Tort Threshold and Deductible

Study guide: Exam 6C

A tort threshold and deductible are the two devices that restrict access to bodily injury lawsuits in a partial no-fault auto system. The threshold is a qualitative or quantitative test an injury must meet before a claim for pain and suffering may be brought; the deductible is a fixed amount subtracted from any non-pecuniary award that does get through.

$\text{Award paid} = \max\bigl(0,\; \text{Assessed damages} - \text{Deductible}\bigr)$

Verbal (qualitative) threshold — the injury must be a "permanent serious impairment of an important physical, mental or psychological function," or death. Ontario's approach. It is judged case by case, which makes it flexible and litigated.
Monetary (quantitative) threshold — damages must exceed a stated dollar amount. Simpler to administer but crude, and it invites damage estimates to cluster just above the line.
The deductible operates on top: even a claim that clears the threshold has a substantial amount (in Ontario, tens of thousands of dollars, indexed annually) removed from the non-pecuniary award. Because the deductible applies per claim, it eliminates the economics of small claims entirely.
Effect on the severity distribution: the threshold truncates the small claims out of the tort layer, and the deductible shifts what remains downward. The observed average tort award therefore rises after a threshold is introduced, even though total cost falls — a statistic routinely misread as evidence that the reform failed.
Erosion is the standard pattern. A verbal threshold is defined by the courts over time, and each decision that admits a category of injury widens it; a fixed-dollar deductible loses bite to inflation unless indexed. Both are why savings estimated at enactment decline.
The deductible is typically not disclosed to the jury in Ontario, which produces the recurring problem of awards assessed just below the deductible and therefore paid at zero after years of litigation.

Threshold Plus Deductible Four claimants sue for pain and suffering. The verbal threshold requires permanent serious impairment; the deductible is $\$45{,}000$ .

A: soft-tissue injury, recovered in four months, assessed at $\$18{,}000$ .

B: permanent back injury, assessed at $\$40{,}000$ .

C: permanent back injury, assessed at $\$120{,}000$ .

D: catastrophic injuries, assessed at $\$350{,}000$ .

What is paid, and what does it show?

Answer

A: $\$0$ . Fails the threshold — not permanent, not serious. The claim never reaches the deductible question.

B: $\$0$ . Clears the threshold, but $\$40{,}000 - \$45{,}000 < 0$ . The claimant litigated for years, won, and recovers nothing on this head.

C: $\$75{,}000$ , being $\$120{,}000 - \$45{,}000$ — a $38\%$ reduction.

D: $\$305{,}000$ , being $\$350{,}000 - \$45{,}000$ — a $13\%$ reduction.

Total paid is $\$380{,}000$ against $\$528{,}000$ assessed: a $28\%$ saving.

Two structural facts fall out of this. First, the deductible is regressive within the tort layer — it takes $100\%$ from B, $38\%$ from C and $13\%$ from D, so the burden falls hardest on the moderately injured. Second, the average paid award rises: before the reform the mean was $\$132{,}000$ ; after, among the two claims that pay, it is $\$190{,}000$ . Anyone citing rising average awards as proof the reform failed has confused a truncation effect with a cost increase.