Highest annual income not always correct basis for determining loss of future income: court

The Court of Appeal for British Columbia has ruled that the highest annual income is not always the correct basis for determining loss of future earning capacity.

In Rab v. Prescott, 2021 BCCA 345, the respondent was injured in a motor vehicle accident and was awarded damages, including loss of future earning capacity of $150,000. In determining the damages, the trial judge used as basis the respondent’s income in her prime years as opposed to her income immediately before the accident. The latter was considerably lower since she had since resigned from her occupation and shifted her efforts to new entrepreneurial ventures.

The appellant on appeal alleged that the judge failed to properly apply the analysis in Pallos v. Insurance Co. of British Columbia, 1995 CanLII 2871 (BC CA), on whether the respondent had proven that there is a real and substantial possibility that her loss of capacity would lead to a loss of future income.

The Court ruled that while his reliance on Pallos was correct, the trial judge erred in its application when he used an incorrect basis for determining whether a loss of future earning capacity had been suffered. He based his award on the respondent’s highest annual income of $300,000. He gave no reason why he resorted to this figure despite, according to the respondent’s accountant, this figure having been earned only once during the respondent’s career. Further, it has been years since the respondent retired from that occupation, and her income has been entirely passive by the time the accident occurred.

“[This] case was a difficult one … but the evidence here simply did not support the approach taken,” said the Court.

The Court noted that there was no evidence of the income generated by this new entrepreneurial venture of the respondent. Thus, in assessing the amount for damages, the Court had to rely on the income from respondent’s previous entrepreneurial venture, which was the only evidence provided that could provide a rational and useful tool in assessing lost capacity. Pegging the average annual income at $25,000, the Court valued the potential loss at $100,000, which was further reduced to $40,000. This reduction considered the absence of any history of income from these new ventures, lack of evidence of profitability, prospect that ventures could as easily fail as succeed and the respondent’s significant pre-existing limitations, said the Court.