Following the Breadcrumbs to an Economic Loss
Lawyers have an overarching duty to clients to act competently when investigating facts and issues, utilizing general legal principles, securing and dissecting evidence, and implementing a chosen course of action all in the interests of justice.
By doing so, lawyers are tasked with breaking down a claim to its studs to discern what damages can be justifiably claimed against those responsible.
However, lawyers often find that some avenues for compensation are overlooked by counsel because, at first glance, a claim lacks the necessary evidence to support it. However, it is incumbent upon all lawyers to conduct a deep dive into the evidence. This often involves asking the right questions, speaking to relevant witnesses, and securing important documentary evidence. When that is done properly, lawyers are in a much better position to determine and maximize the true value of their client’s claim.
In most personal injury matters, the most significant claim pertains to a client’s loss of income, both past and future. At Examination for Discovery, lawyers often hear defense counsel asking about pre-and-post-accident employment, including any discernible changes in jobs, duties, hours, and wages, all of which are designed to determine whether an economic loss has been sustained by the injured party.
The principles surrounding an economic loss claim are based on the notion that an injured party should, to the extent possible, be placed back in the financial position they would have been but for the injury.
In civil claims, the Plaintiff (the injured victim) must prove their case on the balance of probabilities if they are to succeed. In other words, the Plaintiff does not need to prove with absolute certainty (100%) that the defendant caused their damages; rather, the evidence must demonstrate that the probability of the loss is simply more than 50%.
However, when it comes to assessing future income loss, the standard of proof is lowered; the Plaintiff must only satisfy the Court that there is real possibility of future loss or a real and substantial risk of the future loss occurring, as opposed to the balance of probabilities standard.
Evaluating Future Income Losses
Future income loss claims can be relatively straightforward to evaluate. Typically, this is accomplished by distinguishing between pre-accident income and post-accident income, while factoring in any deductions that can be anticipated along the way.
Naturally, since no one can predict the future with absolute certainty, counsel often find themselves at odds over the Plaintiff’s potential ability to recover financially. This is sometimes referred to as the “crystal ball effect.” While counsel for the Plaintiff often tries to protect their client against the worst-case scenario, Defense counsel usually responds with the possibility of a best-case scenario, while ignoring the lower standard of proof. This can create a significant divide between the parties. Ultimately, this can be one of the reasons a matter may proceed to Trial.
When the circumstances do not lead to a straightforward assessment regarding future losses, Plaintiff’s counsel may attempt to put forth a claim for loss of competitive advantage or loss of capital asset/loss of earning capacity. This is premised on the notion that the injured party is no longer capable of performing the essential functions of their craft, trade, or vocation, and as such, they have suffered a loss of a distinct skill or “asset”.
While that may sound easy, the question then becomes: “What is the value of that asset and how do we prove it?”
Proving the Value of Assets
Andrews v. Grand & Toy Alberta Ltd. maintains that an injured party has a viable claim so long as they can prove that their capacity to earn money/income has been impaired by their injuries such that they are no longer able to compete in the open market, or if they can prove that they are no longer as marketable as prospective employees as they were pre-injury.
D’Amato v. Badger was a seminal Supreme Court case that paved the way for assessing loss of earning capacity claims. In that case, the 51-year-old Plaintiff was a 50% owner of an auto body repair shop. Due to injuries sustained in an accident, he could no longer perform the physical tasks required of his position and was relegated to a supervisory position instead. Notwithstanding the changes to responsibilities, D’Amato’s salary remained unchanged.
While D’Amato did not actually suffer a calculable loss of earnings, the trial judge awarded D’Amato $290,000 in recognition of his loss of competitive advantage. This was based on his age, literacy level, and his regular engagement in physically demanding work which medical evidence confirmed he was no longer capable of performing.
The ability to pursue a claim for loss of competitive advantage is often dependent on whether an individual has returned to their pre-accident occupation. If an individual has returned to their pre-accident occupation but is at risk of unemployment due to potential future issues associated with their injuries, then there might be a viable claim for loss of competitive advantage.
The recent decision in Herrington v. Brewer et al., 2022 ONSC 2852 has revisited these principles.
Herrington v. Brewer et al., 2022 ONSC 2852
Paul Herrington was 56 years old when he was involved in a rear-end motor vehicle accident on December 27, 2015. Up until then, he spent most of his working life as an auto mechanic and proprietor of an auto repair shop. He enjoyed his job, managed it without issue, and had no immediate retirement plans.
The impact from his accident resulted in whiplash injuries, causing him to suffer immediate neck and back pain. His injuries did not feel serious enough to prompt a hospital visit. Hopeful that it was nothing too serious, he decided to wait it out at home.
Unfortunately, he also developed left elbow pain that prevented him from returning to work at his auto shop. Out of fear that he might go out of business, he supplemented his work by hiring workers to fulfill the physical tasks associated with the job, while he assumed a passive supervisory/managerial role, like D’Amato.
Through the course of litigation, the Plaintiff appropriately claimed general and special damages, which were contested by the Defendants who relied on a causation defense to minimize their exposure. The Defendants acknowledged that the Plaintiff had duly mitigated his financial losses by returning to work, and beyond that, went on to earn more income than he was earning at the time of the accident. To that end, there was disagreement between the parties regarding the value, if any, of Mr. Herrington’s future financial losses.
If There is No Past Loss, How Can We Justify a Claim for Future Losses?
The decision in Herrington delved into the intricacies of quantifying the Plaintiff’s financial losses and his alleged loss of competitive advantage in the absence of no apparent loss of earnings.
In his decision, C.M. Smith J. considered the relevant labour market factors including the viability of running an auto shop business altogether, given the nature of the work and the availability and affordability of new employees.
It should go without saying that the testimony of strong witnesses, such as treating and expert doctors, market trend analysts, and employees, can help develop a reliable and believable theory of the case.
To help quantity his financial losses, Mr. Herrington retained a forensic accountant, Ian Wollach of RSM Canada Consulting LLP. As part of his assessment, Mr. Wollach reflected on decisive factors referenced in the Supreme Court of Canada’s decision in D’Amato, including:
- The fair market value of his pre-accident contribution to the business (ignoring distributions either motivated by tax planning or attributable to his investment in the business)
- The present value over the remainder of his projected pre-accident working life
- Reduced to reflect the fair market value of his post-accident projected future contributions to the business.
In his corresponding report, Mr. Wollach laid out three viable scenarios detailing Mr. Herrington’s past and future income losses. The three scenarios contained different figures used to value the Plaintiff’s pre-accident income/earning capacity, as well as nominal differences in his anticipated age of retirement.
C.M. Smith J. sided with the following scenario, feeling it most accurately represented the Plaintiff’s losses. Mr. Wollach assessed Mr. Herrington’s losses as follows:
- Past Income Loss: $231,477.00 (from the date of loss up to the first date of trial on November 15, 2021)
- Future Income Loss: $340,118.00 (from November 16, 2021 up to Mr. Herrington’s 68th birthday)
- Total Income Loss: $571,595.00
The takeaway from the decision in Herrington is that, as counsel, we cannot automatically presume a financial loss has not been incurred just because a client has returned to work or is earning more money now. Relevant considerations to the circumstances of their post-accident employment– including any changes in their role within the company, the ability to find employees to supplement a role, the cost of paying any new employees, and the sustainability of such a business given the change in role and increased expenses– must be taken into account.
Never stop following the breadcrumbs.
This article has been authored by Jordan Mintz