The purpose of compensation under this head of damages is to provide the Plaintiff with an amount of money that represents what he or she would have earned over the balance of his or her working life, but for the accident-related impairment.
An award for loss of earning capacity may compensate for either, or both, a past or a future loss: Rowe v. Bobell Express Ltd., 2005 BCCA 141.
A. The Starting Point
The starting point is a relatively straightforward question – is there a real or substantial possibility of a future event that, due to the injury, will lead to a loss of income?: Perren v. Lalari, 2010 BCCA 140 at para. 32. If the answer is no, no award will be granted for loss of earning capacity.
The Plaintiff does not, however, need to prove the loss on a balance of probabilities. Rather, he or she must show that there is a reasonable likelihood that the loss will materialize: Athey v. Leonati, [1996] 3 S.C.R. 458. In Rosvold v. Dunlop, 2001 BCCA 1, the BC Court of Appeal confirmed that while the Plaintiff does not need to prove the loss on a balance of probabilities, the loss must be tangible:
[9] … Possibilities and probabilities, chances, opportunities and risks must all be considered, so long as they are a real and substantial possibility and not mere speculation. These possibilities are to be given weight according to the percentage chance they would have happened or will happen.
If the Court finds that there is evidence of such a future event, the Plaintiff may be eligible for an award. Having said that, the issue of causation must not be overlooked. Saunders J. emphasized this point in Falati v. Smith, 2010 BCSC 465, by stating that “the Plaintiff must prove that each of the various claimed losses of opportunity by which he says the loss of earning capacity is to be evaluated was, more likely than not, actually caused by the accident” (at para. 43). If, on a balance of probabilities, there is a causal relationship between the accident and the loss, the Court can embark on the task of quantifying the loss.
In Perren v Lalari, 2009 BCCA 564 (as summarized at para. 42 of Parker v. Lemmon, 2012 BCSC 27), the Court succinctly summarized the key points when assessing a claim for loss of earning capacity:
- A Plaintiff must first prove that there is a real and substantial possibility of a future event leading to an income loss before the Court will embark on an assessment of the loss;
- A future or hypothetical possibility will be taken into consideration as long as it is a real and substantial possibility and not mere speculation;
- A Plaintiff may be able to prove that there is a substantial possibility of a future income loss despite having returned to his or her employment; and
- An inability to perform an occupation that is not a realistic alternative occupation is not proof of a future loss.
B. Quantification of the Loss
The two approaches
At this stage (i.e. after the Plaintiff has established a real or substantial loss), the Court has two options in terms of how to value or quantify the Plaintiff’s loss: Perren v. Lalari, 2010 BCCA 140. The approach used will depend on whether or not it is possible to actually calculate the amount of the loss. Where the impact of the injury on the Plaintiff’s earnings is readily apparent and the loss is measurable, it is appropriate to calculate the loss using actuarial evidence as a guide, provided that appropriate contingencies are taken into account. This approach is often referred to as the Earnings Approach. The second approach is to be used as an alternative, in circumstances where the Plaintiff can prove a loss but the amount of the loss is “not measurable in a pecuniary way” (para. 12; p. 32). This approach is often referred to as the Capital Asset Approach.
The following factors may influence which approach is adopted by the Court:
- The Plaintiff’s age (the younger the Plaintiff, the more likely the Courts will use the capital asset approach because there may be little or no actual evidence of what the Plaintiff made in the past to act as a guide for the future. Furthermore, the older the Plaintiff, the less realistic alternative career paths become.)
- The level of education attained by the Plaintiff at the time of the accident (level of education may indicate a clear income path (earnings approach) or conversely an uncertain future (capital asset approach);
- The nature of the Plaintiff’s profession such as the stability of the field or the standard trajectory of a person employed in that field (if the trajectory is clear the earnings approach may be used. Conversely, the more fractured a vocational career path is likely to be the more suitable the capital asset approach will likely be, i.e. software developer); and
- The length of the Plaintiff’s working history (if a Plaintiff has a steady work history, i.e. has worked at the same job for 20 years, the Court is much more likely to use the earnings approach).
If the Court selects the Capital Asset Approach, it will assess the extent of the impairment to the Plaintiff’s earning capacity caused by the injury. The Court will take into account the entire body of evidence respecting the Plaintiff’s background, employment circumstances at the time of the accident, and career prospects and will “award compensation on an estimation of the chance that the event will occur”: Steward v Berezan, 2007 BCCA 150 at para. 17.
The trial judge, however, is “not required to articulate all of the substantial possibilities and assign a specific weight to them”, but to recognize “the existence of contingencies and possibilities” and to take them into account in the damages assessment: Romanchych v. Vallianatos, 2010 BCCA 20 at para. 13. In quantifying the award, it is commonplace for the Courts to consider the following criteria that were first set out in the case of Brown v. Golaiy (1985), 26 B.C.L.R. (3d) 353 (S.C.):
1. To what extent the Plaintiff has been rendered less capable overall from earning income from all types of employment;
2. To what extent the Plaintiff is less marketable or attractive as an employee to potential employers;
3. To what extent the Plaintiff has lost the ability to take advantage of all job opportunities which might otherwise have been open [to that Plaintiff], had he [or she] not been injured; and
4. To what extent the Plaintiff is less valuable to himself [or herself] as a person capable of earning income in a competitive labour market.
Note, however, that the Court will not confine their analysis to the foregoing factors set out in Brown.
The Earnings Approach – Wallman ($3.7 million)
An example of the Earnings Approach is found in the recent decision of Wallman v John Doe, 2014 BCSC 79. The 53-year-old Plaintiff, an emergency room physician, was driving his vehicle when he was rear ended by a Whistler Transit bus. Although the damage to the vehicles was minor, the Plaintiff’s life changed “instantly and dramatically.” He was, at least as found by the trial judge, unable to return to work either as a physician or as a developer of real estate rental properties.
Prior to the accident, the Plaintiff worked approximately 60 hours per week at a hospital. In addition, he and his wife purchased homes, renovated them, and turned them into rental properties. In assessing his future loss of earning capacity in terms of his medical practice, the Court found that there was overwhelming evidence that there was a real and substantial possibility that the Plaintiff would have continued working as an emergency room physician until age 70. The Court accepted that the annual income of the Plaintiff was $346,000, based on his income in the five years preceding the accident. After taking into account labour market contingencies that included the Plaintiff becoming disabled or deciding to work part-time, and assuming an annual loss of $346,000 to age 70, the Court accepted that the total loss was $4,072,410. After considering that the contingencies upon which the foregoing analysis was based may prove to be wrong (for example, the Plaintiff’s symptoms may improve, or he may secure some form of alternate employment), the Court concluded that there was a 10% chance of one or more of these contingencies transpiring, and therefore reduced the award by 10% to award the Plaintiff $3,665,169 for future loss of earning capacity from his medical practice. Given the Plaintiff’s long track record as a physician, his stage in life (relatively late in his career), and his clear earnings history, the Earnings Approach was most suitable to measuring this component of his claim. In essence, it was clearly amenable to mathematical calculation. This type of claim is the easiest type of future income loss claim to quantify.
The Capital Asset Approach – Witt ($600,000)
An example of the Capital Asset Approach is found in Witt v Vancouver International Airport Authority, 2012 BCSC 1185, which also demonstrated the uncertainty and unpredictability of this approach. The Plaintiff, a fire truck distributor and owner of Safetek Emergency Vehicles Ltd., claimed damages for losses he suffered when he fell through a gap between two metal plates on a roadway under construction. The metal plates were in place on a temporary basis as construction proceeded on the Canada Line terminal at the Vancouver International Airport.
While the bulk of the Plaintiff’s claims were dismissed, the Court held that the Plaintiff had established a real and substantial possibility that the injuries he suffered as a result of the fall had diminished his earning capacity. Specifically, Burnyeat J. found that the Plaintiff’s mobility was reduced, such that he could not stand up to give presentations, that he struggled with stairs and carrying binders, and that his overall ability to rely on personal contact (which was very important in selling vehicles) was diminished. The Court further found that the fall had accelerated the Plaintiff’s arthritis and his need for restorative joint replacement surgery.
In terms of actual numbers, the Court noted that: between 2004 and 2010, the Plaintiff earned an average of approximately $740,000 per year; that between 2006 and 2009 the capital net income of Safetek averaged approximately $1,245,000; and, that if the Plaintiff were required to use shareholders’ equity to subsidize the income that would have ordinarily been available to him, Safetek would become less attractive to a potential purchaser whenever the Plaintiff did find it necessary to retire. At trial, the Plaintiff argued that he had lost millions of dollars in that his business had to incur significant costs associated with hiring employees to do the Plaintiff’s job, that the company missed out on several business opportunities, and that the company failed to pursue other opportunities entirely because of his injuries. The Plaintiff called numerous witnesses to demonstrate that he had to hire over 5 employees to perform duties within his company he would otherwise have performed himself, that there were contracts for large municipalities which were pursued but not obtained, and that other potential contracts were not pursued at all given the difficulties the Plaintiff was having with his accident-related injuries.
To defeat these assertions, the Defendants needed to persuade the Court that these future losses were neither real nor substantial but rather highly speculative, or alternatively, unrelated (i.e. not casually connected) to his injuries. This task was accomplished by painstakingly analysing each and every alleged future loss. Detailed interviews were conducted of industry insiders, forensic accountants were engaged to analyse the company’s financial statements and most importantly a clear understanding of the Plaintiff’s industry was obtained. The Defendants needed to educate the Court as to who the key players were in the industry, how it worked and what industry realities/opportunities were looming on the horizon. Armed with this understanding, the Court rejected virtually every alleged future loss put forward by the Plaintiff, save one.
In addition to the myriad of alleged future losses put forward by the Plaintiff that related to his business, he also suggested he might have to retire early given his accident-related injuries. The Court, based on the medical evidence put forward by the Defendants, stated that there was no evidence that the Plaintiff had any intention of retiring early, and no medical advisor had suggested that early retirement was an outcome of the injuries he had suffered. Despite these findings, the Court held that there was a real and substantial possibility that the Plaintiff would have to retire at least two years prior to when he would have ordinarily retired but for the accident. The Court awarded the Plaintiff $600,000 for losses he would allegedly incur due to his early retirement.
There was very little evidence to support this finding and almost no analysis by the Court in terms of linking the facts with the law. The Court simply found that there was a real and substantial possibility of early retirement and then seemingly picked a number out of the air when quantifying the loss associated with same. On the one hand, this case highlights the importance of obtaining an in-depth knowledge of the industry within which a Plaintiff is asserting a loss of earning capacity claim, while on the other hand highlighting just how arbitrary such awards can be.
C. Contingencies
Regardless of whether a Capital Asset Approach or an Earnings Approach is used, the Court must still take into account the fact that the possible future events upon which the capacity award is based may not come to pass, as well as the possibility that the Plaintiff’s future may turn out better than predicted: Milina v. Bartsch 49 B.C.L.R. (2d) 33 at 79 (S.C.).
The following are common examples of such contingencies:
Negative
- Pre-existing medical condition
- Standard labour market contingencies (i.e. layoffs, unemployment between jobs, disability, part-time work)
- Early retirement
- Mortality
Positive
- Promotion/raise
- Pension benefits
- Increased productivity of the economy
D. Conclusion
Loss of earning capacity claims are fraught with uncertainty, not because the legal principles are overly complex, but rather because the future is unknown. Not until we develop a fully functional and reliable “crystal ball” will such awards be predictable. Until then, there is only one approach that can be taken when confronted with a significant claim for diminished earning capacity, namely hard work, creativity and a realistic recognition that despite the former, the outcome is still uncertain.
