Reasoning required to make the award of a buffer for loss of earning capacity defensible

Motor Vehicle Directions

Two recent Supreme Court cases have dealt with this issue, and make it clear that only brief reasons are required from CARS assessors to satisfy the demands of s126 of the Motor Accidents Compensation Act (MAC Act), and to justify the award of buffers for future loss.

Allianz Australia Insurance Limited v Cervantes [2011] NSWSC 1296 (per Rothman J), 2 November 2011

The case involved a claim by a 41 year old doctor injured whilst a passenger in a Ferrari which crashed during a test drive in June 2006. She claimed she suffered neck problems, associated headaches and post traumatic stress disorder. The claimant had three days off work after the accident. At the time of the accident she was working at John Hunter Hospital, but three years later, she qualified as a kidney specialist. Once qualified, she was offered a part-time staff specialist position at the John Hunter Hospital and she supplemented the part-time position with locum work at another hospital as well as opening a private nephrology clinic, although that venture closed as it wasn’t commercially viable. The claimant alleged this was due to her inability to see more than three or four patients per day, due to her injuries.

At the CARS assessment (January 2011, by which time the claimant was 46), she claimed she was earning significantly less than her pre injury earning capacity as a specialist in private practice ($500,000 gross per annum). The claimant’s claim was unsupported by evidence of earnings from comparable specialists.

The CARS Assessor found that the claimant would be unable to maintain a successful private practice while working as a hospital staff specialist, due to her injuries, and awarded a buffer for past economic loss of $75,000 and a buffer for the future of $400,000.

The insurer applied to the Supreme Court to review the decision, arguing that the Assessor failed to provide reasons to justify the award of such a significant buffer, and that he had not complied with the requirements of s126 of the MAC Act.

That section provides:

Future economic loss-claimant’s prospects and adjustments 

(1)   A court cannot make an award of damages for future economic loss unless the claimant first satisfies the court that the assumptions about future earning capacity or other events on which the award is to be based accord with the claimant’s most likely future circumstances but for the injury. 

(2)   When a court determines the amount of any such award of damages it is required to adjust the amount of damages for future economic loss that would have been sustained on those assumptions by reference to the percentage possibility that the events concerned might have occurred but for the injury. 

(3) If the court makes an award for future economic loss, it is required to state the assumptions on which the award was based and the relevant percentage by which damages were adjusted.’

Rothman J noted that the purpose of s126 was to provide a structured approach to the calculation of damages for future economic loss. He quoted Hislop J in Allianz Australia Insurance Limited v Kerr [2011] NSWSC 347 in which his Honour said:

‘The occasion for a buffer is when the impact of the injury upon the economic benefit from exercising earning capacity after the injury is difficult to determine.’

Rothman J noted that the Assessor accepted the claimant was a highly motivated high achiever with extraordinary pre-accident accomplishments and he accepted that, but for the injuries, she would have opened her own nephrology practice while working as a staff specialist. Her injuries prevented her from maintaining a successful private practice. Rothman J accepted that the Assessor had identified the reasons why he awarded a buffer. He held it was an appropriate case for a buffer, because the lack of specific evidence of comparable earnings made it difficult for him to assess damages with any degree of precision. His Honour noted a buffer for $400,000 was warranted – even conservative – in the circumstances. The Assessor’s reasons, although brief, were adequate to satisfy the requirements of s126.

The decision will be the subject of an appeal.

This decision follows closely on the heels of Allianz Australia Insurance Limited v Sprod & Ord [2011] NSW SC 1157, in which an insurer sought to challenge the award of damages for future economic loss, on the basis of an Assessor’s asserted failure to comply with the requirements of s126, and for giving inadequate reasons. Hoeben J dismissed the insurer’s application, holding that a CARS Assessor is not required to provide the same degree of detail and analysis when providing reasons to support an award as would be expected of a judge.  Reasons will be sufficient, and immune from administrative review, if the methodology and reasoning employed to arrive at the damages awarded is clear.

The Court of Appeal has confirmed this line of reasoning in a decision handed down last month.

Authored by Jenny Doyle, Lawyer, Newcastle.

Allianz Australia Insurance Ltd v Kerr [2012] NSWCA 13

In this case, the NSW Court of Appeal dismissed an insurer’s appeal against a CARS Assessor’s Certificate where the insurer alleged there was an error of law on the face of the record and inadequacy of reasons. The validity of an award of a buffer of $200,000 for loss of earning capacity was at the heart of the insurer’s appeal.

The facts

The claimant was injured in March 2007 when a vehicle insured by Allianz collided with the rear of her vehicle. She sustained injuries to her neck and back, aggravating a prior back condition and exacerbating a pre-existing psychiatric condition.

Liability was accepted by the insurer and there was no entitlement to damages for non-economic loss, the claimant failing to overcome the relevant threshold.

At CARS, the claimant sought damages in excess of $1.1 million. The matter was determined by a CARS Assessor in June 2010. The claimant was ultimately awarded damages in the sum of $477,042.92. This included a buffer of $200,000 for future economic loss, an allowance for past gratuitous assistance, the basis for which was not readily ascertainable from the assessor’s reasons and almost $80,000 for future domestic assistance, allowed on a commercial basis in circumstances where there was no evidence that gratuitous assistance being provided up to the date of the hearing would come to an end.

The issue of most significance to the insurer was the awarding of the buffer.

The Assessor rejected the claimant’s contention for an allowance of $900 net per week to age 70 discounted for vicissitudes at 30% (around $600,000). He also rejected the submission made on the insurer’s behalf that there ought be a buffer in the order of $20,000. He stated:

‘An amount of $20,000 as submitted by the insurer is clearly inappropriate. I believe the sum of $200,000 is the appropriate sum.’

The insurer sought to have the Certificate set aside in Supreme Court proceedings for Administrative Review.

Administrative review

The issues for determination were whether the Assessor erred in:

  • Failing to comply with s126 of the Motor Accidents Compensation Act (‘the Act’)
  • Assessing future domestic care on a commercial basis
  • Failing to provide sufficient reasons for his assessment (this ground of appeal extended to the award of damages for future economic loss and past and future care).

Justice Hislop dismissed the insurer’s summons on 29 April 2011 on the basis that none of the alleged errors had been made out. In this analysis we concentrate on the issue of the buffer.

Section 126 of the Act provides that:

(1)  A court cannot make an award of damages for future economic loss unless the claimant first satisfies the court that the assumptions about future earning capacity or other events on which the award is to be based accord with the claimant’s most likely future circumstances but for the injury

(2)   When a court determines the amount of any such award of damages it is required to adjust the amount of damages for future economic loss that would have been sustained on those assumptions by reference to the percentage possibility that the events concerned might have occurred but for the injury

(3) If the court makes an award for future economic loss, it is required to state the assumptions on which the award was based and the relevant percentage by which damages were adjusted.

In relation to whether the Assessor complied with his obligations under s126 of the Act and / or provided adequate reasons as to why he awarded the sum of $200,000 for future economic loss, his Honour referred to Penrith City Council v Parks [2004] NSWCA 201 and in particular the comments of Giles JA:

‘The occasion for a buffer is when the impact of the injury upon the economic benefit from exercising earning capacity after injury is difficult to determine.’

His Honour was taken to, but did not refer to more recent cases put forward in support of the insurer’s position, including the case of Insurance Australia Limited t/as NRMA Insurance v Hutton-Potts & Ors [2010] NSWSC 1446.

In that case, Justice Schmidt had said:

‘While it must be submitted that elaborate reasons were not required to be given for the conclusions reached by the assessor in relation to the assessment of Mr Hutton-Potts’ future economic loss, that did not relieve the assessor of the obligation of identifying the assumptions on which the damages award for future economic loss rested, which s126 requires. Reasons could be given concisely, but they had to be given.’

His Honour noted the Assessor in Kerr did identify a number of assumptions as follows:

  • But for the accident the claimant would have had continual work, albeit that from time to time she would have needed to change jobs and have time off work
  • The claimant’s neck injuries compromised her ability to work and deal with other issues in life, particularly depression
  • The claimant was employed in a job in which she no longer found satisfaction or enjoyment and that there seemed to be a real possibility that the job would soon be lost to her.

Hislop J accepted that the Assessor had adequately complied with the requirements of s126 on the basis that this was a case where economic loss was difficult to determine.

In making this finding, he placed some emphasis on the fact that the insurer had submitted to the Assessor that a buffer, albeit in a lesser sum, was appropriate. In fact, the insurer had, in its written submissions, contended there ought to be no allowance for future economic loss, but in the alternative submitted a small buffer was appropriate if the Assessor was determined to make any allowance at all.

The insurer subsequently sought leave to appeal the decision of the Primary Judge.

The appeal

The application for leave to appeal and the substantive appeal were heard by a bench comprised of Justices Basten, McColl and McFarlan on Tuesday, 31 January 2012.

The Court of Appeal delivered judgment on Thursday, 16 February 2012, granting the insurer leave to appeal, but unanimously dismissing the appeal. Again, we focus on the Court of Appeal’s approach to the question of awarding buffers for loss of earning capacity.

Basten, McColl and McFarlan, JJA agreed that the Assessor had set out the assumptions to the extent necessary when awarding a buffer in the s126 context. They held:

‘Once the minimum factual assumptions required by … s126 are stated, a decision-maker assessing damages for a future hypothetical scenario may bring an element of impression to bear on the assessment.’

Justice McFarlan accepted the factors that led the Assessor to award a buffer were apparent from the Reasons for Decision. He suggested that if the chosen figure represented an intuitive assessment of the claimant’s possible future loss, there was nothing more the Assessor was required to say.

However, his Honour suggested that the outcome may have been different if it could be established that the Assessor had arrived at the figure by a process of reasoning that was not disclosed, for example; allowing a notional sum for each year for the remainder of the claimant’s working life.

As to the adequacy of reasons provided in relation to the buffer for future economic loss, it had been submitted by the insurer that it was impossible to know why the Assessor chose an amount of $200,000, rather than $50,000, $100,000 or $300,000 and so on.

In dealing with this point, Basten JA observed that there did not appear to be any dispute that the chosen figure was within the appropriate range of damages that could be awarded. Accepting that, it was not necessary for the Assessor to provide some explanation as to why he had adopted a particular point in the range.

His Honour observed that whilst lengthy reasons occasionally provided greater assistance and understanding than brief reasons, the Assessor was not under any obligation to give lengthy reasons. Specifically, he stated [at 59]:

‘The obligation imposed by statute did not require him to explain why some particular amount was chosen as opposed to another.’

He distinguished the present case from previous decisions where the Court of Appeal had intervened and the amount chosen had been identified with little explanation as to how the figure was selected.

Of some comfort to insurers, McColl J stated [at 9]:

‘The foregoing should not be seen as a licence to award buffers indiscriminately. Where the evidence enables a more certain determination of the difference between the economic benefits the plaintiff derived from exercising earning capacity before injury and the economic benefit derived from exercising that capacity after injury, recourse should not ordinarily be had to the award of damages for future economic loss by way of a buffer. Each case must turn on its own facts.’

In a similar vein, his Honour Justice McFarlan stated [at 72]:

‘…(A)wards in respect of future economic loss should wherever possible result from evidence-based calculations or estimates that are exposed in the decision-maker’s reasons. The award of a buffer that is not supported by an explanation of how and why the amount was arrived at should remain a last resort where no alternative is available.’

Comments

The Court of Appeal has reiterated that assessment of a future hypothetical scenario may at some point involve an element of impression or intuition, and less will be expected of CARS Assessors in terms of articulation of reasoning than would be expected of a judge.

Section 126 will have been complied with so long as the minimum factual assumptions required by the section have been stated. In the present case, the Assessor set out a number of assumptions, and the Court of Appeal was satisfied that the buffer awarded appropriately reflected those assumptions.

Authored by Moray & Agnew. For further information please email: editor@moray.com.au


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