How are damages calculated

calculating-damages-personal-injury

Further to yesterday’s article in which we discovered that if an injured worker recovers damages for their loss of earnings and earning capacity (in a common law claim) they are required to repay any amount they have received from WorkCover for weekly payment of compensation, we though we’d re-summarise how common law damages (both pain and suffering and economic loss) are calculated in Victoria.

How are damages calculated?

Damages are calculated according to complicated rules, which vary according to the basis on which your injury is certified as a serious injury (see what is serious injury below). There are two components of damages.

Economic loss damages : These are claims for economic loss that generally include the nett current value of lost income and superannuation. These damages are capped by law at approximately $1,076,580.00 but this high level will only apply to injured workers who are relatively young with high pre-injury earnings. Complex laws apply to the calculation of economic loss damages.

Pain and suffering damages: These damages are to compensate an injured person for both past and future pain, suffering and distress caused by the injury. The maximum figure payable in an extreme case is approximately $500,000.00.

How are damages calculated for economic loss

Generally in order to claim damages you must be certified as having sustained a serious injury and must be able to prove negligence on the part of another person.

If you are entitled to claim damages and if this includes economic loss damages, very strict legal principles apply to the calculation of a loss. This area of law is very complex and this information should not be construed as a complete explanation of the way in which damages are calculated. The major principles set out in order to assist potential claimants understand the way in which the courts must approach calculation of damages. Obviously each case is different and this information is not intended to be a substitute for individual legal advice. Set out below are the major elements of the approach that a court must take. These are as follows:

  • A court must carefully assess your pre-injury earnings. These will almost always be the most accurate guide to your future earning potential had you not been injured. Where there is a special feature in your circumstances which establishes that you would have (not may have) had significantly increased earnings in the future a court can take this into account.
  • A court must then assess your future potential for earning income following your injury. This is the most difficult part of an assessment because the court does not look solely at your post injury earnings (if any) but will look also at your actual potential. This means that even if somebody is not working or earning income, it is possible that a court, on the evidence before it, may decide that the claimant is capable of light work and thus earning a specific amount per week. In most cases there is usually very different medical evidence called by both parties about the claimant’s capacity for work following injury. If a court considers that the claimant does have a potential to earn income following injury, the assessment of a future lost income will only be on the difference between the lost potential earnings and the post injury earning capacity.
  • A further component of the loss of earnings must be calculated. This loss relates to the claimants superannuation fund. If a claimant has not been receiving income, and possibly only receiving WorkCover payments, they will have missed out on their employer’s superannuation contribution. This loss is calculated for the past and the probable loss in the future is calculated. In addition to the lost contributions, it is necessary to calculate the lost income which would have been earned in the claimants superannuation fund had the additional money had been received.
  • Having calculated the weekly loss of earnings, this loss will be converted into a ‘net loss’ i.e. after the payment of taxation. This is because there is no taxation on damages and thus the calculation of a gross weekly loss would in effect over compensate a claimant.After the weekly loss in the future has been assessed (this assessment can take account of fluctuations e.g. for periods of total absence), then a court is required to estimate the likely retirement date of the claimant had they not been injured. Again, this is an extremely difficult exercise. It involves some guess work. This exercise is made even more difficult by the fact that many people are tending to work longer now than in the past or to work part-time after normal retirement age. In each case a court will take account of a claimant’s evidence as to their intention had they not been injured. The court will also take into account other evidence such as the average retirement date in the particular industry etc. The court will determine what they think the claimant’s likely retirement date would have been. Obviously, insurers will argue strongly that the claimant would have retired early e.g. 55 or 60 had they not been injured. This is because the damages will be less as a shorter period for income loss will be claimable.Having decided the weekly loss and the number of years which the loss is likely to occur, a court is then required to discount the gross amount. The first discount factor is contained in the WorkCover legislation which applies a percentage ‘notional’ interest rate which a capital amount can earn. This occurs because when the gross amount of damages is calculated, it will not be paid slowly each week over many years but will be paid in a single lump sum. Obviously the value of an amount paid over many years is smaller than if it is paid immediately as damages. This is because the claimant has the ability to invest those funds and obtain interest on those funds. The WorkCover legislation requires this to be done on a 6% discount rate and actuarial tables are used to calculate this result. Another way to look at this discount is to view it as a calculation of the lump amount necessary to provide the claimant with an ability to draw down on funds in such a way as to replace the net lost income so that the fund will be depleted by the estimated retirement date.
  • The next discount which is applied is for what is quaintly termed ‘ vicissitudes ‘. This term is used to describe the risks that everybody faces in their life which can have a potential effect on your ability to earn income in the future even if you had not been injured. Some people are ‘run over by a bus’, involved in motor vehicle accidents, suffer cancer or other medical conditions that may have stopped them working in any event. The courts therefore apply a discount to take into account this risk in the future. Normally, a court will apply a 15% discount to the capital amount to take account of this risk.
  • The estimated past loss and future loss are combined and this constitutes the economic loss damages. In some cases a court may be required to apply a further discount to what is known as “contributory negligence”. This occurs where a defendant has been successful in getting the court to accept that the claimant was in part to blame for their injury. For example, if a court concludes that the claimant was 20% to blame for the injury then the gross damages calculated on the basis set out above are further discounted by this percentage.
  • When a court makes an order for the payment of damages it is required to deduct from any pain and suffering damages any amount paid for permanent impairment. It is also required to deduct any weekly compensation paid in the past from the economic loss damages.

Most cases are resolved without going to court, through negotiation or mediation. All the factors listed above are taken into account by the lawyers for each party in those negotiations. However, in private negotiations one further extremely important factor is taken into account. Put simply, this factor is the question of whether the claimant will win or lose the court case. Of course if a claimant loses the case no damages are payable. If negligence is found damages are payable on the basis set out about above.

In some cases it is possible for the claimant’s lawyer to make a very good assessment of the chances of success in court. In other cases it is extremely difficult as it may simply turn on which evidence the jury or Judge is likely to accept. This is particularly difficult to predict where a jury is involved. It is therefore common for these risks to be factored into working out the ‘commercial value’ of a case.

When your damages are being assessed by your lawyer, many other factors must be taken into account. These factors include the additional legal costs incurred in proceeding to court, your exposure to other party legal costs (if any) from rejecting an offer, liability refunding Centrelink etc. the calculation of economic loss damages is an extremely important issue that you should understand in your case. It is also important to appreciate that if your lawyer is experienced and familiar with outcomes at court he or she will be able to give you the benefit of their skill and knowledge.

How are damages calculate for pain and suffering

Claiming damages for pain and suffering is only possible in a common law claim and is a very complex matter. Placing the dollar value on the pain and suffering somebody has experienced is almost an impossible task. Many claimants say that no amount of money can compensate for the pain and suffering experienced. Nonetheless, courts can only award financial compensation and, therefore, have to make an educated ‘ guesstimate ‘ of the value. The WorkCover legislation has a maximum cap on pain and suffering damages of $468,720.00. This level is indexed annually and only applies to the most severe cases.

The type of case that would attract the maximum payment would be for example a young quadriplegic or a person who had suffered multiple limb amputations. A person who has suffered a severe head injury and is in a permanent coma may get a lesser payment than someone else with a similar injury that has insight into the effects of their injury. This occurs because the person in the coma, although grossly disabled, may have no ongoing ‘experience’ of pain and suffering.

In assessing a claimant’s pain and suffering, a court is not restricted to the clinical concept of pain but can look at the wider social effects of an injury. These include the effect of an injury on the ability to perform domestic, social, sexual, sporting and work activities. Each case must be assessed on its own factors. A person who has suffered a severe head injury and is in a permanent coma may get a lesser payment than someone (with a similar injury) who has insight into the effects of their injury. This occurs because the person in the coma, although grossly disabled, may have no ongoing ‘experience’ of pain and suffering.

An injured worker who suffers a crush injury to the hand is likely to receive a significantly higher assessment if, for example, their hobby is playing classical guitar. A younger person, who is likely to experience the consequences of their injury for a longer time, may receive a higher payment and a person with a similar injury who is considerably older.

A payment for pain and suffering is likely to be considerably higher for a person who has had or will undergo surgery when compared to someone with a similar injury who does not undergo painful medical treatments.

Assessing all these elements to a claim for pain and suffering damages is very complex. The overriding principle adopted by the courts is that any allowance for pain and suffering must be proportionate when compared to the general range of injuries. This means, that when assessing the value of a claim for pain and suffering damages, a court must compare the claimant’s position with its experiences of other cases where decisions have been made about the value of this component of claim. No two cases are identical – comparisons with other cases can only be indicative rather than decisive of an entitlement.

An amount of an assessment for pain and suffering damages must be reduced by the amount of any impairment payment already received in respect of the same injury. Pain and suffering damages can also be reduced by the extent to which a person might be considered to have contributed to their injury.

As “Carol M” kindly explained and illustrated further:

It does not matter whether it is Workcover common law damages claim, or two individuals or two corporations suing each other, the past economic loss amount is ALWAYS reduced for amounts already received to date by the plaintiff. The same rules apply in all litigation. You cannot receive MORE than you would have received had the event, that bought raise to the damages claim, had not occurred. This means you cannot receive more for past economic loss than had your injury not occurred and you had just worked as normal throughout this time.

Calculating your past economic loss and coming up with an approximation what you will actually receive at settlement of your common law damages claim for the past economic loss component is relatively simple. Putting aside CPI and other factors etc that are taken into account to calculate past economic loss as it just complicates the example.

Say for example, if your wages are $1,000 per week and you are injured and you cease working. And the judgement date in your common law damages claim is 10 years to the day that you ceased working, your total past economic loss is:

10 years x 52 weeks =  520 week

520 weeks x $1,000 pw = $520,000

This is the amount ($520,000) that will in most cases, appear in your statement of claim under the heads of damages for Past Economic Loss.

However, this is your “notional” past economic loss. What you actually will receive at settlement will be your “real” past economic loss, which is not the amount that appears on the statement of claim, as any amounts already paid to you over this 10 year period have to be deducted/paid back to others.

Only amounts paid to you in wages for any actual time worked over this 10 year period will reduce the “notional” past economic loss figure that appears in your statement of claim under the heads of damages for past economic loss. So in the above example, if you returned to work (a failed return to work) for say 5 weeks at some stage during the 10 year period, you would have earned $5,000 in wages. Thus your “notional” economic loss won’t be $520,000 but rather $515,000.

($520,000 maximum you could have earned over 10 years less actual wages paid for time worked of $5,000 = $515,000).

The upshot is, for past economic loss, in the above example the maximum all up that you can receive from actual settlement payment of the past economic loss component your common law damages claim plus any payments you have already received to date, whether they are Workcover weekly payments, Centrelink benefits or things such as salary continuance insurance weekly payments cannot exceed $520,000 in total.

$520,000 is what you would have been paid over the 10 year period had the accident/injury not occurred and you just worked as normal throughout this 10 year period.

Workcover weekly payments, Centrelink benefits, and things such as salary continuance insurance or even accident make-up pay if you are entitled to such by an award – you have to look at all these as effectively an “advance” payment on your past economic loss settlement monies.

Whilst you are required to “pay back” such monies, however in reality, these amounts are just added on and then deducted from settlement/judgement calculations and paid to the relevant party on your behalf by Workcover or by your solicitor. And in the case of weekly Workcover payments, Workcover is just effectively paying itself back as they are the ones paying the total of the judgement in a common law damages claim anyway. You will receive in settlement monies just the nett amount. At the end of the day it is all just financial juggery.

FOR EXAMPLE

WorkcoverVictim earns $1,000 per week pre-injury.

She sustains and injury at work and ceases working on that day.

Assuming it takes many years for her common law claim to get to trial.

She wins her case and the employer is found to be negligent.

The judgement is handed down 10 years to the day from the date of her injury.

For sake of simplicity, assume Workcover weekly payment are paid at 85% of pre-injury wages from date of injury and she continued to receive Workcover weekly payments at that rate up to the day of judgement.

Scenario 1

WorkcoverVictim receives no other payments during the 10 years period other than her Workcover weekly benefit. She is has no capacity for work throughout that time.

52 weeks x 10 years = 520 weeks              from date of injury to date of judgement

Salary $1,000 pw x 520 weeks = $520,000   this is her notional past economic loss and is the maximum amount WorkcoverVictim would have earned over the 10 year period had she not been injured and just worked as normal

Paid Workcover weekly benefits @ 85% = $850 pw x 520 weeks = $442,000

Heads of damages

Notional Past Economic Loss       $520,000

Less Workcover payments           $442,000     repaid to Workcover

Real Past Economic Loss            $78,000        balance payable to worker

So over the 520 weeks WorkcoverVictim will receive $442,000 + $78,000 = $520,000

So in effect her “notional” past economic loss is $1000 pw (or $520,000 over the 10 years) but her “real” past economic loss is in reality is only the 15% shortfall in her weekly wages due to her Workcover weekly benefit only being paid at the rate of 85% of her wages.

This is the scenario that will apply to the vast majority of workers who are successful in their common law damages claim i.e. their past economic loss settlement amount they will actually receive will only be the minor shortfall amount due to Workcover weekly payments not being paid at the rate of 100% of wage.

Scenario 2

WorkcoverVictim is employed in the public sector and under her industrial award she has accident make-up pay provisions in which the employer tops-up her pay to 100% of her pre-injury wages (i.e. the employer will pay the 15% shortfall from the Workcover weekly benefit only paid at 85%). The award states that this entitlement is only for the first 52 weeks.

Note that Accident make-up pay provisions have the effect of making your past economic loss $0 for the period of the entitlement.

52 weeks x 10 years = 520 weeks              from date of injury to date of judgement

Salary $1,000 pw x 520 weeks = $520,000   this is her notional past economic loss

Paid Workcover weekly benefits @ 85% = $850 pw x 520 weeks = $442,000

Under her award she receives 52 weeks accident make-up pay from her employer:

Salary $1,000 pw less $850 pw Workcover payment  = $150 pw accident make-up pay

Make-up Pay $150 pw x 52 weeks = $7,800 paid by her employer

Heads of damages

Notional Past Economic Loss       $520,000

Less Workcover payments           $442,000     repaid to Workcover

Less Make-up Pay                       $7,800          repaid to employer

Real Past Economic Loss            $70,200        balance payable to worker

So over the 520 weeks WorkcoverVictim will receive $442,000 + $7,800 + $70,200 = $520,000

Scenario 3

WorkcoverVictim’s claim is initially rejected and takes 12 months to fight through the courts to be accepted and weekly payments, for some reason, are only paid from then (i.e. not backdated 52 weeks).

Whilst waiting for her claim to be decided by the court, in the meantime WorkcoverVictim applies for Centrelink benefits of $300 pw and receives for the first 52 weeks until her Workcover claim is accepted.

52 weeks x 10 years = 520 weeks              from date of injury to date of judgement

Salary $1,000 pw x 520 weeks = $520,000   this is her notional past economic loss

Centrelink benefit  52 weeks @ $300 pw  = $15,600

Workcover Weekly benefits for period 9 years x 52 weeks = 468 weeks

Paid Workcover weekly benefits @ 85% = $850 pw x 468 weeks = $397,800

Heads of damages

Notional Past Economic Loss       $520,000

Less Centrelink payments            $15,600       repaid to Centrelink

Less Workcover payments           $397,800     repaid to Workcove

Real Past Economic Loss            $106,600      balance payable to worker

So over the 520 weeks WorkcoverVictim will receive $397,800 + $15,600 + $106,6000 = $520,000

Scenario 4

WorkcoverVictim attempts to return to work after 12 months. She works 5 days pw for 5 weeks. She is paid by her employer as normal i.e. $1,000pw x 5 weeks = $5,000. Her Workcover payments stop during this time. However after working 5 weeks is becomes clear that it’s a failed return to work and she ceases work permanently and returns to receiving Workcover benefits.

52 weeks x 10 years = 520 weeks              from date of injury to date of judgement

Salary $1,000 pw x 520 weeks = $520,000   this is her notional past economic loss

Workcover  benefits for period 10 years x 52 weeks less 5 weeks returned to work = 515 weeks

Paid Workcover weekly benefits @ 85% = $850 pw x 515 weeks = $437,750

Wages for time worked $1,000 pw x 5 weeks = $5,000 paid by her employer

Under this scenario the actual heads of damages for Past Economic Loss will not be $520,000 but rather $515,000. The reason being is that she has earned actual wages for time worked throughout the period and thus her past economic loss caused as a result of the injury is reduced by any wages actually earned during the period.

Heads of damages

Notional Past Economic Loss       $515,000

Less Workcover payments           $437,750     repaid to Workcover

Real Past Economic Loss             $77,250       balance payable to worker

So over the 520 weeks WorkcoverVictim will receive $437,750 + $77,250 = $515,000

In addition she has also earned wages of $5,000 = $520,000 total

If you are pursuing a common law damages claim, it is very important to carefully check over the past economic loss calculations done by your lawyers – Lawyers are not numbers people and often cannot add up to save themselves. Likewise, your lawyer may not be aware of payments you have received from sources such salary continuance insurance policies etc. If these are not allowed for, it can result in you getting a nasty shock down the track when an insurer comes knocking on your door for repayment of these monies and you have already spent the settlement money.

There is another good write-up we found on line which explains in detail how workcover Vic recover monies, well worth reading.

What is serious injury (in Victoria)

Before you can commence a common law claim suing for negligence you must establish that you have suffered a serious injury.
For injuries after 20 October 1999 serious injury has the following alternate definitions:

  • 30% whole person impairment
  • Serious permanent impairment or loss of a body function
  • Permanent serious disfigurement
  • Permanent severe mental or permanent severe behavioral disturbance or disorder or
  • Loss of a foetus.

Permanent means that the probability is that the impairment or other condition will last and not mend or repair to any significant extent: the injury is likely to last for the foreseeable future.
For an injury to be assessed as serious it must be found, with respect to pain and suffering or loss of earning capacity (and when compared with other impairments of a similar type) to be more than significant or marked and at least as being very considerable.

For an injury to be severe it must fairly be described as being more than serious to the extent of being severe.
If you wish to claim damages for loss of earnings, or loss of earning capacity, an additional test must be met: you must show that you have suffered a 40% loss of your capacity to earn income, comparing the amount that previously represented your earning capacity with the amount you are capable of earning into the future.

The amount you are capable of earning into the future is assessed by examining what you should be capable of earning in suitable employment following rehabilitation and re-training.

If the Court cannot determine what you should be capable of earning then you will fail to satisfy this test.

 

 



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3 Responses to “How are damages calculated”

  1. There is also quite a bit of useful information about common law claims on the Vic online claims manual. (under section Entitlements-Common Law)

    For example

    13.6.5 – Maximum payments – actions for damages

    Benefits – injuries on or after 1 July 2004

    Actions for damages

    2004/05

    2005/06

    2006/07

    2007/08

    2008/09

    2009/10

    2010/11

    2011/12

    2012/13

    Pecuniary loss

    s134AB (22) (a)(i) (threshold)

    $44,730

    $45,460

    $47,210

    $47,820

    $49,460

    $51,310

    $52,220

    $53,820

    $55,480

    s134AB(22)(a) (ii) (maximum)

    $1,006,760

    $1,023,300

    $1,062,800

    $1,076,580

    $1,113,590

    $1,155,330

    $1,175,820

    $1,211,860

    $1,249,310

    s135A(7)(a) (i) (threshold)

    $44,730

    $45,460

    $47,210

    $47,820

    $49,460

    $51,310

    $52,610

    $56,180

    $58,140

    s135A(7)(a) (ii) (maximum)

    $1,006,760

    $1,023,300

    $1,062,800

    $1,076,580

    $1,113,590

    $1,155,330

    $1,184,600

    $1,264,920

    $1,309,150

    Pain and suffering

    s134AB(22) (b) (i) (threshold)

    $43,190

    $43,900

    $45,590

    $46,180

    $47,770

    $49,560

    $50,440

    $51,990

    $53,600

    s134AB(22) (b) (ii) (maximum)

    $438,320

    $445,520

    $462,720

    $468,720

    $484,830

    $503,000

    $511,920

    $527,610

    $543,920

    s135A(7)(b) (i) (threshold)

    $39,900

    $40,800

    $41,900

    $43,110

    $44,510

    $45,910

    $46,720

    $48,150

    $49,640

    s135A(7)(b) (ii) (maximum)

    $404,900

    $414,020

    $425,130

    $437,380

    $451,630

    $465,880

    $474,140

    $488,670

    $503,770

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    workcovervictim May 21, 2013 at 9:04 am
  2. Whichever way you cut it, the Workover law works to strip the Injured Worker of any hope of recovery and compensation. It is unfair, unjust and cruel. How can Injured Workers enjoy a reasonable life when they are consigned to disability, unemployment  and reduced income for the rest of their lives?

    The law is blatant in its anti-worker bias and its removal from Injured Workers of general rights that are available to the rest of the population. It is unconscionable. Where are the legal professionals who really believe in justice for all.

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    • @Pauline you know that there are NO honest professionals or I wish at least a few.

      @Admin I thank you for further explain this “intentionally” complicated and misleading rule made by workcover to kill injured workers even more.

      Injured workers will have to deal with Australian Taxation Office so I believe that this article can come very handy: When an injured worker claims common damages then previous payments are to return back either to be re-calculated so those weekly payments are no more than “compensation” and are NOT to be included in a tax file because we talk about compensation NOT salary!

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      Xchangingvictim May 21, 2013 at 5:17 pm