Evaluating cost of care claims: what to consider

Cost of care - Virtus Group LLP

NOTE: This article first appeared in the December 2021 issue of The Advocate, produced by the Saskatchewan Trial Lawyers Association

In addition to the calculation of loss of earnings as part of a Quantification of Loss engagement, many personal injuries may require the plaintiff to incur additional costs in the future relating to personal care and medical needs. The calculation of the lump sum award for these costs of care can be quantified by determining the present value of future cash required to cover the costs of care.

The annual cost is determined by looking at how often the expense recurs and the time period over which the loss will reasonably be expected to occur. Assumptions around discount rate and life expectancy are applied to determine the lump sum value of the award.

Evaluating cost of care award

While the actual calculation of the cost of care award may appear to be simple, evaluating the potential costs requires some analysis. A life care plan prepared by someone suitably qualified is a great starting point. It is important to ensure that the claimed expenses are reasonable, as if they’re not, they may be disregarded or adjusted downwards if the expert is seen as having an over-aggressive approach.

The approach to calculating cost of care damages is similar to the approach to calculating the loss of future earnings; but where the approaches differ can have a significant impact on the final claim. The most important difference between the calculation of the loss of earnings capacity and the costs of care are the treatment of the taxes incurred on investment income.

Courts have ruled that no allowance is to be made for the taxes charged on investment income earned from the lump sum award for loss of earnings. They have, however, ruled that an allowance is made for income generated from the investment of a costs of care award. This results in the award for costs of care being “grossed up” for income taxes. Various factors are evaluated when determining the income tax rate used to calculate the tax gross up, including the expected future income tax rates and the expected other taxable income of the recipient.

Necessary expenditures as a result of injury

Courts have also ruled that the amount included in the cost of care award is equal to the difference between the expenditure that the individual would have incurred had the injury not occurred and the expenditure that is now considered necessary. For example, a plaintiff who is required to use a wheelchair will require alterations to their home and adjustments to their vehicles.

The cost included in the cost of care award is the cost of the wheelchair accessible van less the cost of the vehicle that the plaintiff would have purchased had they not been injured. Another example relates to the treatment of the more strenuous housekeeping and outdoor home maintenance tasks that may not continue for life.

As the general population typically does not perform strenuous tasks beyond age 75, some judgement might be required in the expert’s determination of the inclusion of the costs of these tasks beyond a certain age. As the examples demonstrate, the cost of care award is based on unusual or extraordinary expenses that are expected to be incurred by the plaintiff as result of their injury.

Another interesting consideration for the costs of care determination is that depending on the circumstances, the plaintiff’s damages may not be reduced if the services provided to the plaintiff were provided at no charge. For example, if the plaintiff in a wheelchair has received support for daily tasks from their spouse, compensation may still be claimed for the reasonable value of the spouse’s service.

Loss of housekeeping capacity

McIntyre v. Docherty et al. 2009 O.R. (3d) 189 is a leading case on the subject of loss of housekeeping capacity and the decision recognized how important housework is to the pride and self-esteem of an injured party. The quantification of housekeeping costs is assessed based on the reason for the replacement services, the work done and time expended, irrespective of payment.

Overall, our advice when looking at the cost of care calculation in a personal injury report is to use a qualitative approach. It is important to examine the information using common sense, focusing on costing, and need of the material expenditures by the plaintiff.

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