Month: June 2003

Summer 2003 issue of the Expert Witness newsletter (volume 8, issue 2)

Posted on By economica

Contents:

  • Assessment of damages in wrongful birth cases
    • by Gerald Robertson, Q.C.
    • Gerald Robertson is a Professor of Law at the University of Alberta, and a practising barrister and solicitor in the areas of civil litigation and personal injury. He is co-author of Legal Liability of Doctors and Hospitals in Canada (3rd ed.). He is also a director of the Robertson Personal Injury Newsletter, an on-line weekly digest of all personal injury judgments in Canada decided over the previous week, along with current developments in the area of personal injury litigation.
  • Predicting post-secondary education attainment
    • by Mohamed Amery
    • In this article Mohamed Amery discusses cases involving plaintiffs who are minors, in which it is necessary to predict the level of education that these individuals would have obtained had they not been injured. Mr. Amery’s article provides information concerning indicators that can be used to make this prediction – including the education of the plaintiff’s parents; the level of the plaintiff’s employment while in high school; and whether the plaintiff ever failed a grade.
  • The impact of parental divorce or death on adolescents’ education & earnings
    • by Christopher Bruce & Mohamed Amery
    • In this article Christopher Bruce and Mohamed Amery survey recent research concerning the impact that the death or divorce of a parent will have on the lifetime earning capacity of children.
  • Experience-Rating of Automobile Insurance: A Good Idea that Won’t Work
    • by Christopher Bruce
    • In this article Christopher Bruce identifies some of the weaknesses of legislation that requires automobile insurance companies to use “experience rating” – a system in which the only factor that determines your premiums is your driving record.

Experience-Rating of Automobile Insurance: A Good Idea that Won’t Work

Posted on By economica

by Christopher Bruce

This article first appeared on page A21 of the October 16, 2003 Calgary Herald, and then in the summer 2003 issue of the Expert Witness.

Imagine you have two drivers who drive the same kind of car, live in the same city, and have the same driving record over, say, the last three years. Doesn’t it make sense that they should pay the same automobile insurance premiums?

Apparently, it made sense to the provincial government’s Automobile Insurance Reform Implementation Team. Yesterday, they recommended legislation that will require automobile insurance companies to use “experience rating.”

In a nutshell, experience rating refers to a system in which the only factor that determines your premiums is your driving record. All drivers who have no “experience” of accidents, speeding violations, drunk driving charges, etc. pay the same, relatively low base premium. Then, as they experience one or more of these events, their premiums rise accordingly – and, as they have additional years in which they do not experience these events, their premiums decline.

Experience rating has two highly desirable characteristics. First, the individual driver has complete control over his or her premiums. If you drive cautiously, avoiding accidents and driving violations, your premiums will decline to the lowest available rate.

Most importantly, your rate will not be higher than anyone else’s just because you happen to belong to a group, like young males, that has a relatively high accident rate.

Second, it has been shown consistently that when insurance premiums are related to experience, accident rates fall. When individuals know that they can reduce their premiums significantly by driving more carefully, they do so. And, of course, if the number of accidents decreases, so will insurance premiums.

It seems like experience rating is a win-win proposition. If so, then why hasn’t it been introduced before? The simple answer is that it results in a situation in which insurers know they will make substantial profits on some classes of customers and lose money on others. Thus, it gives them a strong incentive to refuse to insure the money-losing group.

In the scheme proposed by the government, that group will be composed primarily of young males.

Insurers will lose money on them because the number of accidents a driver has had in the past is only loosely related to the number that they can be expected to have in the future. What decades of statistics tell us is that a nineteen year-old male with a perfect, three-year driving record is more likely to have an accident in the next year than is a forty-year old male with the same driving record.

And a nineteen year-old who had an accident last year is more likely to have an accident next year than is a forty-year old with the same experience.

This means that insurers will expect to pay out more claims to nineteen year-old drivers than to forty year-old drivers.

Assume, for example, that 10 percent of nineteen year-old drivers who have had a clean record for three years will have an accident in the next year; whereas only 5 percent of forty year-olds with a similar record will have an accident next year. If the average accident costs the insurance company $10,000, then it will expect to pay out an average of $1,000 for each nineteen year-old and $500 for each forty year-old.

If the government forces insurers to charge the two groups the same premium, they will have to charge something between $500 and $1,000 just to cover their expected claims costs. For example, if the two groups were the same size, the premium would be $750 (the average across the two).

But this means that they will expect to make a $250 profit on the average driver in the older group and a $250 loss on the average driver in the younger group.

As insurance companies are out to make profits, we can expect that they will respond by doing their best to attract older drivers – and to turn away younger drivers.

The stakes are high. Those companies that find themselves with a relatively high percentage of young drivers will lose money and will soon be forced out of the market. Companies will use every loophole at their disposal to attract as many drivers in the older age groups as possible.

Advertising will be focused on older drivers – ads will appear primarily in magazines that appeal to middle-aged consumers, for example, and music in TV ads will be taken from the 1960s. Agents will be instructed to make it difficult for younger drivers to obtain insurance. And incentives, like toaster ovens for new clients, will be offered that will appeal primarily to older drivers.

The result is that the government will have to introduce ever-stricter regulations, to ensure that all drivers are able to obtain insurance. It will be interesting to see whether this degree of interference in the private sector is something that a market oriented government is willing to countenance.

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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 impact of parental divorce or death on adolescents’ education & earnings

Posted on By economica

by Christopher Bruce
& Mohamed Amery

This article first appeared in the summer 2003 issue of the Expert Witness.

It is sometimes argued that individuals’ earnings will be lower if they grow up in single parent homes than in homes with two parents. If this argument is correct, it is possible that the loss of earnings experienced by a child who has been injured will be lower if that child came from a one-parent family than from a two-parent family. Conversely, however, the loss suffered by a child whose parent has been killed may be higher than would normally be assumed if the loss of that parent has meant that the child must now grow up in a single-parent family.

A number of studies are available that have explored the effect of parental absence due to divorce or death on adolescents’ labour market outcomes as adults. Although these studies are consistent in finding that the absence of a parent has some effect on adult earnings, they disagree on what that effect is. Corak, for example, concluded that whereas the earnings of women were the same regardless of family backgrounds, those of men from divorced families were approximately three percent lower than those of men from intact families.

Lang and Zagorsky confirmed Corak’s finding that “parental presence early in life [has only a minor effect on] economic well-being in adulthood” (p. 255). Nevertheless, whereas they found that a father’s presence is important for the educational attainment of both sons and daughters, a mother’s presence is significant only for the educational attainment of daughters. Also, contrary to Corak, they found (p. 255) a “strong impact of father’s presence on [a] son’s probability of being married”.

Fronstin et. al. concluded that the wages of “females, but not males, appear to be adversely affected by a father’s death, particularly when the death occurs before the child’s sixteenth birthday” (p. 151). The primary impact on men was higher unemployment rates (at age
33), particularly if the father had died when the son was between 16 and 22. Fronstin et. al. also found that disruptions occurring prior to “middle teenage years have somewhat greater adverse effects on educational attainment, while disruptions occurring into young adulthood have [their primary] adverse effects on … labour market outcomes” (p.
168).

In their book, Growing Up with a Single Parent, Sara McLanahan and Gary Sandefur, summarized the findings of a number of studies that had been conducted in the 1980s. Those studies generally found that children who were raised in single-parent families were somewhat less likely to attend college than were children of two-parent families, and much less likely to graduate from college. However, there was clear evidence that these effects were much less severe if one parent had died than if the child’s parents had divorced or had never married. These results suggest that it is not “single-parenting” per se that yields adverse effects. Rather, single parenting appears to act as a proxy for the underlying factors that lead parents not to marry, or to divorce. It is those unobserved factors that appear to have the primary impact on children’s labour market success.

Finally, Boggess found that living with a widowed, divorced, or separated mother had no effect on educational attainment. Interestingly, however, he concluded that “living in a stepfather family appears to have a persistent negative effect on high school graduation rates” (p. 205).

What these studies appear to suggest is that a child from a single-parent family may obtain slightly less education, and perform slightly less well in the labour market, than a child from a two-parent family. However, this effect will be much more pronounced if the child’s parents had never married or had divorced than if one of the child’s parents had died.

References

Boggess, S. (1998) “Family Structure, economic status, and Educational Attainment” 11(9) Journal of Population Economics,
205–222.

Corak, Miles (2001), “Death and Divorce: The Long-term Consequences of Parental Loss on Adolescents” 19(3) Journal of Labor Economics,
682-715.

Fronstin, P. et al. (2001) “Parental Disruption and the Labour Market Performance of Children When they Reach Adulthood” 14(4) Journal of Population Economics, 137 – 172.

Lang, K. and J. L. Zagorsky (2000) “Does Growing Up With a Parent Absent Really Hurt?” 36(2) The Journal of Human Resources, 253-272.

McLanahan, S., and G. Sandefur, Growing up with a Single Parent (Cambridge, Mass.: Harvard University Press), 1994.

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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).

Mohamed Amery was a research assistant with Economica and an honours economics student at the University of Calgary.

Predicting post-secondary education attainment

Posted on By economica

by Mohamed Amery

This article first appeared in the summer 2003 issue of the Expert Witness.

When the plaintiff is a teenager, the first step in predicting that individual’s without-accident earnings capacity is to predict the level of education that would have been achieved by that individual. A recent study, by George Butlin of Statistics Canada, provides a considerable amount of new information concerning the factors that determine whether a high school graduate will enter trade-school, college, or university.

One of the most important of these factors is the education of the parents. Whereas 70 percent of high school graduates with at least one university educated parent attended university, only 43 percent of graduates whose parents had college or trade-vocational level education did so. At the same time, of the graduates whose parents had less than or equal to a high-school education level, only 30 percent participated in university. Conversely, just 18 percent of graduates whose parents were university educated attended a community college.

Butlin also found that, of high-school graduates who failed a grade in elementary school, only 11 percent attended university. This figure is significantly lower than the 46 percent university attendance rate for those who did not fail an elementary grade. He hypothesised that “failing a grade in elementary school may be an indicator of a range of problems beyond academic difficulties [such as] family problems, behavioural problems, psychological problems, language problems, and so forth.” That is, the same factors that resulted in students’ failing elementary grades were also at work in deterring students from entering university.

High-school graduates from two-parent families were found to be more likely to attend university than those from lone-parent households. However, Butlin also found that there were no major differences between two-parent and lone-parent families regarding a graduate’s participation in college or trade-vocational schooling. Those from rural areas were also found to have a lower likelihood of attending university than those from urban areas (34 percent versus 45 percent).

Finally, Butlin found that participation in extra-curricular activities while in high-school acted as a predictor of enrolment at university. High school graduates who had either worked at a job for less than 20 hours per school week throughout their high school years, or who had not worked during their last year of studies at all, had a 45 percent likelihood of attending university. Whereas, of those students who had worked more than 20 hours per week, only 27 percent proceeded onto university schooling. This is not to say that working while in high school “causes” students to choose educational streams other than university. Rather, a more plausible hypothesis is that students who do not intend to enter university take their high school studies less seriously than do those who plan to continue their education and, hence, have more time available for work. Nevertheless, participation in extra-curricular activities can be an important piece of information when predicting the post-secondary education of teenagers.

Reference

Butlin, G. (1999), “Determinants of Postsecondary Participation” 5(3) Education Quarterly Review (Ottawa: Statistics Canada, Catalogue No. 81-003), 9-35.

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Mohamed Amery was a research assistant with Economica and an honours economics student at the University of Calgary.

Assessment of damages in wrongful birth cases

Posted on By economica

by Gerald Robertson, Q.C.

This article first appeared in the summer 2003 issue of the Expert Witness.

Wrongful birth lawsuits are certainly not new in Canada – they have been around for over 25 years1 – and yet many of the fundamental issues relating to assessment of damages in these cases still remain unclear. This type of lawsuit arises in a variety of factual contexts. They include failed sterilization or abortion, negligence in prescribing contraceptives, and negligence in prenatal care or counselling. Although the factual contexts vary, all wrongful birth actions share the same essential characteristic: but for the defendant’s negligence, the child would not have been born.2

The following example is fairly typical. A married couple with four children decide that they do not want to have any more. One of the spouses undergoes a sterilization operation, but due to the negligence of the doctor the operation is unsuccessful, and a fifth child is subsequently born. What damages can the parents claim? In particular, can they claim the cost of raising the child to the age of majority, or beyond? What if the child is born with disabilities: how does that affect the assessment of damages?

Based on recent cases, both from Canada and elsewhere, it is clear that one of the key issues in wrongful birth cases is whether the child is born healthy or disabled.

Healthy Children

The initial reaction of most courts (including Canadian) in wrongful birth cases was that it would be contrary to public policy to award damages for the cost of caring for a healthy child.3 However, this position changed in Canada in the 90’s (although much earlier in England)4, with a number of Canadian cases awarding substantial damages under this head.5 However, in recent years that position has changed. In particular, in 1999 the House of Lords in the case of McFarlane v. Tayside Health Board6 held that in wrongful birth cases involving a healthy child, no damages should be awarded for the cost of caring for the child to the age of majority. McFarlane did recognize that damages ought to be awarded for a number of various items, and this has been followed in subsequent Alberta cases.7 These include items such as pain and suffering during pregnancy, labour and delivery, and loss of income during pregnancy and for a reasonable period after the birth.

The reaction to McFarlane in other countries has been mixed. In Canada, there have been a number of recent cases (including those from Alberta) which have adopted its position that no damages should be awarded for the cost of caring for a healthy child.8 Indeed, in Alberta it has been held that, even if the cost of future care were claimable, it would be almost entirely offset by government benefits.9

However, one recent Alberta case – M.S. v. Baker10 – has taken a different view, holding that cost of care damages should be awarded if financial reasons influenced the parents’ decision to have no more children.11 In addition, the High Court of Australia (Australia’s highest court), in a decision rendered in 2003,12 declined to follow McFarlane. Therefore, overall the position in Canada remains unclear.

Disabled Children

Most courts, even those who have denied damages for the cost of raising a healthy child, have accepted that these damages should be awarded if the child is born with disability.13 This type of case usually arises in the context of prenatal (or preconception) counselling or care; for example, where a woman is not informed of the risk of fetal abnormality associated with the woman’s medical condition or genetics, thereby preventing the woman from making an informed choice as to whether or not to initiate or terminate a pregnancy. The recent case of Arndt v. Smith14 provides a useful example. In that case the defendant doctor was held to have been negligent in failing to advise the patient of the risk of serious fetal abnormality arising from her having contracted chicken pox during the 12th week of pregnancy; the baby was born with severe disabilities.

The Supreme Court of Canada has recently addressed the question of assessment of damages in wrongful birth cases involving disabled children. In Krangle v. Brisco15the doctor responsible for prenatal care negligently failed to advise the patient of her increased risk of having a Down’s Syndrome child. The child was subsequently born with Down’s Syndrome. It was accepted that the parents were entitled to damages for non-pecuniary loss for the pain and suffering associated with giving birth to, and raising, a disabled child. Other items which were not in dispute included the cost of care to the age of majority. However, the contentious issue was whether the parents were entitled to damages for the cost of caring for the child beyond the age of majority. The Supreme Court held that they were not.16

It should not necessarily be assumed that the Krangle decision applies in all provinces, even though it is a decision of the Supreme Court of Canada. The reason for this is that the decision is based on the particular wording of the British Columbia legislation, under which parents are not legally responsible to care for their children after the age of majority,17 even if the child is disabled. In many other provinces, such as Alberta,18 the statutory position is different, and parents are legally obliged to care for their disabled children after the age of majority. Hence, in those provinces, a claim for cost of care after majority may well be available, despite the decision in Krangle.

Footnotes

1. The earliest cases include Colp v. Ringrose (1976) 3 L. Med. Q. 72 (Alta. T.D.); Doiron v. Orr (1978) 86 D.L.R. (3d) 719 (Ont. H.C.); and Cataford v. Moreau (1978) 114 D.L.R. (3d) 585 (Que. S.C.). [back to text]

2. See generally, E.I. Picard & G.B. Robertson, Legal Liability of Doctors and Hospitals in Canada (3rd ed., 1996) at 212-217. [back to text]

3. See Colp v. Ringrose, supra note 1; Doiron v. Orr, supra note 1. [back to text]

4. See in particular Emeh v. Kensington & Chelsea & Westminster AHA [1985] 2 W.L.R. 233 (C.A.). [back to text]

5. See, for example, Joshi v. Wooley (1995) 4 B.C.L.R. (3d) 208 (S.C.); Suite v. Cooke [1995] Q.J. No. 696 (C.A.). [back to text]

6. [2000] 2 A.C. 59 (H.L.). [back to text]

7. M.Y. v. Boutros [2002] A.J. No. 480 (Q.B.). [back to text]

8. See, for example, M.Y. v. Boutros, supra note 6; Mummery v. Olsson [2001] O.J. No. 226 (Super. Ct.). [back to text]

9. M.Y. v. Boutros, supra note 6. [back to text]

10. [2001] A.J. No. 1579 (Q.B.). [back to text]

11. The Court followed the reasoning in the Ontario case of Kealey v. Berezowski (1996) 30 O.R. (3d) 37 (Gen. Div.). For a critique of the Kealey decision see Picard & Robertson, supra note 2, at 215. The reasoning in Kealey was expressly rejected in M.Y. v. Boutros, supra note 6. [back to text]

12. Cattanach v. Melchior [2003] H.C.A. 38. [back to text]

13. For Canadian cases see H.(R.) v. Hunter (1996) 32 C.C.L.T. (2d) 44 (Ont. Gen. Div.); Cherry v. Borsman (1992) 94 D.L.R. (4th) 487 (B.C.C.A.), leave to appeal to S.C.C. refused (1993) 99 D.L.R. (4th) vii (S.C.C.). See also Rees v. Darlington Memorial Hospital NHS Trust [2002] E.W.J. No. 582 (C.A.). [back to text]

14. (1997) 148 D.L.R. (4th) 48 (S.C.C.). See also E. Nelson T. Caulfield, “You Can’t Get There From Here: A Case Comment on Arndt v. Smith” (1998) 32 University of British Columbia Law Review 353. [back to text]

15. [2002] 1 S.C.R. 205. [back to text]

16. For later B.C. cases on the same issue see Zhang v. Kan [2003] B.C.J. No. 164 (S.C.); Jones v. Rostvig [2003] B.C.J. No. 1840 (S.C.). [back to text]

17. Family Relations Act, R.S.B.C. 1996, c. 128. [back to text]

18. Maintenance Order Act, R.S.A. 2000, c. M-2, s. 2. [back to text]

leaf

Gerald Robertson is a Professor of Law at the University of Alberta, and a practising barrister and solicitor in the areas of civil litigation and personal injury. He is co-author of Legal Liability of Doctors and Hospitals in Canada (3rd ed.). He is also a director of the Robertson Personal Injury Newsletter, an on-line weekly digest of all personal injury judgments in Canada decided over the previous week, along with current developments in the area of personal injury litigation. More information about the Robertson Personal Injury Newsletter can be found at www.rpin.ca.