common and personal expenses (18 and 15 percent, respectively). Note that in addition to the divorce and remarriage reclamation under the SAA, we also include the 15 percent claim for the deceased’s personal non-necessities, as discussed in detail above.

Table 2: Reclaiming of Divorce and Remarriage Reductions Under the Survival of Actions Act

Table 2

Comments on the recent Brooks v. Stefura decision

In Brooks v. Stefura, Justice Belzil interpreted Duncan as suggesting that almost everything the deceased would have spent should be deducted from an estate award. He deducted: future spending by the deceased on vehicles and other discretionary items, the deceased’s own expenses on essentials, and also all the expenses the deceased would have incurred for a hypothetical second spouse and family. We would first note that this deduction of a large majority of spending is roughly equivalent to awarding savings only, an approach that was explicitly rejected by Justice Kerans. It is also difficult to understand how spending on, for example, motorcycles and electronic equipment could be said to constitute an obligation, in the sense of spending on family support. Surely such optional expenditures should be considered discretionary. The fact that they might have been debt financed is irrelevant, except that one might argue that the interest should perhaps be considered an obligation. After summing all these components, Justice Belzil arrives at an 80 percent deduction. As it is, this is roughly a savings-only award, with an effective deduction from before-tax income of roughly 85 percent.

A further issue is that, in fact, Brooks uses a lost years deduction larger than the stated 80 percent, without acknowledging as much. With all due respect, we note that there appears to be a logical inconsistency in Brooks. Having listed all the “obligations” of the deceased, and having made clear that he believes that 80 percent of spending would have gone to such items, Justice Belzil then takes the Fatal Accidents Act claim from the remaining 20 percent of after-tax income. Yet this implies that the true lost years deduction being applied here is over 95 percent of after-tax income, or 97 percent of before-tax income. This level of deduction is far beyond the 33 to 53 percent range seen in the previous cases in all jurisdictions. It would seem quite clear that spending on the deceased’s first wife and his children, as estimated under the Fatal Accidents Act, would be an “obligation” under Justice Belzil’s rationale. Justice Belzil in fact writes exactly that at paragraph 249. In that case the FAA award should be considered to be an additional component of the true lost years deduction, and Justice Belzil would then report having used a lost years deduction of roughly 95 percent of after-tax income, or even more as a percentage of before-tax income.

I would suggest that the actual deduction used should be reported correctly, inclusive of any FAA award, which is clearly all deducted under Justice Belzil’s methodology. The overall award would have more accurately been reported as the roughly 2 to 3 percent remaining under the Survival of Actions Act, plus the Fatal Accidents Act award. Alternatively, the plaintiff could have been awarded the FAA amount, from dollars which are within the 80 percent deduction, and also received the 20 percent granted under the SAA. The figures involved are shown in Table 3 below.

Table 3

If the Fatal Accident Act amount had been assumed to come from within the 80 percent SAA deduction, the total award would have been approximately $312,122, or the sum of $140,299 (FAA) and $171,823 (SAA).

It is difficult to understand why the FAA amount was deducted from the 20 percent which is deemed discretionary, without granting that what is really being done is presuming obligations of over 95 percent of after-tax income, or almost 100 percent of before-tax income. Finally, I note that the true lost years deduction in Brooks is actually well in excess of what would be used in a correctly estimated “savings-only” calculation, and that was rejected in Duncan as not generous enough.

A New Decision in Duncan v. Baddeley

On February 2, 1999 a decision was released in the Duncan v. Baddeley case. The Court of Appeal decision had returned the case to the lower court for calculation of the estate’s loss, using principles laid out in the judgment of Mr. Justice Kerans. Madam Justice Sulyma considered how to interpret the Court of Appeal’s judgment, and concluded that a moderate “lost years” deduction, equal to 35 percent of after-tax income, was appropriate. That was in addition to the deduction of tax itself, calculated to be 28 percent of before-tax income. The overall deduction from before-tax income is 53.2 percent. Two further contingency reductions of 5 percent each were also applied. The award was calculated as shown on Table 4 below. (No mention was made of a gross-up, so presumably such was not awarded.)

Madam Justice Sulyma rejected the suggestion that only savings should be awarded, clearly stating that some reasonable estimate of “personal living expenses,” for the deceased only, was what should be deducted from after-tax income. The Justice also confirmed what seems quite clear from a reading of Justice Kerans’ decision: that the estimated overall deduction, which he felt would be 50 to 70 percent of pretax income, includes personal expenses and tax. Justice Kerans slightly overestimated income tax, and when his figures are lowered to account for that, the implied range for the overall deduction is approximately 40 to 60 percent. Justice Sulyma’s estimated deduction of 53.2 percent is therefore right in the centre of the range suggested by the Court of Appeal.

We note that the size (in percentage terms) of the personal living expenses deduction by Justice Sulyma is consistent with many previous related cases. At the given level of income, it should also be noted that the personal expenses deduction is $8,820 (= $35,000 x 0.72 x 0.35). This is very similar to the necessities deduction which would be applied if an absolute dollar figure was chosen, based on estimates of the necessities of life. We have argued in the past that such a figure should be used, if it was found that a strict definition of necessities was all that should be deducted. (One implication was that a flat amount, not a percentage, would be the appropriate deduction.)

Finally, we note that the following issue appears in many injury and fatal cases, and seems to be misunderstood at times. One of the rationales for the second 5 percent deduction applied by Justice Sulyma is that “there should be a discount for the chance that the victim would not receive the optimal award calculated by the Plaintiff’s actuary.” If we are interpreting this correctly, it seems to mean the chance that the plaintiff would not have earned as much as was assumed in the calculation. But the proper method would then be to lower the income estimate itself, not impose an arbitrary reduction. If the figure of $35,000 per annum was agreed on as the most reasonable estimate of Mr. Duncan’s annual income for full-time work, that figure itself is already net of the chances that he might have made more or less – the only additional adjustments required are for fringe benefits, disability and the risk of unemployment. More commonly, in our work we often estimate pre-accident income using the level of education a young plaintiff was likely to reach. The income path we then use is an average across many thousands of individuals, and obviously some of those individuals earn more than that average and others less. Unless there is some good reason to deliberately use an income path above or below the average, only the three adjustments above should be used (though in some cases part-time and non-participation contingencies may also apply).

Table 4: The Calculation in Duncan v. Baddeley

Table 4

* The tax paid on this interest income could be more or less than the tax which would be payable on the annual withdrawal if it had been earned as income. In legal theory, these two deductions are similar in size over time. That is, the courts have assumed that tax on post-accident interest income lowers overall funds available to the plaintiff approximately as much as tax on pre-accident earned income would have, and the plaintiff’s after-tax loss of income has (presumably) been replaced. In practice, we find that it is more often the case that the tax on interest income has a more serious effect on funds available than pre-accident income tax would have had. [back to text of article]

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