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Precedent (Australian Lawyers Alliance) |
Calculating the cost of catastrophic injuries
A guide to assessing damages for a broad spectrum of losses[1]
By Jnana Gumbert
Assessing damages in catastrophic injury cases can be complex due to the high needs of the injured person and the resulting broad spectrum of losses to be calculated. While the heads of damages encompass the usual non-economic and economic losses, they also extend to those not often seen in other cases. The impact of the injury on life expectancy only complicates matters further.
Catastrophic injury cases generally involve brain or spinal-cord injury.[2] Such injuries can result in a range of intellectual and physical disabilities, the nature and severity of which vary. In some cases, the injured person may have little to no intellectual disability and only mild physical disability (such as hemiparesis, not requiring use of a wheelchair). In more severe brain injury cases, and in many spinal-cord injury cases, there can be extreme disability, requiring the use of wheelchairs, feeding tubes and round-the-clock care.
THE LIFE-EXPECTANCY CONUNDRUM
Life expectancy is almost always an issue in catastrophic injury cases. The defendant will seek to establish that the plaintiff’s likely life expectancy has been drastically reduced by reason of the injuries. This has the effect of substantially reducing the claim for damages, by curtailing the amount of future losses.
Many factors may have a negative impact on life expectancy, such as, for example, immobility or greatly reduced mobility (that is, where a person is, for example, bed- or wheelchair bound), or the inability to swallow.
It is necessary to obtain expert evidence to comment on the issue of life expectancy. This evidence may be from a combination of the following experts:
• rehabilitation physician;
• epidemiologist; and
• geriatrician (for elderly plaintiffs).
Other factors that have a significant impact on life expectancy include quality of care and socio-economic status. Defendants seeking to establish that the plaintiff’s life expectancy has been reduced will typically rely on studies that involve participants in countries with socio-economic disadvantage, where the quality of care is lower than the quality of care provided in Australia (especially for an individual who is properly compensated). It is therefore important for the plaintiff’s evidence to limit the relevance of those studies.
NON-ECONOMIC LOSS
For severe cases, it would be appropriate to claim the maximum in damages for non-economic loss.
LOSS OF EARNING CAPACITY
When it comes to determining a loss of earning capacity, the starting point is to establish what the plaintiff’s likely circumstances would have been were it not for injury.
For children, it is usually appropriate to start by looking at the plaintiff’s family (parents and siblings). If the plaintiff comes from a family that tend to be high-income earners, there is a case to argue that the plaintiff’s most likely future circumstances would have followed suit. Otherwise, average weekly earnings are the usual starting point.
For adults with catastrophic injury, it may be easier to determine a more specific trajectory of the plaintiff’s earnings but for the injury, especially if the plaintiff was already in the workforce at the time of the injury, in which case, that more specific trajectory should be used if possible.
Once the assumptions are set out regarding the most likely earning capacity but for the injury, it is then necessary to obtain expert evidence to comment on the plaintiff’s capacity for work (if any), in light of the injuries sustained. Such evidence may come from the following experts:
• rehabilitation physician or occupational physician
• vocational psychologist.
Calculating loss of income in children’s cases almost always requires some deferral factor, especially if the plaintiff is still a child at the time the damages are being assessed. A 5 per cent deferral factor substantially reduces damages for future loss. Alternatively, there is a sensible argument to delay assessment until the child is close to age 18, in order to avoid the impact of the deferral.
Generally, the appropriate methodology for calculating future economic loss is as follows:
1. Set out the assumptions as to what the plaintiff would have earned if not for the injury (for instance, the plaintiff would have worked from age 18 to age 67 (49 years) and earned $1,000 net per week). If there is evidence that the plaintiff likely would have worked to a different retirement age, it is possible to claim up to that age.
2. Use the appropriate 5 per cent discount multiplier to calculate the loss for that period (that is, the multiplier for 49 years is 971, so $1,000 x 971 = $971,000).
3. Ascertain the retained earning capacity, if any. For instance, if the evidence supports that the plaintiff has a retained earning capacity of $100 per week but will have to retire early at age 50, then the retained earning capacity would be $100 per week from age 18 to 50 (32 years), which results in a total loss of $84,500 (using the 5 per cent multiplier for 32 years – 845). Bear in mind that once the plaintiff has adduced evidence of loss-of-earning capacity, the defendant bears the onus of establishing that there is retained earning capacity and that it is capable of being exercised on a more than theoretical basis.[3]
4. Calculate the net loss of income: $971,000 – $84,500 = $886,500.
5. Defer the loss for the necessary amount of time. For instance, if the plaintiff is aged ten at the time of assessment, the loss needs to be deferred for eight years (5 per cent multiplier 0.784), which results in a reduced loss of $695,016.
The vicissitudes of life also need to be considered. A discount for vicissitudes is required at common law and by statute (see, for example, the CLA, s13). Although it is standard practice in NSW to apply a 15 per cent discount for vicissitudes, the appropriate discount will always depend on the facts of the case. Cumpston Sarjeant (consulting actuaries) have prepared tables of statistical discounts for vicissitudes based on age and occupation, and the figures are generally significantly lower than 15 per cent. Conversely, defendants will often argue that vicissitudes should be higher than 15 per cent. Arguments as to increased vicissitudes would be more common in cases involving older plaintiffs with health conditions that may have had an impact on their earning capacity in later life, regardless of the tortious injury.
Past and future loss of superannuation also needs to be claimed, if the assumption is that the plaintiff would have been employed were it not for the injury (which will almost always be the case, and certainly if average weekly earnings are being used as the starting point). Section 15C of the CLA provides that the relevant percentage of earnings is the minimum percentage required by law to be paid as employer superannuation contributions. Superannuation contributions are calculated on gross earnings, which causes some difficulty in calculating for damages that are claimed on a net basis.
The current rate of superannuation is 10.5 per cent of gross earnings. When the gross rate was 9 per cent, it was generally accepted that a rate of 11 per cent of net was appropriate when calculating superannuation. However, a higher rate of net (recently I have been using 12 per cent), would now be appropriate due to increases to the gross rate.
For the future, fortunately forensic accountants prepare tables setting out the appropriate percentage to be applied to the net lump-sum figure, in order to calculate the loss of superannuation contributions. This percentage varies depending on age and years remaining in the workforce. For a young plaintiff with 47+ years of working life ahead, the appropriate percentage is 14.59 per cent.[5]
Accordingly, using the starting figure of $695,016 and applying a discount of, say, 15 per cent for vicissitudes and then adding the loss of superannuation at 14.59 per cent, the total loss of earning capacity would be $676,956.
Remember to find out whether there is a refund owing to Centrelink (although Centrelink payments are not separately claimable).
GRATUITOUS CARE (GRIFFITHS v KERKEMEYER[6] CARE) COSTS
A plaintiff is entitled to claim for the gratuitous care that has been provided, as long as it fits within the description of ‘attendant care services’ in s 15(1) of the CLA, which provides:
[INDENTED QUOTE]
‘“attendant care services” means any of the following –
(a) services of a domestic nature,
(b) services relating to nursing,
(c) services that aim to alleviate the consequences of an injury.’
[END INDENTED QUOTE]
The care must have been provided for at least six hours per week for at least six months, and is capped at a maximum of 40 hours per week (CLA, s15). The care is claimed at the statutory rate set out in that section, which is based on average weekly earnings.
Gratuitous care forms part of the plaintiff’s claim, but in some cases the Court will permit the amount allowed for past gratuitous care to be paid out to the carers.
Gratuitous care provided while the plaintiff is hospitalised or in a nursing home may not be compensable.
In Nicholson v Nicholson[7] (Nicholson), Kirby P noted that services performed by the plaintiff’s sister while he was in hospital (such as applying creams and other minor activities that improved the plaintiff’s level of comfort) did not represent compensable services.
COMMERCIAL CARE
Any care that has been provided on a commercial basis in the past can be claimed in addition to gratuitous care.
Future care is generally claimed on a commercial basis because it is unreasonable to expect family to continue to provide gratuitous care (and also one cannot be certain how long family might be around to provide care, due to ageing etc). Claiming care on a commercial basis also avoids the difficulty of the thresholds and caps in the legislation that apply to gratuitous care.
The starting point for assessing future care needs is to obtain the appropriate expert evidence. Such evidence may be from the following experts:
1. rehabilitation specialist
2. occupational therapist
3. nurse specialist
4. care agencies to provide the cost of care, if that is not already included in the above reports.
Depending on the severity of the injury, there may be a variety of care needs ranging from high-level registered-nursing, enrolled-nursing or assistant-in-nursing care, or care from a domestic carer without a nursing qualification. The type of care that is reasonable will depend largely on the plaintiff’s level of vulnerability and needs. For example, is catheterisation and feeding tube changing required?
It is generally accepted that people are entitled to be cared for in their own homes, except for the most profoundly disabled persons who are not aware of their surroundings and therefore derive no benefit from home care as opposed to care in a nursing home. Even then, home care is usually claimed, but whether or not it is considered reasonable will depend on the particular case.
In high-needs cases, two carers may be required at once, especially at times of the day where difficult transfers are required. In such cases, it is common for experts to recommend that two carers be present mornings and evenings to assist with the routines that occur at those times of the day (bathing, toileting, dressing etc). Two carers may also be required in cases where the plaintiff has difficult behavioural problems or is a large size or weight, making the tasks more physically difficult for the carers.
The plaintiff is only entitled to be compensated for what is reasonable, not what is ideal.[10] In Nicholson, it was held that there was no error in awarding the cost of an enrolled nurse rather than a registered nurse for the plaintiff in circumstances where there was only a remote chance that a registered nurse would ultimately be required.
Future care needs to be calculated using the 5 per cent discount tables. In situations where the care needs may change over time (as is often the case), it will be necessary to break the claim up into the separate time periods. Each time period can be claimed using the 5 per cent discount for that time period, with subsequent time periods also being deferred using the appropriate deferred multiplier. Alternatively, the base rate can be claimed for the entire period, with an additional claim for increases for closed subsequent periods (deferred as required). When calculated correctly, either methodology will result in an almost identical outcome.
In addition to personal care, it is appropriate to seek opinion on and make a claim for assistance with domestic duties as well (for example, cleaning, gardening, handyman work). It is not usually reasonable to expect attendant care staff to attend to these additional domestic duties.
When claiming for paid care, the different rates that apply on weekends and public holidays will need to be taken into account.
OUT-OF-POCKET EXPENSES
For past expenses, out-of-pocket expenses encompasses medical and ancillary treatment, as well as other expenses such as equipment and travel.
For future expenses, it will be necessary to obtain expert evidence regarding the plaintiff’s needs. This may include evidence from the following professionals:
• rehabilitation physician;
• occupational therapist;
• registered nurse;
• speech pathologist; and
• other specialists as required, depending on the particular needs of the plaintiff (usually these additional experts will be identified by the rehabilitation specialist and occupational therapist).
The following expenses may be claimed, depending on the particular needs of the plaintiff (this is a non-exhaustive list):
• case management;
• GP consultations;
• specialist consultations (for example, rehabilitation physician, gastroenterologist, neurologist, etc);
• psychiatric or psychological treatment (if there is associated psychiatric injury;
• medication;
• gym membership (depending on the plaintiff’s physical abilities);
• occupational therapy;
• physiotherapy;
• speech pathology;
• hospital admissions;
• imaging;
• podiatry;
• hydrotherapy;
• travel to and from medical and therapy appointments.
Equipment needs are separately canvassed below.
Remember to seek details of the expenses that may have been paid by third parties but for which a refund is sought (for example, Medicare, private health insurer, NDIS) so that those amounts can be claimed and the plaintiff will not be out of pocket.
EQUIPMENT
The equipment needs of a seriously injured plaintiff can be vast. Therefore, it can be useful to deal with it as a separate item in the claim. At first instance, the opinion of an occupational therapist should be sought in regard to what the equipment needs are (in some cases a registered nurse may also be able to provide a helpful report as to equipment needs). The expert/s will provide a list of the equipment that is needed, the cost, and the replacement period.
It is usually easiest to then make a table along the following lines:
[TABLE]
|
Item
|
Cost
|
Initial cost
|
Replacement period
|
Cost per week
|
Net present value
|
[END TABLE]
The ‘cost per week’ is the cost divided by the replacement period (for example, $1,000 divided by 5 years (260 weeks) = $3.85 per week.
The ‘net present value’ is the cost per week x the relevant discount multiplier plus the upfront cost.
For items of equipment that do not need replacing and are a one-off purchase, the entire cost of the item can go into the ‘net present value’ column.
For items that need replacing only infrequently, it may be preferable to claim the initial cost and then each replacement as a deferred claim, rather than attempting to break it into weekly amounts.
Where there is a claim for a modified version of an ordinary household item such as a special bed, for example, there must be an offset for what the plaintiff would have spent on an ordinary bed, were it not for the injury.
HOME MODIFICATIONS
Frequently, plaintiffs with severe injury require home modifications. Even plaintiffs who are not wheelchair bound may require modifications such as non-slip flooring and grab rails for safety. Those with more serious injuries may require far more extensive modifications including:
• carer’s accommodation;
• undercover garage;
• widened doorways;
• modified kitchen and bathrooms;
• hydrotherapy pool;
• ramps; and
• wheelchair-accessible paths.
The cost of modifying a standard house in the plaintiff’s area can be claimed. Additionally, if the plaintiff will incur increased capital costs of housing, those increased capital costs can also be claimed.[11] This will commonly be the case where, for instance:
• the plaintiff requires a larger house than would otherwise have been required, in order to accommodate carers or equipment;
• the plaintiff requires larger land size than would otherwise have been required (for example, to permit movement around the house in a wheelchair or to allow for on-site parking);
• for suitable wheelchair access, the plaintiff requires a house on a level block, limiting the available pool of housing and perhaps even requiring the plaintiff to move to a more expensive area.
The starting point for ascertaining the increased cost of housing is to obtain evidence of the plaintiff’s need (from a rehabilitation specialist but even more so from an occupational therapist). Then the details of the specific needs can be taken to an appropriate expert (such as an architect) to advise on the cost of modifying a suitable house. If a different type of house is required as a starting point (for example, a bigger house, bigger land or different area), a real estate agent can give advice regarding the price differential for the capital cost.
INCREASED VEHICLE COSTS AND MODIFICATIONS
If the plaintiff is physically disabled (particularly if they are wheelchair bound) it is likely they will require either modifications to a standard vehicle (for example, hand controls) or an entirely different kind of vehicle with modifications (for example, a modified van).
The plaintiff is entitled to claim the difference between the costs of vehicles and modifications required as a result of their injuries, and the cost of vehicles that would have been incurred if the plaintiff had not been injured.
For an infant plaintiff, the assumption would usually be that, in adulthood, they would have had a standard small sedan or hatchback, had they not been injured. In other catastrophic injury cases where the plaintiff is already an adult, it may be that the evidence is that they were never going to have a vehicle and the need for a vehicle is solely due to the injuries. In that case, the entire cost of the vehicle would be claimable with no offset.
In the usual case where the differential is claimed, it is necessary to claim the capital, standing and running costs of the required vehicle (plus modifications if required), and subtract the capital, standing and running costs of the regular vehicle that would have otherwise been required.
Expert evidence is usually needed to assist with this head of damage. The first step is to obtain the necessary medical evidence to set out the particular needs of the plaintiff (for example, rehabilitation specialist). Then once, that is known, the differential cost reports can be provided by forensic accountants.
Vehicles do not last forever, so this is likely to be a recurring cost throughout the plaintiff’s life. The recurring cost can either be broken down into a weekly amount and claimed using the 5 per cent discount multiplier or (especially if the period between new vehicles is lengthy) can be claimed as a series of discrete costs, with each being deferred for the requisite period of time.
INCREASED COST OF HOLIDAYS
If the plaintiff will derive any benefit or enjoyment from holidays, they are entitled to claim for the increased cost of holidays, including:
1. cost of travel and accommodation, and the incidental costs such as meals and entry tickets etc, of the carer/s;
2. increased costs that the plaintiff will incur personally as a result of having to fly business class rather than economy class (if it is medically unreasonable for the plaintiff to fly economy class due to their physical needs);
3. increased costs that the plaintiff will incur personally as a result of having to stay in accommodation with suitable wheelchair facilities, if necessary (noting that it is usually the higher-star hotels that are able to accommodate this, and inexpensive holidays such as camping are off the table).
The first step in calculating future holiday costs is to obtain a medical opinion as to the plaintiff’s needs when travelling in regard to flights, accommodation and carers. Then, to calculate the costs, there are experts who specialise in providing reports calculating the increased costs of travel for injured people.
The plaintiff is only entitled to claim the difference between the increased costs and the regular costs. Accordingly, it is necessary to subtract the ordinary costs the plaintiff would have incurred on holidays (for example, economy-class airfares, standard accommodation etc).
Calculating this head of damage is not a precise exercise, as it involves a great deal of speculation about what the likely holidays would have been and will still be (for example, trips overseas, interstate, local, how often etc).
COMPUTER AND SPECIAL ASSISTIVE EQUIPMENT
If the plaintiff requires special equipment in order to access information, services and the community, they are entitled to claim for the cost. This may include things such as computers and iPads with appropriate programs and other devices that will ensure that the injured person has as much independence and access as possible (recreational technology, environmental technology, etc). A further example is where, say, a quadriplegic might be assisted by voice-activated technology to control electrical items such as lights or a television. An expert report will assist with this claim.
INTEREST
The plaintiff is entitled to claim interest in accordance with the CLA, s18. It relevantly provides that interest cannot be claimed on the following:
[INDENTED QUOTE]
‘(a) non-economic loss
(b) gratuitous attendant care services as defined in s 15 (other than gratuitous attendant care services to which s 15A applies)
(c) loss of a claimant’s capacity to provide gratuitous domestic services to the claimant’s dependants (as provided by s 15B).’
[INDENTED QUOTE]
The statutory interest rate can change quarterly, so it is necessary to first work out the average interest rate for the period (that is, add up all the interest rates quarter by quarter) and divide by the number of quarters.
Unless the expenses were all incurred at the time of the injury (which is never the case), it is likely that the expenses have been incurred gradually over the years between the injury and the date of assessment. In that case, expenses incurred on day 1 would be entitled to interest for the entire number of years since the injury, but there would be no entitlement to interest on expenses incurred yesterday.
Therefore, the simplest way to calculate interest on a large number of expenses incurred over a long period is to use the following formula:
[FORMULA CENTRED]
Amount of past expenses x average interest rate x number of years ÷ 2
(to arrive at the average length since each expense was incurred).
[END FORMULA]
FUNDS MANAGEMENT
If the plaintiff is unable to manage their own funds, which is often the case, then a claim should be made for funds management. It is arguable that a claim can also be made for the cost of applying to have a financial manager appointed.
The High Court has determined that the plaintiff is entitled to claim the cost of funds management on funds management costs.[12]
The claim for funds management should be either calculated by the proposed trustee company that the plaintiff proposes to appoint as fund manager, or (if the NSW Trustee and Guardian will be used), by reference to the tables helpfully provided by many forensic accountants who work in this area. There is a useful calculator of funds management costs on the Cumpston Sarjeant website.[13] The cost of private trustee management is generally higher than management by the NSW Trustee and Guardian, but may nevertheless be reasonable depending on the facts of the case and the plaintiff’s reasons for wanting a private fund manager.
The NSW Trustee and Guardian has substantially reduced their costs, and the differential between the NSW Trustee costs and private-fund-manager costs is now more pronounced. The substantial costs differential between private and public funds management means that, in a case where private fund management is claimed, it is extremely important to obtain evidence from the plaintiff (or the plaintiff’s tutor or parents) about why a private trustee is more suitable and reasonable in the circumstances.
It is important to note that the cost of public fund management varies substantially between jurisdictions. For instance, the current estimated cost of managing a $10 million fund for 60 years with the NSW Trustee and Guardian is just over $850,000. The estimated cost of managing the same fund by the Public Trustees of the ACT is just over $3 million. Therefore, in other jurisdictions, the cost of private fund management may be the same (or even less costly) than the cost of management with the public trustee in that jurisdiction.
Jnana Gumbert is a barrister at Jack Shand Chambers in Sydney. EMAIL gumbert@jackshand.com.au
[1] This paper focuses on damages for a civil liability or medical negligence claim in NSW. While many of the principles may be broadly applicable to other states, there are differences in the statutory regimes, and therefore practitioners in other states should check the legislation and regulations applicable in their state. In NSW, future losses must be calculated using the 5 per cent discount tables, and deferred using the 5 per cent discount tables where necessary. Motor accidents are subject to a more restricted regime under the Motor Accident Injuries Act 2017 (NSW), which is beyond the scope of this paper.
[2] Other types of injury may also be catastrophic, particularly some amputations. Amputations generally involve extremely complex claims for prosthetics that exceed the scope of this article.
[3] Mead v Kerney [2012] NSWCA 215.
[4] Avopiling Pty Ltd v Bosevski; Avopiling Pty Ltd v The Workers Compensation Nominal Insurer [2018] NSWCA 14; 98 NSWLR 146. The Court of Appeal held that s 13 of the CLA applies to damages for future economic loss both in respect of ‘future earning capacity’ and ‘other events on which the award is to be based’. The latter category includes damages for future attendant care, lawn mowing, gardening and handyman services, and future medical expenses.
[5] Vincents Litigation Tables, <https://vincents.com.au/tools-resources/litigation-tables/>.
[6] [1977] HCA 45; 139 CLR 161.
[7] (1995) 35 NSWLR 308 (Nicholson).
[9] Wormleaton v Thomas & Coffey Ltd (No 4) [2015] NSWSC 260.
[10] Dang v Chea [2013] NSWCA 80.
[11] Nicholson, above note 7, at 324.
[12] Weideck v Williams [1999] NSWCA 346; McNeilly v Imbree [2007] NSWCA 156; 47 MVR 536.
[13] Cumpston Sarjeant, https://cumsar.com.au/calculator/investment-management/.
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URL: http://www.austlii.edu.au/au/journals/PrecedentAULA/2023/34.html