Tort Litigation

Study guides: Exam 5, Exam 6C, Exam 6U

Tort Litigation is the civil action by which an injured person recovers damages from the person whose negligence caused the injury. It is the compensation mechanism that liability insurance responds to, and its cost, duration and unpredictability are the reason Canadian provinces have progressively replaced parts of it with no-fault benefits.

\text{Damages} = \underbrace{\text{Pecuniary}}_{\text{income, care, cost}} + \underbrace{\text{Non-pecuniary}}_{\text{pain and suffering}}

• What must be proved: a duty of care, breach of the standard of care, causation, and damages. Failure on any element defeats the claim entirely, which is why liability is contested rather than conceded.
• Contributory negligence apportions the loss: a plaintiff 30\% responsible for their own injury recovers 70\% of assessed damages. Canada uses apportionment rather than the old bar to recovery.
• The non-pecuniary cap. Since the Supreme Court's 1978 trilogy, Canadian awards for pain and suffering are capped at an inflation-indexed ceiling (roughly \$100{,}000 in 1978 dollars). This is the structural reason Canadian bodily injury severities are far below American ones, and candidates should cite it whenever asked to compare the two systems.
• Costs follow the event in Canada: the losing party generally pays a portion of the winner's legal costs. This discourages weak claims and weak defences alike, and is another significant difference from the American rule.
• Actuarial consequences: tort claims are long-tailed (years from accident to resolution), severity-driven, and sensitive to judicial trend, so they carry the largest reserve uncertainty in a P&C book. Development patterns depend on court backlogs, limitation periods and settlement practice as much as on injury severity.
• Tort damages are reduced by Collateral Benefits already received, and future losses are converted to present value using court-prescribed or evidence-based discount rates.

Building a Bodily Injury Award A plaintiff aged 40, earning \$70{,}000 per year, is permanently unable to work after a collision. The court assesses 25 years of future income loss, \$300{,}000 of future care, and \$180{,}000 for pain and suffering. The plaintiff is found 20\% contributorily negligent. Accident benefits of \$95{,}000 have been paid for income replacement. Assume future losses are discounted at 2\% net of wage inflation.

Compute the award.

Answer Future income loss, as an annuity-due-style present value at a net rate of 2\% over 25 years:

\begin{align*}
\text{PV} &= \$70{,}000 \times \frac{1 - 1.02^{-25}}{0.02} \\
&= \$70{,}000 \times 19.523 \\
&= \$1{,}366{,}610
\end{align*}

Gross damages:

\begin{align*}
\text{Total} &= \$1{,}366{,}610 + \$300{,}000 + \$180{,}000 \\
&= \$1{,}846{,}610
\end{align*}

Contributory negligence of 20\%:

0.80 \times \$1{,}846{,}610 = \$1{,}477{,}288

Less collateral benefits already paid for the same head of loss:

\$1{,}477{,}288 - \$95{,}000 = \$1{,}382{,}288

Observe where the money is: 74\% of the award is future income loss, a discounted annuity. That is why the prescribed discount rate is one of the most consequential numbers in the Canadian tort system, and why a 1\% change in it moves liability reserves far more than a change in claim frequency does.