An Economic Analysis Of Damages In Fatal Accident Claims

Introduction

The basis of any damages calculation is to restore a plaintiff to the same financial position in which he or she would have been had the wrongful act not occurred. In other words, in the case of a wrongful death claim, the objective is to allow the deceased's dependents to enjoy the same quality of life, from a financial perspective, as they would have enjoyed had the deceased lived. The award is thus meant to reflect the portion of the deceased's earnings that would have gone towards the financial support of the dependents.

Dependency rates are used to estimate a person's financial loss due to the death of his or her spouse or parent. In a two-person household, if the husband dies, then the spouse will no longer benefit from her husband's income. However, she does not need to be compensated for the loss of all of his income, since some would have benefitted only him.

Sole Dependency, Modified Sole Dependency and Cross-Dependency

In wrongful death actions, Ontario Courts have typically followed the decision of the Ontario Court of Appeal in Nielson v Kauffmann [1986 CanLII 2727 (ON CA)]. In the case of a two-income family, this decision reduced the typical sole dependency ratio in the case of a surviving spouse from 70% to 60%. However, there are instances in Ontario where the courts have preferred a cross-dependency approach, which further reduces the dependency ratio. As will be explained later in this article, this has typically occurred in situations where the application of a cross-dependency approach does not have an extreme impact on either the dependency ratio or financial result.

In Nielson, the Ontario Court of Appeal opined that in a two-income family, the "conventional wisdom" of a 70% sole dependency rate for the surviving spouse should be reconsidered, and instead used a 60% modified sole dependency rate.

Differences Between Modified Sole Dependency and Cross-Dependency Approaches

Explanation As To The Two Approaches By way of illustration, suppose, for example, a deceased husband and surviving wife both earned a net income of $50,000 per annum at the time of the deceased's death:

Under the "modified sole dependency" approach, the surviving spouse's dependency loss would be: (70% less a 10% 2-income family allowance) 60% X $50,000 = $30,000 per annum. The "cross-dependency approach" assumes that the surviving spouse has been made financially better off because funds previously spent on the deceased spouse can now be saved. Losses in this example under the "cross-dependency approach" are: 60% X $50,000 = $30,000 per annum, less savings of $50,000 X 30%= $15,000, = $15,000 per annum. Assume for example a situation where the surviving spouse earns a net income of $80,000 per annum and the deceased spouse earned a net income of $20,000 per annum. The calculations are thus:

Under the "modified sole dependency" approach, the surviving spouse's loss would be: (70% less a 10% 2-income family allowance) 60% X $20,000 = $12,000 per annum Under the "cross dependency" approach the surviving spouse's loss would be: 60% X $20,000 = $12,000 per annum, less savings of $80,000 X 30% = $24,000 per annum = Nil Which Approach is Preferable?

As illustrated above, criticisms of the "cross-dependency approach" include:

if the deceased's income was significantly lower than the surviving spouse's income then it may result in no award at all, the surviving spouse being assumed to be financially better off than before, and the concept that a surviving spouse can be financially better off in situations where he or she is involuntarily prevented from spending on his or her spouse as a consequence of the tortious action of a third party. Advantages of the "sole dependency" or "modified sole dependency" approach which, as detailed above, only considers the income of the deceased and uses dependency ratios of 70% for a one-income family and 60% for a two income family, include:

fairness and consistency, in that it avoids the issue where dependency losses consider the comparative income of a surviving spouse, it acknowledges the fact...