In personal injury claims, loss of earning capacity is one of several heads of damages for which an injured party may claim damages. A plaintiff may claim a reduction in their ability to earn income and maintain employment in the future due to their accident injuries. An award of damages under this head of damage is intended to provide an injured party with financial compensation to help alleviate the long-term impact on their ability to work and earn a living. There are several factors which a judge may consider when determining what an appropriate award would be in the circumstances.
A recent decision from the British Columbia Court of Appeal illustrated when it may be appropriate for an appellate court to set aside and reassess an award of damages for loss of earning capacity.
Rear-end accident results in numerous injuries
In McHatten v. Insurance Corporation of British Columbia, the appellant (plaintiff) was 19 years old when she was injured in a rear-end motor vehicle accident on February 10, 2014. Before the accident, the appellant was healthy, sociable and active and had just moved into her own apartment. She was previously a competitive cheerleader and sustained a few knee injuries, but stated that these injuries always resolved, although she occasionally experienced “buckles.” At the time of the accident, she worked full-time at a retail store and earned an hourly wage of $11.50. She had aspirations to travel and pursue a career in forensic science.
At the time of the accident, the appellant was sitting in the right rear passenger seat in a vehicle driven by her grandmother. When their car was stopped at a red right, it was rear-ended by another vehicle. The impact pushed the car into the stopped vehicle ahead of them.
Appellant resigns from work due to accident-related injuries
The plaintiff claimed that her head hit the window, and she was transported to the hospital before being discharged several hours later. As a result of the accident, the appellant sustained chronic back pain, which continues to persist, fibromyalgia, anxiety, panic disorder and depression. These injuries were expected to continue into the future.
She attended some treatment and continued to work at the retail store. However, despite her employer’s accommodations, she permanently resigned in May 2015 due to her injuries. At the time of trial, she had been out of the workforce for six years, primarily due to her accident-related injuries and because she did not see herself as a candidate for advancement within the company. She said she looked for another job because she had to pay her bills.
Supreme Court awards $200,000 for loss of earning capacity
The appellant felt ready to return to school, the workforce, or both by mid-2018. However, she suffered an unrelated stroke in November 2018, resulting in loss of peripheral vision and cognitive difficulties. She was disabled from working for approximately one year due to memory loss and her language function.
At trial, the judge awarded damages of $200,000 to the appellant for loss of earning capacity based on several factors. He found that there was a real and substantial possibility that the injuries sustained during the accident would limit her future earning capacity, and the capital asset approach was appropriate to quantify her claim for loss of future earning capacity. The trial judge also noted that her substantial absence from work leading up to the trial would make it difficult for her to find new employment. However, her “young age,” supportive family, and the improvement of her symptoms offset this difficulty to some extent. Justice Weatherill wrote:
“Considering the evidence as a whole and recognizing the foregoing positive and negative contingencies (which I have concluded net out to an appropriate reduction in the award of 30%), I award the plaintiff a total of $200,000 for loss of future income earning capacity.”
Loss of future earnings award appealed
The appellant appealed the decision, arguing that the judge erred in his assessment of damages for loss of future earning capacity. Specifically, she argued that he erred by:
- Failing to provide sufficient reasons to explain his award;
- Failing to compare her future earnings without the accident with her likely future earnings after the accident; and
- Incorporating a 30% negative contingency which was unrelated to the case facts.
The respondent, the Insurance Corporation of British Columbia, claimed that the award was appropriate and that the judge’s reasons were sufficient.
Before addressing the grounds of appeal, the Court of Appeal noted that a trial judge makes an award of damages based on a “fact-finding exercise” and that an appellate court would only intervene “if the judge has applied an incorrect principle of law, or awarded an amount either so inordinately low or so inordinately high that it must be a wholly erroneous estimate of the damage.”
Court of Appeal finds trial judge erred in his reasons
The Court found that the judge’s findings indicated that the appellant’s accident-related injuries would impact her future earning capacity, specifically reducing her work capacity by 30 to 40%. The Insurance Corporation of British Columbia provided evidence to prove the appellant’s likely earnings without the accident injuries, and the parties agreed that converged male/female statistics should be used by the Court.
The Court of Appeal found it appropriate to set aside the lower court’s award and reassess the damages due to errors in the judge’s reasons due to unchallenged findings of fact and the evidentiary record. Further, the Court found that the judge’s reasons were insufficient to permit the appellate court to review the award as it could not determine the basis for the award granted from the record.
Regarding the second group of appeals, the Court accepted that the judge correctly applied the capital asset approach. However, he failed to analyze the expert economic evidence provided to compare the appellant’s likely future earnings in consideration of her accident injuries and without her accident injuries. The Court noted that “the judge cannot simply pluck a number from the air without any explanation as to how they got there.”
Award for loss of earning capacity more than doubled by B.C. Court of Appeal
Finally, the Court agreed with the appellant that the judge’s application of a 30% negative contingency was not sufficiently explained. The Court noted that the judge only addressed the appellant’s likelihood of finding employment following her six-year absence from the workforce when listing contingency factors. Instead, the Court found that this was only one of several factors which should be contemplated. Moreover, the Court found that the parties did not allege that the judge should make an award for damages based on the appellant never returning to work.
Overall, in light of the judge’s errors in his reasons, the Court of Appeal set aside the award for loss of future earning capacity. Relying largely on the respondent’s evidence and using a 35% loss of full-time work capacity, with a 10% positive contingency agreed upon by the experts, the Court of Appeal awarded damages to the appellant for loss of future earning capacity of $450,000.
Despite the appellant’s claim that an additional 10% positive contingency should be incorporated to consider the real and substantial possibility that she would have obtained further education but for the accident, the Court found that there was no evidence to suggest that the appellant’s injuries would currently prevent her from pursuing further education.
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