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Sunday, February 27, 2011

Trial Judge Refuses to Order a Structured Judgement

In personal injury cases ICBC has the right pursuant to the Insurance (Vehicle) Act, to argue that a future award for wage loss or cost of future care be "structured".  This creates a significant benefit to ICBC because it does not have to pay additional damages for management fees if a future award is structured because the money does not need to be managed to achieve the rate of return predicted by the present value calculation assumed in personal injury cases. 


However, structured judgements are bad for plaintiffs given today's low interest rates.  Structured judgements also do not allow a plaintiff flexibility in how to use their money because structures provide for a fixed monthly payment for the rest of the plaintiff's life.  Recently in Kirk v. Kloosterman, 2011 BCSC 228, ICBC applied to have a plaintiff's future award structured.  The trial Judge declined and went on to make an award for management fees.  Crawford J. of the Supreme Court of British Columbia stated as follows when making his decision:


ISSUE 2: Structuring the Award
Defendant’s Proposal
Plaintiff’s Response
Discussion
[14]         Section 55(1) of the I(MV)A provides as follows:The court must order that an award for pecuniary damages in a motor vehicle action be paid periodically, on the terms the court considers just,
(a) if the award for pecuniary damages is, after section 25 has been applied, at least $100 000 and the court considers it to be in the best interests of the plaintiff, or(b) if:
(i)  the plaintiff requests that an amount be included in the award to compensate for income tax payable on income from investment of the award, and(ii)  the court considers that the order, that the award be paid periodically, is not contrary to the best interests of the plaintiff.
[15]         Mr. Kirk does seek a gross-up to offset the effect of taxation on the return from investing the award. 
[16]         Ms. Kloosterman proposed that Mr. Kirk’s award for future loss of income in the amount of $1,011,150 be paid periodically. She does not propose a structure for the cost of future care award. 
[17]         Counsel for Ms. Kloosterman tendered a structured settlement proposal from Mr. Steel, an advisor, in a letter dated June 10, 2010. The letter assumed funding April 22, 2010 and commencing May 22, 2010. It provided a life contingent term certain annuity for 31 years and four months to age 65, paying $5,005.60 per month, while Mr. Kirk is alive, indexed at 2.5% per annum compounded annually. Alternatively, it provided a life contingent term certain annuity for 36 years and four months to age 70, paying $4,634.30 per month on similar terms was proposed. 
[18]         In Mr. Steel’s letter, the advantages of a structured settlement were put forward, namely, (1) the plaintiff gets the monthly payments tax free; (2) the contract is non-assignable and thus provides protection from creditors and matrimonial breakdown; and (3) the monies are paid by a life insurance company and guaranteed by ICBC. 
[19]         Further opinion from Mr. Gosling dated May 14, 2010 provided that the lifetime payments would be “nearly as much” as the monies obtained from investment. 
[20]         Counsel for Ms. Kloosterman argued there were concerns, particularly given Mrs. Kirk’s evidence as to the demands her husband’s injury had placed on her and on the strength of her marriage. As well, the downturn in the world economy was noted as a significant risk in investing the awards. 
[21]         It was also noted that Mr. Kirk’s ongoing shoulder problems, which may or may not be remedied by surgery, would put an additional ongoing demand on Mrs. Kirk. Further, it was suggested that Mr. Kirk’s behaviour prior to the collision was impulsive and thus the security offered by periodic payments would be in his best interests. 
[22]         The submissions from counsel for Mr. Kirk began with the observation that Mrs. Kirk demonstrated strength of character and reliability in her evidence to the Court. Mr. Kirk says that Mrs. Kirk is a good wife and that their marriage is sound. 
[23]         The Kirks do not plan to dissipate the funds and indeed they seek management fees for investment advice. Mrs. Kirk made it clear that she needed assistance, and therefore management fees, to sensibly manage the awards. 
[24]         The evidence on historical rates of return is such that there is a reasonable expectation that private investment of the award will exceed the annuity fee proposal. 
[25]         While there may be concerns regarding market volatility on the investment funds, counsel for Mr. Kirk noted that the long-term view should also be taken into account. Inflation was not considered in the proposed structure, but rather a factor of 2.5% was inserted. Nor was a guarantee given. As well, Mr. Kirk was given an increased age rating to effectively “close the gap” between the proposed structure and the potential return on investment of the award, assisted by management fees and anticipated taxes.
[26]         It was noted that the jury did not reduce the award for potential loss of life expectancy below that argued for by Mr. Kirk’s counsel, and therefore, one may assume that they did not reduce Mr. Kirk’s life expectancy; yet, the structure proposed a reduced life expectancy with the effect being to draw the settlement annuity closer to the yield from investing the awarded funds. The effect on the structure, in any event, was still a lesser award. The lessened amount of monies available speaks against the creation of a structured settlement. 
[27]         Moreover, the proposed structure does not allow for any estate to be left for Mr. Kirk’s family should he die prematurely. It lacks flexibility, for instance, to allow Mr. Kirk and Mrs. Kirk to buy a new home. 
[28]         Further, the suggestion that the cost of future care award could be intruded upon for other expenses is not sensible given the extensive nature of Mr. Kirk’s injuries. 
[29]         As I understand it, Mr. Kirk’s evidence is that the return generated by investment would effectively be 15% more than the proposed structured settlement. Thus, the effect of the defendant’s proposal is a lesser award. 
[30]         In my view, Mrs. Kirk has proved to be a strong person who has stayed with her husband through the worst of the initial years of his very serious injuries. I am sure she made as good an impression on the jury as she did on me; and I anticipate that she will continue to care for her husband as best she can. The future care award allows for attendant care for Mr. Kirk with his daily needs and will be important in allowing Mrs. Kirk to regain some independence in her own life. 
[31]         As discussed below, management investment advice will be needed, perhaps not at the level proposed, but to allow the awards to be maximized and to prevent unwise dissipation. Mrs. Kirk has been the family’s financial planner and will undoubtedly need assistance in this respect. At the same time, both she and Mr. Kirk will ensure that the funds are spent wisely. 
[32]         The lack of flexibility in the proposed structured settlement is another concern. The Kirks have a young family and there will be difficult decisions that Mr. Kirk must make not just for his own good but also his family. His ability to use the award as he sees fit for himself and members of his family should not be inhibited. Many unforeseen events may arise in the future. 
[33]         On the evidence before me, I do not see the proposed structure as being in the best interests of Mr. Kirk and I will not order a structured settlement as proposed.

posted by Collette Parsons at


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