The damages that UK courts award to people involved in accidents fail to
compensate them fully for the loss of future earnings. That is the conclusion of
new research by Professor Bob McNabb and colleagues at Cardiff University,
published in the November issue of the Economic Journal.
The researchers argue that UK courts should move to a US-style system for
setting damages, taking more explicit account of labour market information,
such as the way people’s earnings change over their lifetime and the
likelihood that an individual will be in employment in the future.
They researchers find that:
· Adopting a US-style approach would produce higher levels of
compensation. Damages could increase by around 25% on average,
although compensation would actually fall in about one quarter of
cases.
· There would be an important gender effect of employing the new
approach. Current court awards for men are consistently lower than
those based on the US approach. The differences for women are
considerably smaller with actual awards often larger than the predicted
ones.
· UK courts currently under-estimate the impact of disability on postinjury
earnings potential. As a result, they make inadequate adjustment
for lower post-injury earnings potential and award damages that are
lower than they should be.
· The current approach to setting damages may under-compensate
people from ethnic minorities for future loss of earnings.
· Although judges apply the current approach consistently, they do not
always determine the ‘multiplier’ (which estimates the likely number of
years of loss) accurately. But there is no evidence that judges are
influenced by gender or ethnic background, nor by region or the
attributes of the case.
The research team notes that each year, thousands of people make claims for
damages to compensate them for the earnings loss they suffer following an
accident. Although most of these claims are settled, those that do go to court
establish precedents that are used as guidelines for other awards. Under the
current system, to determine the appropriate amount of compensation, UK
courts rely on two factors:
· the annual loss of earnings the person will face as a result of the
accident;
· and the number of years over which this loss will be sustained.
The annual loss of earnings is based on the person's earnings at the time of
the injury less any earnings potential the person may have post-injury. The
annual figure is multiplied by a figure that represents the number of years of
loss, but this ‘multiplier’ has to be reduced to allow for early receipt (the
person receives the payment now rather than as separate payments over
their working life) and the risk of early death. The multiplier thus helps convert
the loss of a future stream of income into a lump sum.
Within the legal profession, there has been concern that there is too much
uncertainty involved in calculating the multiplier. It has been described as ‘an
arbitrary process, in which the multiplier is not calculated in a precise or
logical manner’. In particular, the multiplier takes virtually no account of the
factors that influence the way an individual's earnings change over time. The
approach is in marked contrast to the way courts in the United States and
Canada assess damages for loss of earnings, which explicitly incorporates
labour market analysis and predictions.
The research examines how the levels of compensation would differ if the
courts in England and Wales adopted North American practices. A subsidiary
analysis considers whether the subjectivity involved in assessing the amount
of damages introduces systematic bias in the amounts awarded. In particular,
do gender and ethnic background of the injured person affect the amount of
damages judges award? Are damages higher in some types of cases, such
as medical negligence, than they are in other? And is there a regional bias in
the amount of damages awarded?
The research focuses on over 100 personal injury cases that went to court.
Detailed information relating to these cases was collected from solicitors' files
from across the country, providing a new and unique database on how
damages are calculated.
ENDS
Note for Editors: ‘Loss of Earnings Following Personal Injury: Do the Courts
Adequately Compensate Injured Parties?’ by Richard Lewis, Bob McNabb,
Helen Robinson and Victoria Wass is published in the November 2003 issue
of the Economic Journal.
The authors are at Cardiff University. The research was supported by the
Economic and Social Research Council.
For Further Information: contact Bob McNabb on 029-2087-5210 (email:
mcnabb@cardiff.ac.uk); or RES Media Consultant Romesh Vaitilingam on
0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).