1) Personal Injury

The calculation of damages for personal injuries has undergone a dramatic change in the last two decades. Prior to 1978, judges tended to make an impressionistic global award for all the plaintiff's past and future losses. No explanation, justification, or itemization of the lump sum award was given. This assessment process was unscientific and unreliable and probably led to the undercompensation of many plaintiffs. In a trilogy of cases [Note 171: Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229 [Andrews]; Thornton v. Prince George School District No. 57, [1978] 2 S.C.R. 267; Arnold v. Teno, [1978] 2 S.C.R. 287.] in 1978, however, the Supreme Court reformulated the principles upon which damages for personal injuries are assessed. In these cases the Court called for, among other things, the full compensation of all probable future pecuniary losses, the mathematical calculation of future economic losses based on the expertise of actuaries, economists, and other professionals (the actuarial method of assessment), and the itemization of the lump sum award to explain its manner of calculation and the use to which it is intended. The leading decision is Andrews v. Grand & Toy Alberta Ltd. [Note 172: Above note 171.] In that case, the plaintiff was a twenty-one-year-old man who suffered catastrophic physical injuries, including permanent quadriplegia. He did not, however, suffer mental or psychological damage. Occasional reference will be made to the Andrews case as the elements of the assessment process are described.

a) Lump Sum Award

At common law, damages must be awarded in a single lump sum award. The common law knows nothing of periodic payments or of any system for reviewing and varying the lump sum as future circumstances might warrant. The lump sum award has certain advantages, including finality, certainty, and administrative efficiency, but a high price is paid in terms of the accuracy of the award and the time it takes either to settle or to adjudicate the appropriate quantum. That delay may be detrimental to the rehabilitation process of the plaintiff and may create heavy pressure to settle her claim for less than is due. A judicial initiative to introduce a modest system of periodic payments was unsuccessful [Note 173: Watkins v. Olafson, [1989] 2 S.C.R. 750. ] and it is now clear that systemic reform of the judicial assessment process requires legislative intervention. A few provinces including Ontario, [Note 174: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 116.] Manitoba, [Note 175: The Court of Queen's Bench Act, S.M. 1988-89, c. 4, s. 88.1.] and British Columbia [Note 176: 1 Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231, s. 55.] have legislation that permits or requires periodic payments to be ordered in limited circumstances.

Some flexibility has been introduced into the system through the settlement process by the use of structured settlements. Structured settlements are used to provide a stream of periodic payments to cover future losses. This requires the purchase of an annuity by the defendant to provide payments tailored to the particular circumstances and needs of the plaintiff. The significant advantage of a structured settlement is that the payments are not taxable in the hands of the plaintiff. This provides some efficiencies over the lump sum since the interest earned on the lump sum, although not the lump sum itself, is classified as taxable income. These potential tax savings can be shared between the parties, providing an incentive for both to use a structured settlement. Structured settlements are particularly advantageous in cases of serious injuries to children. Payments may be delayed until the age of majority, which permits an accumulation of investment income to the ultimate advantage of the plaintiff. Structured settlements also guard against the risk of large sums being dissipated by seriously disabled plaintiffs who may then be forced to fall back on the social welfare system.

b) Special and General Damages

Special damages compensate the plaintiff for all pre-trial losses. These include loss of income, nursing and personal attendant costs, medical expenses, any travel costs necessitated by the injury, and other out-of- pocket expenses. In most situations, these damages are susceptible of precise arithmetic calculation.

General damages compensate future losses. They are assessed under three broad heads of damage: future care costs and loss of earning capacity, which cover the plaintiff's pecuniary losses, and non-pecuniary losses such as pain and suffering, permanent disability, and loss of expectation of life. The awards of damages in each category of pecuniary loss must be itemized and explained to the extent that it is feasible. This permits a meaningful review on appeal and informs the plaintiff of the way in which the lump sum was calculated and how it is intended that it be invested and spent.

c) Guidelines

The function of compensatory damages is to provide full compensation for the plaintiff's pecuniary losses (future care and loss of earning capacity) and moderate compensation for non-pecuniary losses. Neither undue sympathy for the plaintiff nor a punitive approach to the defendant is appropriate. The defendant's ability to pay the damages awarded and the existence and limit of any liability insurance are not relevant and should not be alluded to at trial. The plaintiff must not make excessive or unreasonable demands but mitigation principles play a more minor role than in cases of property damage. Damages may, however, be reduced on the ground of a failure to mitigate loss if the plaintiff has refused remedial medical treatment that has a substantial chance of success. [Note 177: Janiak v. Ippolito, [1985] 1 S.C.R. 146.]

d) Future Care Costs

General damages for future care include the costs of all care necessitated by the injury, including nursing and personal attendant services, home or motor-vehicle modifications, medical, dental, and pharmaceutical expenses, transportation expenses, the purchase of prosthetic devices and other necessary equipment, and other expenses incurred because of the plaintiff's disability. This head of damage is of central importance to claimants who are seriously and permanently incapacitated, and courts strive to achieve full compensation for these costs and expenses. This standard of full compensation was established in Andrews. In that case, the plaintiff required twenty-four-hour attendant care. A central issue in the case was the location of that care. His future care costs in a home setting were assessed at $4,135 per month. The only alternative presented to the Court was institutional care, which would cost $1,000 per month. Arguably the most important decision made by the Court in the trilogy was to choose home care as the appropriate level of care for the plaintiff. The decision was clearly consistent with the general rule that the plaintiff is to be put in the position he would have been in if the accident had not occurred and, therapeutically, it was the best option for him. The Court was not influenced by the high cost of that care. It noted that future care costs must be given the first priority and that the potential burden on defendants is almost always dissipated by liability insurance.

Once the basic monthly expense is established, a variety of other factors are considered in order to calculate the required lump sum to pay for this level of care. First, actuarial tables are used to determine how long such care will be required. Second, the controversial process of the contingency assessment must be addressed. Events may occur in the future that reduce the need for, or the cost of, home care. The plaintiff may, for example, require periods of hospitalization, or benefit from expanded social services, or be unable to secure necessary services or equipment. These contingencies suggest that $4,300 will not be needed for every month of the plaintiff's life. There may, on the other hand, be events that increase the cost of future care. Social services may be restricted, user fees may be introduced for services that are currently free, or the plaintiff's condition may deteriorate necessitating additional care or costs. These contingencies suggest that more than $4,300 per month will be needed. The conventional approach at the time of Andrews was to reduce the award by an arbitrary 20 percent on the assumption that the negative contingencies (those that will reduce the loss) will outweigh the positive ones. Now courts are more willing to review the probabilities in the individual case and they are more likely to conclude that no deduction should be made because the negative and positive contingencies are likely to cancel each other out. Third, it is assumed that the lump sum award will be prudently invested, that both capital and interest will be applied to future care costs, and that, at the end of the plaintiff's life, the future care fund will be exhausted. It is also anticipated that inflation will erode the purchasing power of money. Consideration must, therefore, be given to the real rate of return that can be expected on the investment of the lump sum. This is known as the capitalization or discount rate. It represents the difference between long-term investment rates and the long-term rates of inflation. In most provinces it is now set by legislative provision at between 2 and 3 percent. These factors allow the future care award to be arithmetically calculated. Fourth, the lump sum for future care costs must be "grossed up" to cover tax liabilities on the interest earned on the lump sum. Otherwise, there will not be sufficient funds to provide the required care. There are wide variations on the extent of the gross-up in individual cases but an increase of 30 to 40 percent is most common. The future care award may also include the cost of necessities of life such as accommodation, clothing, and food. In those circumstances, an appropriate adjustment must be made in the calculation of the loss of earning capacity award to avoid double compensation.

e) Loss of Earning Capacity

The second head of pecuniary loss discussed in Andrews is the plaintiff's loss of earning capacity. There are two ways of calculating that loss. The first attempts to calculate what the plaintiff would in fact have earned but for the accident. The second seeks to assess the capacity of the plaintiff to earn but for the accident whether or not he would have chosen to exercise it. The Supreme Court in Andrews appeared to favour the second approach by referring to a person's earning capacity as a capital asset and suggesting that the task of a court is to value that asset and determine the degree to which it had been damaged. In the final analysis, however, the Court applied the first approach and made a determination of the gross income that Andrews would have earned if he had not been permanently and totally incapacitated. Since Andrews, the weight of authority has been in favour of calculating the plaintiff's actual loss of earnings.

The first step in making the loss of earnings calculation is to determine the future earnings that the plaintiff would have made and to deduct from them the amount that the plaintiff is still capable of earning. This task was relatively straightforward in Andrews. The plaintiff was earning $830 per month as an apprentice for the Canadian National Railways at the time of his accident. The maximum amount payable in this line of work was $1,750 per month. The Court accepted that his average future earnings would probably be $1,200 per month. After the accident, Andrews could not work at all. Consequently, his average future gross income per month ($1,200) was used as a base figure to calculate his loss of earning capacity. The use of gross income rather than after-tax or net income is justified by the difficulty of predicting future tax liability and by the fact that income tax must be paid on the income generated by investment of the non-taxable lump sum award.

Not all calculations of the plaintiff's lost future earnings are as straightforward as that in Andrews. The calculation of the future earnings of disabled children presents special difficulties. The court must undertake the unenviable task of determining the probable future earnings of the individual child. Older children may have displayed their potential ability, aptitude, and interest for a particular profession or vocation. A young child presents even greater difficulties. Reference may be made to the educational level of the parents, the expectations and plans that the parents had for the child, and the educational level or vocational circumstances of older siblings. This will assist a court in determining the level of education the child would have attained and then reference can be made to income tables indicating the average level of earnings for persons with that level of education.

There is a great deal of debate about the calculation of the future earnings of women. The reliance on pre-accident earnings in respect of adult women already in the workplace and the reliance on income tables indicating the average earnings of women in respect of girls and young women leads to awards that reflect and sustain the historic wage discrimination of women in the workplace. Courts are now sensitive to the fact that the gap between male and female incomes is gradually narrowing and this must be taken into account in calculating likely future earnings of women. A more decisive step was taken in MacCabe v. Westlock Roman Catholic Separate School District No. 110. [Note 178: (1998), 226 A.R. 1 (Q.B.). For a good discussion of this issue, see M. McInnes, "The Gendered Earnings Proposal in Tort Law" (1998) 77 Can. Bar Rev. 152.] The trial judge calculated the likely future earnings of a young woman aged sixteen on the basis of male income tables, thereby removing wage discrimination from the calculation of the loss of earning capacity.

The next step in assessing damages for loss of earning capacity is to determine the length of time that the plaintiff would have earned income. Reference is made to statistical tables of pre-accident working life expectancy to make this calculation. Sometimes the accident reduces the plaintiff's life expectancy below her pre-accident working life expectancy. Compensation for the lost years of employment is allowed but the award is subject to a deduction for income that would have been expended on the plaintiff's living expenses during those years.

Finally, consideration is also given to the contingencies that might have affected the earning capacity of the plaintiff. Negative contingencies include the possible interruption of employment because of illness, accident, or periods of unemployment. Positive contingencies include improved employment opportunities, promotions, and increases in the productivity of the economy. Rule-of-thumb deductions of around 20 percent that were common at the time of Andrews have now been replaced with a more realistic evaluation of contingencies in the individual case. The lump sum is calculated, in the same way as the future care award, on the basis of an exhausting fund of capital and interest, discounted to current value.

Since the decision in Andrews, special attention has been paid to two other heads of pecuniary damage associated with the loss of capacity to work. The first is the plaintiff's claim for the loss of capacity to carry out homemaking services. This is of particular importance to stay- at-home spouses but it is not restricted to them. The homemaking services include those that are for the benefit of all members of the family. Damages for the incapacity to perform both service and managerial homemaking functions are calculated on the basis of cost of replacement services. [Note 179: Carter v. Anderson (1998), 168 N.S.R. (2d) 297 (S.C.A.D.). See Cooper- Stephenson, above note 170 at 312-36.] The second is the claim for pecuniary loss arising from the inability to establish a permanent relationship with another person. Recoverable losses include both the economies derived from shared expenses and homemaking and the benefits of shared income. [Note 180: Reekie v. Messervey (1989), 59 D.L.R. (4th) 481 (B.C.C.A.). See Cooper- Stephenson, above note 170 at 336-49.]

f) Non-pecuniary Loss

Non-pecuniary loss includes pain, suffering, permanent impairment of physical or mental capacity, and loss of expectation of life. It is a difficult task to determine an appropriate quantum of compensation for these losses. In Andrews, the Supreme Court rejected any approach that called for the valuation of what the plaintiff had lost. There is no market in human capabilities and no normative or personal value can be assigned to them. Moreover, any attempt to evaluate the plaintiff's losses risks an extravagant escalation in the quantum of awards for non- pecuniary loss, something that the Court clearly wished to avoid. This led the Court to choose a functional approach based on the plaintiff's need for solace. The purpose of a non-pecuniary award based on solace is to allow the plaintiff to purchase goods and services that will provide some entertainment, enjoyment, or comfort to replace some of the pleasure and enjoyment of life that has been lost as a result of the accident. In a case of catastrophic injury, for example, money might be spent on sophisticated sound- and video-entertainment equipment, entertaining friends, or attending the theatre or sporting events.

The Court was not convinced, however, that the choice of a functional approach to non-pecuniary loss was, in itself, sufficient to prevent an undue escalation of awards based on sympathy for the plaintiff and, possibly, an uneradicable subconscious tendency on the part of judges and juries to evaluate the plaintiff's losses. Consequently, the Court set an upper limit or cap on non-pecuniary damages of $100,000. In Andrews, a case of a mentally alert but catastrophically disabled young person, the maximum amount was awarded. The maximum amount increases with inflation and it is now set at $260,000. In making the award, courts will consider the gravity of the injury, the age of the plaintiff, and the need for solace in the particular case.

Not all of the ramifications of a functional approach have been authoritatively resolved. There does not seem to be any role for solace in respect of pre-trial non-pecuniary loss or for plaintiffs in a state of permanent unconsciousness. Nevertheless, damages are routinely awarded for pre-trial non-pecuniary loss and small amounts are awarded to unaware plaintiffs if there is any residual awareness or any prospect of awareness.

g) Collateral Benefits

Most accident victims are not totally reliant on tort actions for compensation of their injuries. The accident may trigger a number of benefits from a variety of sources, including governmental schemes such as employment insurance, social allowances, and no-fault automobile insurance plans, private employment-related schemes such as sick pay and group insurance protection, personal first-party insurance instruments such as disability and accident insurance, charitable organizations, and friends and family. There is no uniformity in the way these benefits are treated in the assessment of damages against the defendant. [Note 181: See Bloomer v. Ratych, [1990] 1 S.C.R. 940; and Cunningham v. Wheeler, [1994] 1 S.C.R. 359.] Some benefits are deducted from the overall award of damages (deduction). Some benefits may be accumulated with a full award of damages (double recovery). In some cases a full award of damages is made but the collateral fund must be reimbursed in the amount of the benefit received by the plaintiff (readjustment). Initially, the common law favoured double recovery on the ground that a deduction of the benefit would operate solely to the advantage of a wrongdoer. This justification, however, operates on the assumption that negligence law is a loss-shifting system and defendants, individually, pay damage awards. The recognition of both the loss-spreading capacity of the negligence/ insurance process and the fact that the public directly or indirectly funds the tort system and the collateral benefits led to some resistance to double recovery. In spite of this, the idea of deduction of benefits has not generally been adopted other than in respect of no-fault automobile benefits and employee benefits that are not directly or indirectly contributed to by the employee. There has, however, been an increase in readjustment mechanisms that result in no lessening of the defendant's burden but do prevent double recovery by forcing repayment of the benefit to the collateral source. Nevertheless, careful consideration must be given to the details of each collateral source to determine its relationship to the tort system.

h) Management Fees

Damage awards for future care and loss of earning capacity are intended to be prudently invested so as to ensure a stream of income that, together with a gradual drawing down of capital, will provide sufficient compensation during the plaintiff's lifetime. Some plaintiffs do not, however, have the capacity, education, or sophistication to handle large capital sums. In such circumstances, the court may award a management fee to pay for professional advice in the administration and the investment of the fund.