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by
Geoffrey Young
“The wrongdoer
should not profit from his wrong” is under challenge in B.C.
Many motor vehicle
accident deaths do not result in a money loss to the victim’s
survivors. The death of a young child
or of a spouse with little or no earnings may be a life-changing tragedy to
the victim’s family, but nevertheless leave them better off in narrow
financial terms. The courts and legislation, for reasons too obvious to list,
do not allow a tort-feasor to sue the survivors of his victim for a share of
any financial benefit that may be conferred on those survivors as a result of
the death of the victim. Yet claims of
precisely this nature, contained within expert calculations of economic loss
using the “pooled family income” approach, are appearing in B.C.
courts.
“Income Pooling”
represents a Damage Claim by the Defendant
The “income
pooling”, “cross-dependency” or “joint
dependency” approach to income loss awards that has now been generally
acceptedi
assumes
that a fraction of the accident victim’s earnings has been spent to the
victim’s benefit alone, and that a similar fraction of the earnings
provided by the victim’s spouse (and any other earner within the
family) has also been devoted to the victim’s benefit alone. In other words, family earnings are all
contributed to a common “pool”, and each member draws from the
pool an amount that depends on need, not earnings. Survivors need only be compensated for the
income lost as a result of the victim’s death to the extent that it
exceeds the share of family income that was consumed by the victim.
The practical
consequence of the income pooling approach has been to reduce income loss
awards. For example, if a man has an income
of $100,000, and his wife would be able to live alone at the same standard of
living for only $70,000, then it is well accepted that should he be killed
his widow is due compensation of only $70,000 with respect to income loss if
she has no income. That is, since
spending that was to the benefit of the victim alone consumed 30 percent of
his earnings, the widow is considered to be as well off with an award equal
to 70 percent of the family income as she was before the accident. However, if the victim’s earnings had
been only $30,000 of the family income of $100,000, and his surviving wife
had earned $70,000, then as a widow (under the income pooling assumption) she
is in financial terms neither better nor worse off as a result of the victim’s
death - she still enjoys a $70,000 per year standard of living. Her income loss claim is zero (although she
may have a claim under other heads of damage)ii.
Under the income
pooling income approach the loss claim by the plaintiff is being offset by
what is essentially a counter-claim by the defendant, although the
defendant’s case is not formally presented as a counter-claim. Thus the widow in our example is claiming
compensation for the loss of her husband’s income of $30,000, less the
30 percent of that income which he would have consumed himself, for a claim
of $21,000. The defendant (in effect)
is claiming that the widow has gained the use of the 30 percent of her own
$70,000 earnings (or $21,000) that she devoted to her deceased husband before
the defendant’s action resulted in his death. In this case the two claims cancel each
other out and the widow’s net income loss claim is zero.
It is easy to
see from our example that if the surviving widow’s share of the
pre-accident family earnings had been greater than 70 percent, the income
loss claim would be negative. We have
seen many defence economist reports that do indeed say, in effect, “you
should thank me for killing your husband/wife/child”, but the courts in
some jurisdictions are still having difficulty with the notion that the
income pooling approach will often produce negative losses. They may characterize this result as
“bizarre” or “preposterous”iii, and
sometimes seem to be inclined to find particular circumstances why full
pooling of income should not apply where negative losses would result. As experience with the new standard method
grows very small or zero pecuniary awards may become more common.
To an economist,
the pooled family income approach has the unattractive characteristic that it
increases the gap between the compensable private impact of a tort and the
true social cost. A tort-feasor can
bring about the death of a brilliant cancer researcher at the height of her
powers, but the law says her life is valueless in financial terms if she was
married to a wealthy man who (under the pooled income approach) is deemed to
have been relieved of the burden of supporting her. Nevertheless, income
pooling appears now to be the approach required by the courts, whose task is
to compensate for the private, not the social, cost of wrongs.
Since there is
no prospect of the courts actually making damage awards to defendant
tort-feasors, a finding of “negative loss” in pecuniary terms is
only of value to the defendant if the negative claim can be subtracted from
another award. Lately our firm has
been asked to comment on expert economist reports that extend the
“pooling” principle so as to subtract a negative pecuniary damage
award from another claim, reducing the award for the second claim. It is not clear to us that these extensions
of the principle have been accepted by the courts, and we believe some of
these estimates should be challenged.
Some examples follow.
Accident victims
have usually made a contribution to their families in the form of household
services or child care, and the loss of these services represents a source of
pecuniary loss to the survivors.
Following the pooling principle, a claim by a victim’s widow
that she should be compensated for the value of the household services that
her husband provided must be offset by the defendant’s counter-claim
that the value of the work the victim’s wife formerly did for her
husband (and now need no longer do) should also be taken into account. Only the net loss of services, much smaller
than the value of the victim’s contribution, should be awarded.
In principle the
argument for pooling services is similar to the argument for pooling
income. On factual grounds we have
argued that in most situations full pooling of services is unlikely, however. In practice it is usually impossible for
the widow to “trade” her new found spare time, formerly spent
doing her husband's laundry or preparing his meals, for the time of someone
willing to mow the lawn, change the oil in her car or clean the gutters. To the degree that household services are
specialized there is no true “pool” of services.
Since both
income and household services represent pecuniary losses, fully compensable with
dollars, it is a logical extension of the pooling principle to reduce any
claim for a loss of household services by the amount of a negative income
loss claim. This will be typical where
the victim is a spouse who had little income but who provided household
services iv. Where the surviving spouse was a high
income earner compared to the victim (so the income loss claim was much below
zero) the net pecuniary loss claim (that is, combining earnings loss and family
services loss) could easily be less than zero.
Most claims will
include a non-pecuniary damages component, and the courts, or the
legislature, will eventually have to grapple with the issue of whether
negative pecuniary claims can be set off against plaintiffs’
non-pecuniary loss claims.
Some
economist’s reports on behalf of defendants present an offsetting claim
in a form that is easy to overlook; the defence suggests setting off against
the plaintiff’s pecuniary loss claim a counter-claim by the defendant
for a “negative award” for causing the death of another member of
the plaintiff’s family (that is, a second victim).
The
counter-claim is based on income pooling and is not set out in this blunt
form, but rather is buried inside the arithmetic of the loss
calculation. Several years ago we
prepared a loss estimate for the case of a young father who had been killed
along with two of his children.
Defence counsel objected that our report failed to recognize that the
income benefit provided to the widow and surviving child (absent the
accident) would have been reduced because the two dead children, had they
survived, would have consumed part of the victim's income, leaving less for
the survivors. The economist's report
prepared on behalf of the defendant embodied that assumption and naturally
produced a much lower estimate of pecuniary loss.
In a recent case
we prepared an estimate of pecuniary loss for the case of a young woman who
had left a husband and their child.
Plaintiff counsel had not informed us that the victim had been
expecting the family’s second child at the time of her death, assuming
that this second, unborn, victim would not affect our calculation of the
pecuniary loss to the surviving husband and child. The defence economist’s report,
however, included this information in the calculations. The defence report assumed that in the
absence of the accident the second child would have consumed a share of the
family income. That unborn child's
death meant that more income was now available for the surviving father and
child. The impact of the inclusion of
the financial counter-claim for the dead child in this case reduced the net
claim on behalf of the surviving father by 15 to 20 percent and on behalf of
the other, surviving, child by about half.
The Family
Compensation Act requires the same “subject matter” to be dealt
with in a single action v. In the case of an accident that has claimed
multiple victims, an adult whose death imposed financial loss on the
survivors and children leaving "negative losses", were it possible
to make each victim the subject of a separate action the nature of the
defence counter-claim would be much more clear. At the trial dealing with the death of the
income earning adult, the defence would have to introduce evidence about the
death of the children (not a tactic well-calculated to build sympathy for the
defendant) if it wished to introduce a defence economist's report that rolls
all of the victims together to reduce the monetary loss claim for the death
of that adult. At the trial dealing
with the death of the children the plaintiff would need introduce no economic
evidence at all, leaving to the defence the task of explaining to the jury
how much the surviving child had benefited financially from the death of his
siblings. My suspicion is that if
legislation made this procedure possible the courts would by now have
produced a body of law on the issue of negative claims.
Income pooling
is a troubling area of law that deserves clarification, but in the meantime there
is no need for plaintiffs to make the job of defence counsel easier. Where the economist predicts that the
pecuniary loss calculation for a spouse will show a negative amount (that is,
where the income of a deceased spouse is small relative to that of the
survivor) as plaintiff counsel you might consider presenting a claim only for
loss of household services. If you do
not provide the earnings evidence needed by the defence to make a
counter-claim, the defence will not only have to introduce information on
earnings but will also have to explain to the court that they are forcing the
plaintiff to discuss her income, and that of her deceased spouse, because
they intend the bereaved plaintiff’s “profit” on the head
of income loss to be subtracted from her claim for loss for household
services or other heads of damage. I
suspect jury members will have as much difficulty with this procedure as many
judges must have had when the income pooling concept was first adopted.
You should be
alert to the nature of the counter-claim, usually buried in the
economist’s arithmetic, that underlies any use of the income pooling
approach. In the case of the death of
the expectant mother, we understand that plaintiff counsel was barred by
precedent from making a claim for damages for the death of the unborn child,
and it is not clear to us (as non-lawyers) why the defendant had the right
even to introduce what is in effect a pecuniary loss counter-claim against
the plaintiff asking to be rewarded for causing the death of this prospective
child, in the form of a negative amount to be offset against the pecuniary
loss claim for the death of the wife who was the subject of the income loss
claim. In pressing such a counter-claim,
would the defence have to introduce evidence that the defendant’s
actions have resulted in the death of an unborn child (since the plaintiff
has no requirement to introduce evidence about the advanced pregnancy of the
victim) in order to substantiate the lower claim for non-pecuniary damages
that as a result had been calculated by its expert economist? One can imagine that any defence lawyer, no
matter how persuasive the economist’s report, would quail at the
thought of explaining to judge or jury that because it has been proved that
the victim was pregnant at the time of her death the pecuniary damage award
to her surviving family members should be reduced.
One hopes, of
course, we will eventually receive clear guidance from the courts or the
legislature that zero is the smallest award that can be made (leaving aside
costs) for a claim with respect to the wrongful death of any individual
victim under any single head of damage.
It will be made clear, in other words, that negative awards may not be
subtracted from awards with respect to other victims, or from awards with
respect to the same victim under other heads of damage.
Geoffrey Young
(Ph.D. in Economics) is a principal of Discovery Economic Consulting
(Victoria, BC). The firm has prepared
over two thousand valuations of loss in personal injury and wrongful death
cases over the last twenty years.
- See, for
example, Cara L. Brown, Damages: Estimating Pecuniary Loss, Canada Law
Book, Inc., November 2003, page 7-17 ff.
- The simple
examples here are for a single year.
Estimating total future loss requires adjustment for discounting,
mortality and other contingencies over many future years, of course.
- (2001) 204
Nfld. & P.E.I.R.225 (Nfld. S.C.), supplementary reasons 208 Nfld.
& P.E.I.R. 333, 20 C.P.C. (5th) 337 (Nfld. S.C.), para. 41, as cited
in Cara L. Brown, op. cit., page 7-18.
- The pooling
of income and services claims is supported in MacKinnon v. Tremere
(2000), 97 A.C.W.S. (3d) 79 (B.C.S.C.), para. 27, as cited in Cara L.
Brown, op. cit., page 7-21. We
can expect to see this argument raised in reverse where the victim is a
high-earning husband who can be shown not to have helped with household
work and who has thus by his death conferred a household services saving
on his widow.
- Family
Compensation Act [RSBC 1996], Chapter 126, Section 6. Queen's Printer,
Victoria, 2004.
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