Court Awards of Damages for Loss of Future Earnings: An Empirical Study and an Alternative Method of Calculation

AuthorHelen Robinson,Richard Lewis,Robert McNabb,Victoria Wass
DOIhttp://doi.org/10.1111/1467-6478.00226
Publication Date01 Sep 2002
JOURNAL OF LAW AND SOCIETY
VOLUME 29, NUMBER 3, SEPTEMBER 2002
ISSN: 0263-323X, pp. 406–35
Court Awards of Damages for Loss of Future Earnings: An
Empirical Study and an Alternative Method of Calculation
Richard Lewis,* Robert McNabb,** Helen Robinson,** and
Victoria Wass**
This article examines the effect upon damages for personal injury of
methods used in the United States of America to calculate loss of future
earnings. The work of lawyers is examined from the perspective of
labour economists. The damages calculated by using these alternative
methods are compared with those actually awarded in over a hundred
cases determined by courts in England and Wales. This inter-
disciplinary and comparative study reveals that the tort system fails
to satisfy one of its main objectives in that it does not provide
recipients of damages with ‘full’ compensation.
This article reports the results of a study, funded by the Economic and Social
Research Council,
1
into the calculation of damages for personal injury in
respect of loss of future earnings. It contrasts the way in which the
calculation is made by lawyers in this country with the approach used in the
United States of America and Canada. The study is not only comparative but
also interdisciplinary, for it examines the work of lawyers from the
perspective of labour economics. We explore the impact on damages of
adopting a United States approach which uses more detailed labour market
information and a more precise method of calculation. In particular,
increased attention is paid, first, to the way in which earnings change over a
working lifetime and, secondly, to the extent that future employment
406
ßBlackwell Publishers Ltd 2002, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA
*
Cardiff Law School, Cardiff University, PO Box 427, Cardiff CF10 3XJ,
Wales.
** Cardiff Business School, Cardiff University, PO Box 427, Cardiff CF10 3XJ,
Wales.
We would like to thank Richard Jones for research assistance, Anne Bartel, William Becker,
James Kenkel, and, in particular, James Rodgers for explaining the practices for calculating
loss of earnings in the United States of America. We are also grateful to the Association of
Personal Injury Lawyers (APIL) and the Forum of Insurance Lawyers (FOIL) for their
support, and to all the law firms and lawyers who provided the case material.
1 ESCR Award Reference No R000237393.
prospects are adversely affected by injury. The result is an ‘alternative’
award of compensation which explicitly incorporates labour market
information and appropriate statistical methods to predict future earnings
according to the impact of injury on employment.
The alternative method of calculation is applied to a sample of adjudicated
cases to identify the practical effect of the difference in approach. Obtaining
access to solicitors files throughout England and Wales, we have analysed over
a hundred cases involving loss of future earnings which were judicially
disposed of between 1990 and 1998. Data have been collected about the factors
relevant to the determination of future earnings loss for each claimant
including, for example, work history, education, and the impact of injury. The
actual damages awarded in each of these cases have been broken down into
their component parts and the award for earnings loss has been compared with
that which would have been obtained if the alternative method of assessment
had been used. The study is thus given an important empirical focus. This
research breaks new ground by being the first to examine the effect of different
methods used to calculate damages for future loss of earnings in the context of
the detailed background of decided cases.
Lawyers can find some reassurance in certain findings from the survey of
decided cases. In general, the courts are consistent in their calculation of
damages. We find the relationships one might expect between the size of the
award, the severity of the injury, the claimant’s age, and other earnings-
related characteristics.
2
Furthermore, we find no statistical evidence of
judicial bias in respect of sex, race, types of injury, or part of the country in
which the case is heard. However, the comparison of adjudicated awards
with those calculated on a basis similar to the labour economics approach
used in the United States produces a sharp critique of the British system.
According to this alternative method of calculation, claimants in this country
generally have been undercompensated, some substantially so, in terms of
the accepted aims of the damages award. We found 88 per cent of claimants
in our sample undercompensated by the court method. Over half of these
would have received an award at least 50 per cent greater under the
alternative calculation. For a third, the award calculated by the alternative
method was at least double the court award. These findings do not
necessarily mean that the article should be read as supporting a substantial
rise in damages awards. Instead, we emphasize only that the tort system fails
to satisfy one of its main objectives in that it does not provide ‘full’
compensation. The rhetoric of the system is not matched by its reality.
Within the aggregate findings produced by the survey, there are some
important variations including a gender and age effect and an effect
conditional on post-injury employment capacity. Consistently we found that
younger claimants, male claimants, and those with post-injury employment
407
2 See our Working Paper No. 2, ‘Loss of Earnings Following Personal Injury: How the
Courts Determine Compensation.’
ßBlackwell Publishers Ltd 2002

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