How is past and future economic loss compensation calculated?
One of the major areas of compensation in a personal injury claim is the area of economic loss, or loss of income. We will explain more about economic loss in this article to help you understand it's importance in personal injury claims. When a person's capacity to perform their work duties is impeded because of their injury, whether it is from;
you are often looking at a substantial claim. If a person's ability to earn an income to support themselves or their family is reduced due to an injury, then this is a very serious matter, which can have immense repercussions.
The right to proper injury compensation
Where someone is injured as a result of someone else's negligence, and they cannot earn an income, or are struggling to do so, due to their injury, the injury victim deserves to receive proper compensation to ensure that they have adequate finances they can rely upon.
What our legal system does is try to, as much as reasonably possible, place an injured person into the position they were prior to sustaining their injury, via a compensation payment.
The basis upon which calculation of past & future economic loss is made
How a Court compensates an injured person monetarily for their accident injuries, is by looking at what was the most likely future for that person if the accident had not occurred.
They then compare it to what it has been since the accident, and what it is likely to continue being in the future, due to their accident injuries.
Key Aspects Of Past & Future Economic Loss Compensation Claims
Making a monetary award in an attempt to try to limit the injured persons losses
After the Court calculates what the person would have earned but for the accident, and what their earning capacity is now because of the accident, the Court then makes a monetary award for the gap.
The Court tries to, as much as reasonably possible, put the injured worker, driver, pedestrian, cyclist, shopper etc, back into the position they most likely would have been in but for the accident.
Calculating economic loss or lost income compensation can be difficult
Calculating past and future loss of income as a result of accident injuries is often a very difficult task. Loss of income can include loss of wages, self-employment income, loss of profits, the amount spent on hiring others to perform work, loss of promotion and secondary employment, and many other types of lost income.
In most cases, even if the injured person cannot prove a defined weekly loss, the Court can still award damages for past and future loss of income, if the Court is satisfied that the injured person has suffered or will suffer loss (taking into account the person's age, work history, actual loss of earnings, any permanent impairment and other relevant matters).
An Example of calculating past & future loss of income
For example, Joe is a 37 year old bricklayer, who unfortunately sustained whiplash injuries to his neck and back in a motor car accident.
Joe's doctors tell him that he will not be able to work as a bricklayer anymore and he will now have to find alternate less strenuous work.
Joe is out of work after the car accident for about 6 months until he finds a job in the sales area at a local hardware store.
Unfortunately, Joe finds the work at the hardware store a little difficult, because he has trouble standing on his feet for long periods, bending and reaching to pack the shelves of the store with products, and helping customers carry purchases to their car, which is part of the hardware store's service.
Recovering loss of income sustained because of accident injuries
As a result, Joe has to reduce his work hours and work only 3 days a week. However, Joe's supervisor is not happy with this, or with how slow Joe is with restocking the store shelves.
Before the accident, Joe worked 50 hours a week doing bricklaying, and had been doing this work for more than 20 years.
Joe knows of little else but bricklaying, so Joe brings a claim for compensation for his car accident injuries.
In particular, he wants to recover his loss of income sustained because of the accident and his consequent injuries.
What A Court Looks At When Considering Loss Of Income
What a Court will look at when considering the loss of income that Joe has suffered and will most likely suffer in the future is:
• The actual income Joe has lost in not being able to continue in his work as a bricklayer. This is a relatively straightforward calculation, being the difference between the earnings he most likely would have received working in his bricklaying job, less what he has actually earned at the hardware store since the accident. Of course, if Joe was going to get a pay increase, or was in line for a supervisor or team leader role with increased wages, then he would also be entitled to claim for this loss provided he is able to produce supportive evidence of this.
• When working out Joe's past economic loss, the Court will base its calculations on the usual net earnings Joe was receiving prior to the accident. The Court may also look at whether Joe was not always consistent with his earnings - it may be that he worked overtime a great deal, and therefore his loss should be increased to take this into account. Say that Joe would have earned $1200 per week for 100 weeks as a bricklayer, equating to $120,000. Instead, Joe earned only $5,000 in his work at the hardware store. In this calculation, Joe would likely be awarded $115,000 for past economic loss ($120,000 less $5,000). Say Joe would have also had the opportunity to do overtime on 2 projects since the accident, and earn an additional $5,000, the Court would likely increase Joe's past economic loss claim to $125,000.
• The Court then has to calculate what income Joe is likely to lose in the future due to his injuries. Joe tells the Court that he was going to continue working as a bricklayer for as long as he could and hopefully to the age of retirement at 67 years. He had also hoped to move up into more advanced roles in his employment, until he climbed to the role of Project Manager, which meant he would have earned much higher wages in the future but for his accident injuries.
• Joe has been earning around $400 a week at the hardware store, but is scared he will lose his job because his supervisor is not happy with him due to the work restrictions he has with his injuries. He does not know what he will be able to do if this happens, as he has no experience in any other work but bricklaying and he has limited sales experience with the hardware store. Joe is told by his doctors that he can work at least 30 hours a week in more sedentary roles, but he may have to take breaks regularly so he can stretch and walk around.
• When the Court looks at calculating Joe's future lost income, they look at all of the things Joe says he was going to do in his work, and then consider if the evidence supports that this was, on the balance of probabilities, likely to have been the case if not for Joe's accident. The Court then calculates Joe's future economic loss on this basis. So on the current example, Joe's future economic loss would be $800 per week $1200 per week he was earning less $400 a week he is earning at the hardware store) into the future to age 67 years.
• All of this is calculated using the Litigation Tables. These are actuarial tables which provide multipliers that reduce losses down to present day values. These tables are used because Joe would not have received his future earnings all in one lump sum now: he would have earned it over a long period of time into the future. As such, the amount that Joe receives now needs to be reduced to a value that if received now and invested conservatively, he will most likely achieve the equal amount over the period of his employment to age 67 years. If Joe is currently 37, he has 30 years of loss of wages he can claim for. The calculation would be $800 x 822 (the actuarial multiplier for 30 years), which equates to a sum of $657,600.
• It cannot be assured that Joe would have worked consistently into the future in his employment as a bricklayer but for his injuries, or that he may not have suffered another injury or medical condition that limited his earning capacity, or he may not have been able to do such heavy work to age 67 years. As such, after applying the Litigation Tables, the Court then reduces Joe's damages to take these contingencies of life into account. In Joe's case they may reduce it by 20%, which equates to a sum of $526,080.
• The Court may then decide to increase this to amount to allow for the loss of opportunity to advance in his career as Joe had, prior to the accident, planned to work overtime regularly, and for the risk that Joe's current employment may be terminated and Joe finds it difficult to locate work with his injuries and limited employability. When taking all of these things into account, the Court may then increase Joe's claim, say to a sum of $750,000. This is the amount the Joe would receive for Future Economic Loss.
Every Case Is Different
Every case is different as injuries affect people in different ways, and there are so many varying occupations, earning capacities and opportunities for advancement and increased wages etc.
Some injuries may not impact on a person's employment as much as another's, whereas, some injuries, although considered minor injuries, may impact more on an occupation that one would think would be the least impacted.
The circumstances of each claimant has to be looked at very carefully when assessing past and future economic loss - which we can do for you, and there is no cost to assess your claim.
Another scenario of a different injury
An example of another scenario is where a person works in a more sedentary and lighter role of a secretary. This secretary, who sits at a desk and types on a computer for long periods, may suffer greater difficulty from a whiplash injury to the neck, then someone in retail sales who can move about more easily and frequently and regulate their posture.
Just because the secretary's loss of income may not be as evident as Joe's loss of income, where Joe had to change employment completely, it does not mean the secretary is not entitled to a substantial award for future economic loss.
Where there is an injury that causes a worker impairment, which may interfere with their work capacity, may cause them to require more sick days, or may later cause difficulty in their work as they grow older and their injury deteriorates over time, the Court may award them a "global lump sum amount" for future economic loss to account for this.
How the court may decide on the sum they award you in a compensation claim
For example, the Court may decide that a global sum of $100,000 is appropriate to be awarded to the secretary referred to above, who has continued in her work performing all her duties, but:
- Has had to take intermittent days off with flare ups of her injury;
- Requires regular breaks in her work;
- Is at risk of being prejudiced by her injuries if her sympathetic employer should decide to put her off, onto the open labour market;
- Is at risk of losing advancement opportunities due to the impact of her injuries on her work;
- Is at risk of having to retire at an earlier time due to her injury deteriorating into the future.
Global awards for economic loss
Global awards for future economic loss are usually awarded where the loss is not able to be readily calculated, but it is more probable than not that there is going to be a loss of income sustained. The greater the likely extent of that loss, the greater the global award will be.
Injury compromises employability, a compensation claim can get that financial help
Global awards in economic loss claims, can also happen as a type of "buffer" to cater for some likely contingency in the future causing further loss of income which cannot be calculated with accuracy. Often this will be applied generally to allow for a loss of employability caused by the injury. In today's economic climate, a worker cannot afford to be injured or impaired by an injury.
The open labour market is a very competitive market, and demanding of able bodied workers. An employer has the option to choose and more often than not, the chips are stacked against a worker with an injury when up against a worker without.
There is no doubt that an injury compromises a person's employability in the open labour market.
What is loss of employability?
"Loss of employability" or "reduced employability" is where your injury makes you less employable in the eyes of an employer.
Another aspect of injury that causes a loss of, or reduced, employability is of course the general reduction in your employment capacity - where your injury reduces the type of work you can now take on, and therefore your work options, as well as your capacity for work.
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How Much Compensation Did Other People Get Awarded For Their Injuries?
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