Personal injury settlement amounts 101

Knowing one's worth is the main factor when looking at personal injury settlement amounts. There are several aspects to look at when deciding one’s worth because of sufferings due to a personal injury.

This article works as a guide for victims of accidents or negligent acts who want to know how much the average personal injury settlement amounts are.

It will help also clients – whether plaintiffs or defendants in a personal injury case – manage their expectations when settling with the other party.

What is a personal injury settlement?

Personal injury settlement is an out-of-court agreement between the offender and the injured party. Its goal is to prevent any litigation which can be filed by the injured party, or to end an ongoing one.

Personal injury settlements are different from the personal injury awards awarded by the court after a proceeding.

Advantages of settlements

Out-of-court settlements may have advantages over court proceedings when it comes to personal injuries. While this will depend on each case, here are some of these advantages:

Parties have control over the decision-making

In personal injury settlements, it is both the injured party and the alleged perpetrator who have control on how much the settlement amount should be.

Compare that to a trial, where the judge or jury decides on the matter. Although both a settlement and a trial would investigate the evidence presented, there is much more leeway when things are decided through a settlement.

Settling with the other party may be faster

Court proceedings may take a long time, compared to out-of-court settlements. Court cases may take months, or even years.

While the same may be true for personal injury settlements, there is a chance that it is faster because parties can dictate when the case should end.

For example, the injured party may set a period on the number of negotiations it is willing to do with the other party. After this period, they can submit the case in court.

Warning: consult a personal injury lawyer first

When deciding whether to settle for an amount or to pursue a trial, parties involved should consult with their lawyer. This is because the other party may lowball their offer, and the injured party wouldn’t know whether the amount offered is fair or not.

Alternative dispute resolution

A personal injury settlement is considered an example of an alternative dispute resolution (ADR). Under the ADR, issues are settled without the court’s intervention.

There are three main types of ADR used:

• negotiation
• mediation
• arbitration

Personal injury settlements usually fall under negotiation. If allowed by both parties, they may also submit the issue to mediation or arbitration.

How are personal injury settlement amounts added up?

There are many factors that plaintiffs may consider when figuring out how much to ask for in settlements.

First, there are the two different types of damages that injured parties can ask for, as granted by Canada’s laws.

Second, the factual circumstances are also considered. Here, the facts of the case are applied with the different types of damages to arrive at a fixed amount of compensation.

Lastly, limitations under Canadian laws must also be noted. This is important because it may either limit or reduce the personal injury settlement amounts that can be demanded.

In other words, personal injury payouts in Canada depend on a lot of factors, including the facts of the case and Canadian laws on damages.

This video explains how personal injury settlement amounts are calculated:

For articles on personal injury cases in Canada, head over to our page on Personal Injury.

Categories of damages

Under the laws on tort and damages of Canada, there are two categories of damages:

• Non-compensatory
• Compensatory

Non-compensatory damages

Because non-compensatory damages are awarded by the court, personal injury settlement amounts are only concerned with compensatory damages.

Personal injury settlements are out-of-the-court agreements; in this case, the injured party may not demand non-compensatory damages.

In addition, how the courts award these categories of damages can also be the basis when computing personal injury settlement amounts.

Compensatory damages

There are two subcategories of compensatory damages: general and special damages.

General damages are compensation for the non-financial loss of the injured party. It is also called “pain and suffering damages” or “non-pecuniary damages”.

What is being compensated here is the mental anguish or psychological suffering of the injured party. General damages may also refer to:

• physical pain
• emotional stress
• pain for the loss of loved one
• loss of physical or mental function

Special damages, on the other hand, are compensation for out-of-pocket expenses by the injured party. It is also called “pecuniary damages”.

Here are some of the items that courts use, which parties can also use to work out personal injury settlement amounts:

• administration, management, and housekeeping costs
• costs of future care
• future earnings due to lost capacity to work
• lost past earnings
• medical and rehabilitation costs

Factual circumstances

What the injured party may ask as part of their personal injury settlement amounts will depend on the type of accident that took place.

One could not demand what is not reasonable or related to the case. For instance, compensation for properties, such as repair or replacement of properties, are unusual for personal injury settlements. However, it may be included if damage to property was also included with personal injuries. This may happen in car accidents, or in slip-and-falls because of a structural defect.

This video explains why lawyers are so important after a car accident:

Here’s a more detailed look at what to do after a car accident  and how lawyers can help.

Past and future costs

These financial costs may also include not just past expenses, but also future expenses.  When computing future expenses, inflation may also be considered.

Canadian courts now tend to consider future costs of care and administrative costs when awarding damages to personal injury cases.

This is also mirrored by settlements, such as in personal injury settlement amounts, which can also include future costs in addition to past and present costs.

Severity of the injuries

The severity of the injuries that the injured party sustained will also be a huge concern when calculating general damages.

Permanent injuries and disabilities will justify a larger amount of compensation for general damages. On the other hand, temporary injury may still establish compensation, but the amount is usually lower compared to permanent injuries and disabilities.

Limitations under Canadian laws

Canada’s common law has already set a limit for general damages, or for pain and suffering, that an injured person may demand from the other party. It was decided in 1978, when three cases decided by the Supreme Court held that general damages will be subject to an upper limit of $100,000.

This amount is adjusted yearly due to inflation; by the end of 2023, this amount is now at around $450,000. This has a huge bearing when injured persons add up their personal injury settlement amounts.

In actual cases, settlements tend to observe this ruling, even though settlements are made out of court. This means that injured parties do not exceed this limit, because it would still be reduced by the court if a trial instead of a settlement is held.

While there are no limits for special damages, they must still be supported by evidence and reasonable calculations.

What is the average personal injury settlement amount in Canada?

The exact personal injury settlement amount will vary in every case, since there are several factors that come into play.

There are precedents set by the court which will guide them on what the average personal injury settlement amount is for a particular case. The goal of the court is to award the most appropriate figure, no matter how small or large it is.

Average personal injury settlement amounts per injury

Below are the average personal injury settlement amounts arranged by type of injury. This only serves as a guide and does not automatically apply to a given case.

Also, the amounts below only pertain to general damages. Special damages will have to be calculated according to the actual amount of expenses. Future costs can be based on the same amount of expenses.

Other factors in computing personal injury settlement amounts

The final personal injury settlement amounts may also vary because of special damages, especially for the different types of injuries.

To arrive at the exact amount that injured parties may offer to the other party, the average amounts mentioned above must be on top of the special damages.

In addition, there are other factors that will affect the final personal injury settlement amount, such as:

• location: cost of living varies across different provinces or territories; also applies between rural areas compared to urban areas
• time: due to inflation; parties may agree to the amount of inflated amount as for future costs
• effect: general damages may be lower if the injured party cannot sufficiently prove the damage’s effect to their life
• recovery: for example, larger general damages are justified if the injured person has no or little chance of recovering from a disability or injury

How are personal injury settlement amounts given to the plaintiff?

When personal injury settlement amounts are awarded, either after trial or after a settlement, there are many ways that an injured party may receive these amounts:

• lump sum: a one-time payment is given
• structured: payments are periodically given (e.g. monthly, quarterly)
• through a third party: such as when a trust account is established

These arrangements are agreed by the parties (in case of a settlement) or ordered by the judge (in case of a trial). This will help the receiving party to plan how to manage such amounts.

Are personal injury settlement amounts taxable in Canada?

Generally, personal injury settlement amounts are not taxable in Canada. This is also the case for claims for personal injuries when awarded by the court.

The Income Tax Act of Canada does not state that personal injury settlement is exempt from income tax.

Specifically, the Act says that income from personal injury award, whether it is for mental and physical injury, or from any property, is exempt from tax.

There is also no distinction whether the personal injury settlement amounts were awarded by the court, or by a jury, or through an extrajudicial settlement.

It is also regardless of whether the settlement amounts are given to the injured person in a lump sum or in a staggard manner.

Additionally, nowhere in the current rules set by Canada Revenue Agency (CRA) requires that these settlement amounts are taxable.

Exceptions: taxable personal injury settlement amounts

However, there are exceptions to this rule. There are certain items within special and general damages that are taxable under the law:

• loss of amenities of life
• loss of both accrued and future earnings
• loss of earning capacity
• pain and suffering
• reimbursement of out-of-pocket expenses
• shortened life expectancy

This means that settlement amounts which tend to replace one’s compensation income or employment are taxable.

From the viewpoint of tax laws, should the injury not have happened, the injured person would still have earned this amount and would still be taxable. That is why personal injury settlement amounts which are replacement to an injured person’s income are taxed.

Check out our Special Report on the Best Personal Injury Law Firms in Canada 2023 for experts in the practice of personal injury law.