Products & Services

Court Testimony from Experts @ BEC

Excerpt from McLaren v. McLaren Estate, 2010 ABQB 471, released July 13, 2010

Injury case involving a woman who had been training with an accounting firm to obtain her CGA certification. The judge determined losses for only some of the pre-trial time period; and then determined an annual loss ongoing in the future, based on a -20% impairment in earning capacity,1 which Brown Economic calculated in present value terms upon the judgment being issued. In doing so, Sisson J. accepted Ms. Brown’s statistics regarding the earning capacity of an accounting professional who is not injured (para. [302]); Ms. McLaren’s annual earning capacity as an injured accounting professional based on her income in 2006, 2007 and 2008 (para. [300]); and assumptions with regard to the real discount rate (para. [312]). Sisson, J. awarded amounts for past and future housekeeping losses, based on modifications to the calculations by Brown Economic (paras. [330] and [334])2 and for psychological treatment based on Brown Economic’s calculations (para. [352]) as well as chiropractic treatment for 5 years in the future, once per month (para. [359]). Brown Economic calculated the tax gross-up based on Sisson, J.’s adoption of Ms. McLaren’s annual employment income as estimated by Brown Economic, and further assumptions about her retirement income from CPP and OAS. The total award came to almost $400,0003 plus $173,455 in non-pecuniary damages; then reduced by 25% for liability on the part of the plaintiff (para. [6]). Sisson, J.’s award was based on his finding of the plaintiff suffering chronic pain and PTSD and a whole body impairment of 24%. Sisson, J. also found that "the plaintiff will not be able to work full-time on a regularly scheduled basis" (para. [156]), presumably the rationale for the finding of a 20% loss of earning capacity.

Commentary from author: Justice Sisson's judgment (released July 13, 2010) is a cautionary tale of assuming all events occurring close in time following the accident date are necessarily caused by said accident. The reader will see from para. [215], where we begin the excerpts from Justice Sisson's judgment, that two key assumptions put forth by the plaintiff and her lawyer were not accepted by the court. These assumptions had a large impact on the magnitude of losses eventually awarded by the court, since our income loss report was directly predicated upon the plaintiff having completed her CGA designation (and working full-time) versus non-CGA designation (and working part-time). Justice Sisson did accept that Ms. McLaren could only work part-time as a result of the accident; but did not accept that her failure to obtain her CGA designation was because of the accident.

In addition, the plaintiff's employment circumstances changed radically three weeks before trial: she closed her business and switched to working out of her home. This rendered our two previous reports practically not applicable given the changed fact circumstances. Loss of income calculations were done immediately prior to testifying to try to fit the new fact circumstances (and accepted by the court as exhibits 11 and 12). Notably, the court's assessment of the plaintiff's future loss of income was similar to a "PALS analysis" : Justice Sisson awarded an annual deficit ($14,000) until retirement based on a -20% ongoing impairment (paras. [308], [309] and [310]). This percentage is almost identical to the -21% wage gap found from the 2001 PALS data for females who fall into the severity category of "mildly disabled" (see C.L. Brown and J.C.H. Emery, "The Impact of Disability on Earnings and Labour Force Participation in Canada: Evidence from the 2001 PALS and from Canadian Case Law" Journal of Legal Economics, vol. 16, No. 2, April 2010; Table 6, p. 46, under the column heading "PALS 2001 Female Heckman" across from "Mild disability").

[1] Interestingly, the -20% impairment that Sisson, J. used to assess Ms. McLaren’s annual loss of earning capacity is consistent with the -21% "mild" impairment for females based on the 2001 PALS ("Participation and Limitation Activity Survey") calculated in C.L. Brown and J.C.H. Emery, "The Impact of Disability on Earnings and Labour Force Participation in Canada: Evidence from the 2001 PALS and from Canadian Case Law", Journal of Legal Economics, Vol. 16, no. 2, April 2010; p. 19 and Table 6, p. 46.
[2] Sisson, J. noted in para. [330] that the amounts Brown Economic had calculated for Ms. McLaren’s loss of housekeeping capacity were based on replacement services at 2 hours per week; he then awarded Ms. McLaren loss of housekeeping using 1 hour per week in para. [334].
[3] This includes an amount of $37,500 for the tax gross-up, which Sisson, J. directed Brown Economic Consulting to calculate in para. [406] from the assumptions in the judgment.

Excerpts from Justice Sisson's decision in McLaren are reproduced below.

[215] In summary, I have determined that the plaintiff chose to leave Grant and start her own business. It was not forced upon her by the motor vehicle collision. Further, the collision was not the cause of the plaintiff failing to obtain her CGA designation as this was a result of the plaintiff's belief she could not continue in the CGA program.

[223] Ms. Cara Brown's first report of September 30, 2008, was updated on August 14, 2009; however, the plaintiff's circumstances changed just prior to trial.

[224] The plaintiff closed her accounting office, let her staff go and commenced working three days a week from her residence. The plaintiff testified that she expects to make $80,300 per annum working from her home. It is true that her expenses for employees and office space will be substantially reduced; however, I think it is unrealistic for the plaintiff to expect to earn this sort of income working 60% of the time.

[225] The medical evidence, which I accept, attributes the change to PTSD which resulted in the plaintiff being unable to carry on business in the same fashion as she had previously. Ms. Brown provided her opinion on the impact on future losses given these recent changes in Exhibits 11 and 12.

[228] I will not spend much time on the details of Ms. Brown's first two reports because the plaintiff radically modified her business operations just before trial. Ms. Brown provided Exhibits 11 and 12 which revised her estimates of income loss based on the new circumstances. Attached to the exhibits were worksheets containing annual calculations including prejudgment interest, present value of potential loss and accounting for matters such as tax, Canada Pension Plan premiums and Employment Insurance premiums.

[244] There were two fundamental assumptions made by Ms. Brown that were not found to be the case. First, she assumes the motor vehicle collision prevented the plaintiff from obtaining an accounting designation and, secondly, the collision caused the plaintiff to leave Grant. This has been dealt with in detail elsewhere.

[245] Ms. Brown correctly assumes the plaintiff's ability to work will be reduced in future due to her injuries.

[246] Turning to [the defense expert], none of his alternatives indicate the plaintiff will have a future loss of income due to the motor vehicle collision.

[247] This is not possible given the evidence of the medical experts and the real disabilities the plaintiff suffers and will continue to suffer.

[248] [The defense expert] came to this conclusion because his calculation of the post-accident mitigating income potential in each alternative was based on the plaintiff's 2007 employment and self-employment income, adjusted thereafter for inflation.

[249] I agree with the plaintiff that the use of the plaintiff's 2007 employment and self-employment income as the post-accident mitigating income potential is a serious flaw in [the defense expert]'s analysis.

[250] 2007 was the best year the plaintiff ever had and given the testimony of the expert medical witnesses, I find the stress, pressure and rigours of accomplishing this level of income had a severely adverse effect on the plaintiff due to the PTSD and her limitations resulting from the collision. Consequently, it is not appropriate to use the plaintiff's best year as the post-accident mitigating income potential.

[258] Moving on, there are two separate periods for which pre-trial loss of income must be considered.

[259] First, there is the period between the collision date of February 10, 2004, and the date when the plaintiff left Grant and started her own business. This is approximately eight months.

[262] As an initial matter, the evidence does not indicate the specific date the plaintiff left Grant. For the purposes of this decision I will use the date of September 10, 2004, which encompasses 8 months or two thirds of the year. This is based on the letters the plaintiff wrote to third parties on September 22 and September 23, 2004, indicating her change in future endeavours.

[263] The plaintiff's loss of income for the first period is the difference between what she actually made and what she would have made if the collision did not happen.

[269] Exhibit 1, Tab 43 indicates the plaintiff lost 682.25 hours due to the collision in 2004. As pointed out by the defence, this calculation is faulty because it assumes that the plaintiff stayed at Grant's for the full year.

[270] This fault can be overcome by concluding that two thirds of the total hours lost represent the period February 10 to September 10, 2004. This equals 454.8 hours.

[271] The next question is what were those hours worth?

[272] The plaintiff used an average hourly rate of $71.15 per hour. How this rate was determined was not located.

[273] [The defense expert], in estimating the plaintiff's pre-accident income potential in his alternative 2 used an hourly rate of $61.50. In his opinion, this is what the plaintiff could have expected to earn per hour under the new contract with Grant. This figure is within $10 of the plaintiff's.

[274] For the purposes of determining pretrial loss of income for the eight-month period after February 10, 2004 I will use an average of the two estimates. This is $66.33 per hour.

[275] The plaintiff's pretrial loss of income for the period between the collision date and October 2004 is (454.8 hours x $66.33) $30,166. Pre-judgment interest on this amount will have to be calculated.

[277] I accept the collision was not the cause of the plaintiff's decision to leave Grant; however, I do not accept there is no compensable loss of income after September 2004. The plaintiff's abilities were handicapped due to physical limitations and collision-related pain she continues to suffer. Further, PTSD has and continues to have an effect on the plaintiff. The evidence indicates that the PTSD symptoms wax and wane and the plaintiff's abilities to cope reflectively increase and decrease.

[287] For the period October 2008, to September 2009, there is evidence that the motor vehicle collision was having an adverse effect on the plaintiff which is approximately the same time period that the plaintiff's PTSD was becoming significant.

[291] I find the plaintiff suffered a pretrial loss of income for the period commencing October 1, 2008 of 20%.

[292] For the purposes of this decision the 20% loss will be extended to October 30, 2009, at which point the Post Trial Loss of Income calculation will take effect.

[295] The best solution would make use of a close approximation of the plaintiff's actual income and compensate for a 20% reduction in capacity.

[296] In the circumstances of this case the method will be to use the plaintiff's average net income for the years 2006 to 2008.

[297] This period includes 2006, a year when the plaintiff's business was no longer in startup mode; 2007, a very successful year; and 2008, a year when the plaintiff's PTSD was hurting her business. The average of these three years would seem to be a fair representation of the plaintiff's post-collision income capacity.

[298] In determining the plaintiff's average net income, I accept the calculations proposed by plaintiff's counsel during argument.

[299] To summarize, Ms. Brown in her first report provided the average net income for the years 2005 to 2007. At the time she did the first report she did not have the 2008 numbers but they were provided in her update report. Plaintiff's counsel conceded that 2005, a low income year, should be excluded as that was her first full year of operation. I agree.

[300] In result, the plaintiff's income for 2006 is $43,060; 2007 is $133,765 and 2008 is $33,340. The average is $70,055 which is a fair approximation of the plaintiff's annual income at this period of time while working at 80% capacity. It encompasses a three year period where the plaintiff is working with pain and physical limitations. 2007 provides a good indication of what income the plaintiff is capable of but, clearly she did too much and 2008 shows a backing off of effort and also likely reflects the impact of a downturn in the economy.

[302] In support of the finding that $70,055 should be used as the plaintiff's annual income at 80% capacity, Ms. Brown's Table 3-4 shows a self employed accountant without an accounting designation overall average and average peak earnings are $52,000 and $108,000 respectively in 2009 dollars. The plaintiff's average net income of $70,055 lies between $52,000 and $108,000, although not quite the average of the two numbers.

[303] Moving on, if earnings of $70,055 are equivalent to working at 80% capacity, the plaintiff would have earned $87,568 at 100% capacity ($70,055 x 100/80). This is higher than the average, which is appropriate.

[304] The difference, or $17,513, extended for 13 months for the relevant period equals $18,972 for pretrial loss of income for the period starting October 1, 2008, when the plaintiff left Grant to October 31, 2009.

[305] As discussed earlier, several methods of evaluating the plaintiff's post-accident mitigating income potential were offered by both parties and I have determined that the average net income for the years 2006 to 2008 is the best method.

[306] $70,055 will be used for the plaintiff's post-accident mitigating income potential for the year 2009.

[307] The plaintiff has reduced her work load from full-time to 3 days per week due to physical injuries and PTSD. This is a reduction of 40% in her working capacity.

[308] The medical evidence is that she will continue to suffer PTSD into the future; however it will wax and wane. There have been times when she did well and other times, such as the present, where she is not doing so well. Given this uncertainty the plaintiff shall be compensated for one half of her current 40% loss of capacity due to the disability. That is 20%.

[309] 20% of $70,055 is $14,011. This number will be rounded to $14,000.

[310] The plaintiff's loss of income commencing November 1, 2009 shall be based on $14,000 per year until her retirement which has been determined to be December 31, 2030.

[311] A tax gross up will be applied to this amount to be calculated by Ms. Brown.

[312] As well, the resulting lump sum award shall be discounted to present value using a present value formula. I find the information provided by Ms. Brown in section 6 of the September 30, 2008 report to be appropriate. Interest rates of 2.17% shall be used for the period January 1, 2011 to December 31, 2015, and 3% from January 1, 2016, to December 31, 2030.

[318] Evidence respecting loss of housekeeping capacity came from several sources: the plaintiff's testimony, an occupational therapist and Ms. Brown who has expertise in quantifying claims for loss of housekeeping.

[327] Ms. Brown provided an assessment on the plaintiff's loss of housekeeping capacity and the August 14, 2009 update summarizes her opinion, which was based on a housekeeper spending two hours per week providing service the plaintiff was unable to do for herself.

[329] Defence questioned Ms. Brown on the value of loss of housekeeping capacity using not two hours per week, one hour per week which the evidence indicates is the appropriate number for replacement service.

[330] Ms. Brown said the pre-trial valuable services loss would be reduced from $11,047.00 to $6,186.32 and the future loss of housekeeping would be reduced from $24,474.00 to $13,800.00.

[331] Defence commented that the assumptions relied on by Ms. Brown were not specifically put to the plaintiff in the trial. The concern was that the evidence of the hours required to do certain tasks should come from the plaintiff, not the expert witness. A similar concern was expressed with the evidence of Ms. Jereniuk.

[332] This is a valid point however, some evidence was provided by the plaintiff on a general basis as to her difficulties. In addition, simply evaluating the loss of housekeeping ability by reference to the amount it would cost to employ replacement help ignores the extra time and effort the plaintiff must exert to do common tasks.

[333] I do not think the defendants' position that $10,000 is a proper award for loss of capacity is sufficient or appropriate in this case, even considering the amounts that have already been paid.

[334] The amount to be awarded the plaintiff is $6,186.32 for past loss of housekeeping capacity and $13,800 for future loss of housekeeping capacity. A tax gross up as calculated by Ms. Brown will be added to the future portion of this award. There is no need to discount to present value.

[337] The plaintiff claims an award for future psychological services recommended by Ms. Baumgarten, psychologist. Ms Brown, economist, has calculated the present value of potential psychological services as $100,000.

[339] The cost of future psychological treatment was covered in Ms. Baumgarten's report. She wrote "by current standards, psychological services provided by a registered psychologist in Alberta command upwards of $170 per 50 minute session. This fee has steadily increased over the past decade at a rate of $10 per therapy hour each year."

[340] Ms. Brown in calculating the potential costs, assumed treatments every two weeks to age 70 and used a inflation/productivity factor of 3.5% for future increases rather than $10 per year to determine the $100,000 figure.

[341] Currently, the plaintiff is receiving these services free of charge.

[342] Evidence indicates that access to free psychological services is limited and plaintiff's counsel raised the concern that there is no guarantee that the government will continue to provide free service.

[343] Plaintiff's counsel also said the plaintiff wishes to be compensated so she is free to choose her psychologist without dependence on the service currently provided by government.

[351] To summarize, we must work with the evidence and information available. Clearly the plaintiff requires future psychological treatment which is currently being provided by the government at no cost but there is a possibility that this service will be discontinued at any time. Dr. Todd's caution about the benefit the plaintiff may obtain should also be considered.

[352] Under these circumstances, I find it reasonable to award the plaintiff $22,893, the cost of psychological care to 2014 based on Ms. Brown's Exhibit 10. This amount will require a tax gross up and will need to be discounted to present value using the numbers indicated at the end of the section titled: Post-Trial Loss of Income.

[356] In argument, the plaintiff conceded that paying for chiropractic treatment for the rest of her life, given the lack of progress to date, is a questionable use of money and limited the request for compensation to $8,000. This concession was also made in light of the pre-existing back problems that Dr. Fox was unaware of.

[358] Defence suggests that an appropriate amount for future cost of chiropractic treatments is for 5 years of treatments once per month or $3,240.

[359] I am persuaded by the plaintiff's actual history of attending chiropractic treatments and the acknowledgment that the treatments do little for the plaintiff's physical symptoms that the amount of this award should be limited to $3,500 for symptomatic relief. A tax gross up as calculated by Ms. Brown will be added to this award.

[403] The plaintiff's failure to notice the peril was a lesser failing than Kayla's driving into danger. I have concluded that liability should be apportioned 75% to Kayla and 25% to the plaintiff.

[406] A tax gross up as calculated by Ms. Brown will be added to any amounts awarded for future damages.