Recent Researches in Ecnmics Mdel in Estimating Ecnmic Lss in Persnal Injury and Death Litigatin Haslifah Hashim Abstract In the United States, the human life value methd is ften used in curt cases invlving persnal injury and death litigatin, attempts t measure the cmpensatry ecnmic damages. Hever, there are sme weaknesses f using human life value in the calculatin. Currently in Malaysia, curts use the traditinal multiplicand-multiplier apprach when assessing the ecnmic lsses and damages. The bjective is t calculate a lump sum amunt t cmpensate the plaintiff fr future lss f earnings and t cver penses. I believe this is where actuarial scientists need t play a rle in develping a new scientific mdel in rder t acquire an apprpriate amunt f curt award, which is relevant and satisfy bth plaintiff and defendant. Therefre, the bjective f this research is t develp a scientific mdel using the human live value methd with few revisins that can be used as a guide t determine the amunt f curt award in persnal injury and death litigatin. References will be made t the apprpriate acts and curt cases, where applicable, thrughut this paper. Using the actuarial mdel, the research findings indicate that victims are being under cmpensated. The ecnmic damages that are awarded are insufficient t cver their lsses f future earnings. Legal refrm is necessary t address this issue. Keywrds Death litigatin, human life value, lss f dependency, lss f earnings, persnal injury. C I. INTRODUCTION OURT awards fr cmpensatry damages are intended t give victims a sum f mney in the frm f damages which will restre the individual, in financial terms, as nearly as pssible t the psitin they wuld have been in if the wrng had nt been cmmitted. The cmpensatin cmprises an award fr ecnmic lsses which ften referred t as mnetary lsses, include medical penses, wage lss, and ther ut-f-pcket penses; and nn-ecnmic lsses assciated with pain and suffering. In the United Kingdm, the use f actuaries r frensic ecnmists in calculating ecnmic damages in persnal injury and death litigatin is rare. In the past, judges have used their n cmmn law and cmmn sense standards fr calculating damages []. These standards usually cnsisted f multipliers that culd be applied t a plaintiff s incme r medical csts t estimate their ecnmic lss. These Manuscript received August 8,. This wrk was supprted by the Ministry f Higher Educatin (MOHE) under Fundamental Research Grant Scheme (FRGS) Grant N. RMI/SSP/FRGS 5/3/Fsp (4/) and Universiti Teknlgi MARA (UiTM). H. Haslifah is n with Universiti Teknlgi MARA, 445 Shah Alam, Selangr, Malaysia. (e-mail: haslifah@tmsk.uitm.edu.my). multipliers were derived frm past curt decisins and had little scientific basis. In an attempt t bring sme sund actuarial principles t the use f multipliers, the Gvernment Actuary's Department, United Kingdm (GAD) prduced a set f multipliers in year 984 named Actuarial Tables with Eplanatry Ntes fr Use in Persnal Injury and Fatal Accident Cases, als knn as the Ogden Table named after the first chairman f a multidisciplinary wrking party that develped the actuarial tables, Sir Michael Ogden. Judges in the United Kingdm were nt required t use the Ogden Tables in calculating damages until year 999, where in the case f Wells v Wells [999] AC 345, the Huse f Lrds apprved actuarial technique as the primary methd f calculating future ecnmic lsses and made it cmpulsry t utilise the Ogden Tables when assessing a settlement. The tables take int accunt life pectancy and prvide a range f discunt rates. The mst recent editin f the tables als sets ut a methd fr taking int accunt cntingencies ther than mrtality, including the assessment f a claimant s residual earning capacity after an accident. Currently in Malaysia, curts use the traditinal multiplicand-multiplier apprach when assessing the ecnmic lsses and damages as specified by the Civil Law Act 956 (CLA). Hever, there is still a marked reluctance n the part f Malaysian curts t accept actuarial assessment dealing with persnal injury and death litigatin cases, fr instance in the case f P.S. Lum v H.H. Lim [] 4 AMR 47. The questin ften asks, are these laws and their interpretatins and applicatins fair t the dependants whse breadwinner has been killed r the accident victim wh has been seriusly injured? T be fair in estimating ecnmic lss fr all persnal injury and death litigatin cases handle by jurisdictin and t satisfy bth plaintiff and defendant party accrding t the award calculatin, the bjective f this research is t develp a standard actuarial mdel that can be used as a guide t determine the amunt f curt award. The current methds that have been develped by frensic ecnmists generally take a cnservative and perhaps verly narr apprach t valuing life and husehld prductin especially in areas f wrngful injury and death. Researcher suggested that an accurate estimatin shuld cnsider factr as family prfile []. Therefre, in this research I used a family lifetime mdelling in rder t develp an ISBN: 978--684-6-9 57
Recent Researches in Ecnmics actuarial mdel in estimating ecnmic lss in persnal injury and death litigatin. Despite the smetimes scathing remarks made by the judiciary n the rle f actuaries in valuing persnal injury and death claims, I believe that the curts have in effect attempted t use actuarial practice in making their n assessment f damages. Actuaries d nt claim t predict the future but they d aim t place current values n future uncertain events, especially thse with a financial utcme, in a sund and scientific manner [3]. References will be made t the apprpriate acts, case law, curt cases, where applicable, thrughut this paper. A. General Mdel II. THE MODEL I develped a general mdel f the curt award as flls: T P SD) P( GD ( i CA L ) () where, CA = Curt award L = Percentage f assessing liability P = Prbability f persnal injury assessment fr special damages P = Prbability f persnal injury assessment fr general damages SD = Special damages (pre-trial ecnmic lsses) GD = General damages (nn-ecnmic lsses added t pst trial ecnmic lsses) i = Interest rate T = Years f curt trial B. Estimating Special Damages (SD) This research used a revisin methd f human life value that has been develped using a family lifetime mdelling [4]. T begin the family lifetime mdel frmulatin, I estimated the persn s ttal incme fr each year frm prjectin f his current salary ver the remaining years f his wrking lifetime and incme after retirement such as retirement benefits. I used a cnstant future salary increment rate at 6% per annum in the cmputatin. Let, = Current age I +t = Ttal incme fr at age +t e = Wrking life pectancy S +t = Current salary per mnth s = Cnstant future salary increment rate per annum EPF = The statutry minimum Emplyee Prvident Fund (EPF) cntributin rate (emplyee) EPF Savings = EPF savings n retirement t = Present value at time t The ttal incme fr the persn at age +t is, I S t s EPF t t Therefre, the present value f the incme is as flls, P I I I I... I EPF Savings t = I t t =,,, 3 t < e The prjectin f EPF savings is the accumulatin f future cntributins and therefre it invlves time value f mney. The summing f these accumulated future cntributins invlves the summing f a gemetric series. The cntributin rate fr the emplyer and emplyee are assumed at % and % respectively, thus k = 3%. The dividend rate is assumed at 5% per annum. Let, X = Salary per mnth at entry int EPF membership k = Ttal statutry minimum EPF cntributin rate s = Cnstant future salary increment rate per annum d = Cnstant future EPF dividend rate n = Number f cmpleted years in service The prjected EPF savings at the end f n years, Xk Xk Xk n s d s d n d *, if s d n s d s d n d *, if s d n d, if s d Nt, incme ta fr the persn is calculated fr each year until retirement age using the isting ta tables and rules prduced by the Inland Revenue Department in Malaysia. Let, = Current age T +t = Ttal ta payable at age +t e = Wrking life pectancy t = Present value at time t The present value f the ttal incme ta payable is, P T T T T... T = t T t t =,,, 3 t < e Then, I estimated the ttal amunt f husehld penditures, which are calculated using the data published by the Department f Statistics, Malaysia. Let, = Current age Since the EPF cntributin rates fr the emplyer were maintained at % since December 98, therefre I assumed the rate is % in this analysis. Fr the emplyee, the cntributin rates were between 9% t % since December 98, with the current rate at %. () (3) ISBN: 978--684-6-9 58
Recent Researches in Ecnmics HE +t = Ttal husehld penditure csts at age +t e = Life pectancy t = Present value at time t The present value f the ttal husehld penditures is P HE HE HE HE... E = t E t t =,,, 3 t < e Children s educatin csts are als included in the cmputatins. In additin, ther pst death needs such as funeral penses are als incrprated. Let, = Current age OE = Ttal f ther penses b i = Median age at birth fr the i child accrding t age f, where i =,, N e = Life pectancy t = Present value at time t Therefre, the present value f ther penses is as flls, P OE Educatin cst fr the first child b Educatin cst fr the secnd child th Educatin cst fr the n child bn Funeral penses fr the husband b b bn b (4)... (5) the defendant under special damage, the parties agreed t the sum f RM, fr funeral penses and the sum f RM45 fr the cst f repair t the mtrcycle. Fr the lss f dependency, the first, secnd and third plaintiffs are the father, mther and the sn f the deceased persn. The claim fr lss f dependency is made under the CLA. The deceased was 35 years ld at the time f his death. Based n sectin 7(3)(iv)(d) f the Act, the multiplier wrks ut as flls: 55 35 = / = * mnths = mnths. In all the circumstances f the case, taking int accunt the number f family member relying n the deceased persn, the judge decided a sum f RM6 per mnth t be given t the plaintiffs. Therefre, the ttal award fr the lss f dependency in respect f the first, secnd and third plaintiffs was *RM6 = RM7,. Hever, there are weaknesses f using the multiplier methd. Clearly, this methd is very simple and misses a range f imprtant factrs such as husehld demgraphics, penditures and scial security ffsets. It als ignres pected life changes and individual preferences abut sustaining the living standard f survivrs. I used the human life value revisin methd described abve t estimate the amunt fr lss f dependency. Firstly, I develped a family lifetime mdel fr this case study and estimate the present value f the net future incme f the deceased as shn in Table I. If the breadwinner is still alive, the mnetary value f himself wuld be RM9,44. Then, the present value f net future incme (special damages) fl fr the persn can be calculated by sum up (), (3), (4) and (5). I used the same mdel t estimate the lss f dependency r lss f future earnings. The incme and persnal ta f the breadwinner are assumed t be nil. Husehld penditures and ther penses like educatin csts and funeral penses are calculated fr each year until the dependents pected age f death, r until the children leave tertiary educatin at the age f. III. CASE STUDIES A. Mhamed Mat Amin & ORS v Mhd Rabu Ihsan [] 5 CLJ Accrding t the curt case f Mhamed Mat Amin & ORS v Mhd Rabu Ihsan (8 July ), n 8 December 99, Mhd Nr Mhamed (the first deceased) was riding mtrcycle and Nr Hasisan Mhd Nr (the secnd deceased) was riding anther mtrcycle, an accident ccurred in which bth f them died. The plaintiffs wanted t claim their lss f dependency and special damage arising ut f the rad accident. In the circumstances, the judge fund that the defendant whlly t be blamed fr the accident. In respect f the first deceased persn, the flling damages are paid by Lss f dependency claims brught by spuse, children and parents f (5) the deceased ften arise due t the death f victims in accidents under Sectin 7(), () & (3) f CLA Incme Husehld Other TABLE I Age f Age f Plaintiffs Incme Ta Ependitures Epenses Present Deceased CASE Father STUDY Mther : PRESENT Sn ALUE (I) OF NET (T) FUTURE (ME) INCOME OF (OE) THE DECEASED Surplus alue 35 64 66 6,8. 65.,53. 5,48.88 5,48.88 36 65 67 7,88. 95.4,59.7 6,.5 5,943.73 37 66 68 3 8,876.4 7.9 8,938.44 6,8.75 6,49.79 38 67 69 4,9. 6.7 7,96.59 7,55. 6,9.43 39 68 7 5,9.6 97.9,665.49 8,346.84 7,46.6 4 69 7 6,48. 35.47 9 3,45.45 9,.7 7,937. 4 7 7 7 3,83. 75.93,8.3 3,436.8 7 8,473.98 4 7 73 8 5,6.9 38.83 37,56.33 4 9 43 7 74 9 6,776.6 9.3 7,99.9 Nte:. The pected age f death fr a male aged 64 is 79. 5. The pected age f death 34.5 fr a female aged 66 is 8. 3. Dependants include 5 children up t years ld. 39.59 4. Children educatin 4 cst. 5. Funeral penses 8,94.7 44 73 75 8,383. 45 74 76 3 3,86. 46 75 77 3,89.4 The death f the breadwinner 54.74 usually 9,47.9 terminates an incme stream that the family has relied upn. The csts f daily 7,69. living 88.34 5,455.36 fr survivrs and pst death penses are needed t leave the 9,3.3 9,4.8 family in their current standard f living. 5,99. Thus, I estimated the husehld penditures fr the surviving families. There are 9,73.8 3,48. als ther needs that arise flling 5,989.8 the 7,56.95 death 5 f the breadwinner, fr instance 8,333.3 husehld debts and funeral 3,36.9 5 7,789.84 penses. Using the human life value revisin methd, the pected amunt fr lss f dependency is RM,85 as shn in Table II. 47 76 78 33,84.9 48 77 79 35,833. 49 78 8 37,983. 5 79 4,6. - 9,864. 7-4,8. 7,88.89 8,665.45 6,84.59 8,353.46 9,689.9 7,46.3,79.5 9 8,9.,974.4 9 8,58.7,5.84 5,863.75 3 8,764.59 9 9,986.93 9,44.9 6 ISBN: 978--684-6-9 59
Recent Researches in Ecnmics TABLE II CASE STUDY : THE EXPECTED AMOUNT FOR LOSS OF DEPENDENCY Finally, the curt award is then estimated using (). I assumed the liability is % fr the death accident as in this case study. CA L P SD) P( GD ( i) T = % [% (cst f mtrcycle repair + funeral penses) +% (lss f dependency)] (.3) 9 = RM9,66 The result calculated using the human life value revisin methd in this case study is much mre higher cmpared t the amunt f RM74,45 that has been awarded by the curt. This is because I cnsidered ther imprtant factrs int the cmputatin fr lss f dependency, fr instance the pected salary increment, funeral penses and cst f educatin fr children. B. Azman Kasri & Anr v Md. Isa Endut & Gvernment f Malaysia [988] CLJ Azman, the first plaintiff was kncked dn frm the rear by a military truck driven by the first defendant n February 98 while cycling. Injuries are briefly described as crush injury f left leg, si-inch laceratin wund vertical psing the ler end f left femur and upper end f left tibia and fibula, dislcatin f left knee with separatin, and lateral ppliteal nerve partially trn near neck f left fibula. Left leg was subsequently amputated abve the knee. The secnd plaintiff is the mther f the victim, which has been awarded transprtatin penses t visit the first plaintiff amunting RM,7 and penses t buy nurishing fds fr the first plaintiff fr RM. In this case study, I nly estimated the curt award fr the first plaintiff. The judge estimated that if nt fr the first plaintiff s amputated left leg, at the age f, he wuld be able t wrk as a rubber tapper r welder in an estate and earn abut RM4 per mnth. The first schedule f the Wrkmen s Cmpensatin Ordinance 95 states that the lss f earning capacity f a wrker fr lss f a leg abve the knees wuld be 6%. The judgement cnsidered that the first plaintiff s lss f earning capacity t be 6% f RM4 which is RM4 per mnth. Thus, it give a multiplier f 4 years (55 = 35* /3), and lss f future earnings f RM39,74. Other awards are general and special damages. General damages fr the first plaintiff are pain and suffering due t the nature f injuries t his left leg prir t amputatin f the left leg fr the amunt f RM,; amputatin f left leg abve the knee amunting RM45,; skin grafting and resultant scar fr RM,. An interest at 6% per annum n general damages frm date f accident t date f judgment was als awarded fr the ttal sum f RM 7,48. Special damages fr the first plaintiff include cst fr fitting artificial limb amunting RM33,6; cst fr future renewal f cnsumptive items fr the amunt f RM,64 and travelling penses fr servicing f artificial limb (3 trips per year at RM per trip fr 35 years) fr RM,5. In ttal, the amunt f curt award fr the first plaintiff that had been awarded was RM34,96. N, I used the human life value revisin methd t estimate the amunt fr lss f future earnings. Firstly, I develped a family lifetime mdel fr this case study and estimated the present value f net future incme f the deceased as shn in Table III. If the plaintiff s left leg is nt amputated, he wuld be able t wrk and the mnetary value f himself is estimated at RM96,479. TABLE III CASE STUDY : PRESENT ALUE OF NET FUTURE INCOME OF THE ICTIM Since the plaintiff had becme permanently disabled as his left leg amputated abve the knee, he wuld nt be able t wrk. It is pected that the amunt fr lss f the plaintiff s future earnings is RM84,953 as shn in Table I. ISBN: 978--684-6-9 6
Recent Researches in Ecnmics TABLE I CASE STUDY : THE EXPECTED AMOUNT FOR LOSS OF FUTURE EARNING Finally, a curt award is then calculated. I assumed the liability is % as the plaintiff had becme ttally and permanently disabled. As fr the lss f future earnings, I flled the first schedule f the Wrkmen s Cmpensatin Ordinance 95, which states that the lss f earning capacity f a wrker fr lss f a leg abve the knees wuld be 6%. C. Case Study 3: Zulkifli Ayb v elasini K. Mathavan & Anr [] CLJ In the High Curt Malaya, Kuala Terengganu (3 Nvember 999), the appellant was the defendant in a negligence suit brught by the plaintiffs against him. The first respndent s claim was brught pursuant t sectin 7 f the CLA fr the benefit f the dependants f the deceased, Mathavan Kunjap. This accident happened n August 984. The car driven by the secnd respndent with the deceased as a passenger was invlved in a rad cllisin with the car driven by the appellant resulting in the injuries t the respndents and the passenger succumbed t his injuries and died later in the hspital. At the time f his death, the deceased was 36 years ld. He was an independent cntractr wrking with Petrliam Nasinal Berhad (Petrnas) earning a mnthly incme f abut RM3,. The appellant being dissatisfied with the quantum awarded, filed an appeal. At the hearing f the appeal, the appellant limited his appeal nly t the quantum awarded in respect f lss f supprt. It is cntended fr the appellant that the amunt awarded was manifestly cessive fr the reasn that the judge based his assessment n a higher number f multiplier. By an rder f June 996, the sessin s judge decided that the lss f dependency was at RM,5 per mnth. As the deceased died at the age f 36 years, the number f multiplier was decided t be 5 years. In the circumstances, the lss f dependency is RM7, based n the frmula f RM,5 per mnth * mnths * 5 years. N reasn at all was given by the judge as t h he arrived at RM,5 per mnth as the mnthly lss f dependency and as t h he arrived at the figure f 5 years as the multiplier. The cunsel fr the appellant submitted that the multiplier shuld be 3 years instead. He based his argument n the curt case f Ahmad Nrdin & Anr v Ngak Hua & ORS [985] MLJ 43. In that case, the judge decided n a multiplier f 5 years in respect f the deceased wh died at the age f 4 years. This was based n the prbable retiring age f 65 years. The supreme curt was f the view that the retiring age shuld be fied at 55 and as the deceased was 4 at the time f his death and deducting 3 years fr cntingencies that wuld leave 8 years f multiplier. The appellate curt agreed that based n the principle laid dn in Ahmad Nrdin & Anr v Ngak Hua & ORS [985] MLJ 43, the determinatin that the multiplier in this case wuld be 3. Cnsequently, the curt awarded RM34, fr the lss f supprt. Other awards are pre-trial lss f supprt amunting RM,5; funeral penses fr RM3, and interest at the rate f 4% per annum in respect f lss f supprt fr the amunt f RM8,46, adding t the ttal verall curt award f RM456,96. As I calculated in case study and, the same mdel and methd applied in this case study. I develped a family lifetime mdel fr this case study and estimated the present value f net future incme f the deceased as shn in Table. If the breadwinner is still alive, the mnetary value f himself wuld be RM37,69. TABLE CASE STUDY 3: PRESENT ALUE OF NET FUTURE INCOME OF THE DECEASED ISBN: 978--684-6-9 6
Recent Researches in Ecnmics Nt, I estimated the lss f supprt using the human life value revisin methd. I ignred scial security s benefit (SOCSO) fr the reasn that under the Emplyees Scial Security Act 969 and the Emplyees Scial Security (General) Regulatins 97, an emplyee earning a mnthly incme f RM, r abve is nt bligatry cntribute t SOCSO. Table I shs the cmputatins, and it is pected that the amunt fr lss f the plaintiff s future earnings is RM59,976. As an emplyee f Petrnas, the deceased cntributed a percentage f his salary int EPF. Thus, the amunt f RM59,976.5 is then subtracted frm the prjected EPF savings, which culd be withdrawn by the ntf-kin in the event f death f the breadwinner. I als assumed the deceased entered int labur frce when he was at the age f, therefre n = 4. TABLE I CASE STUDY 3: THE EXPECTED AMOUNT FOR LOSS OF SUPPORT The prjected EPF savings is n s n d Xk d * s d, if s d = RM,898 Therefre, the estimated amunt fr lss f future earnings after subtracting EPF savings is RM47,77. Nt, a curt award is then calculated. I assumed the liability is % fr the death accident as in this case study. CA L P SD P ( GD ( i) T ) =% [% (funeral penses) + % (lss f future earning)] (.3) 5 = RM654,466 Using the human life value revisin methd, the pected amunt fr the curt award is RM654,466, which is much higher than what had been awarded by the curt. I. CONCLUSION When assessing ecnmic lss in persnal injury and death litigatin, curts ften use traditinal multiplicand-multiplier methd. The bjective is t calculate a lump sum amunt t cmpensate the plaintiff fr a stream f future lst earnings. Mst judges select the multipliers by reference t past curt decisins and had little scientific basis. Within the legal prfessin, there has been cncern that there is t much uncertainty invlved in calculating the multiplier. It has been described as an arbitrary prcess, in which the multiplier is nt calculated in a precise r lgical manner [5]. In particular, the multiplier takes virtually n accunt f the factrs that influence the way an individual s earnings change ver time. In persnal injury and death litigatin, the bject f valuatin is the value f a life. This research has develped a scientific mdel using the human live value methd with few revisins that can be used as a guide t determine the amunt f curt award in persnal injury and death litigatin, which fcuses nly n the ecnmic lsses in special and general damages, particularly n the lss f future earning capacity and the dependency claim. Nn-ecnmic lsses are ignred in the mdel. Nn-ecnmic lsses are awarded with respect t the pain and suffering endured and be awarded by judges based n previus curt cases. T cmpute ecnmic lsses, it is necessary t take int cnsideratin factrs affecting the mnetary value f a human life such as salary increment, scial security, taes, husehld penditures, funeral penses, children educatin csts, inflatin, retirement age and life pectancy. As such, a lifetime mdel f the plaintiff need t be cnstructed frm which t begin prjectins f ecnmic value lst in future years. The human life value revisin methd is then applied t the mdel. In the applicatin f the human life value revisin methd, I cmpute the pected amunt fr lss f dependency in the event f death f the breadwinner, r the estimated amunt fr lss f future earnings in the event f persnal injury. Finally, using a general mdel frmulatin, a curt award is then calculated. This amunt culd be a guide t determine the apprpriate amunt f curt award in persnal injury and death litigatin. REFERENCES [] J. Ward, Ecnmic Damages in Persnal Injury and Death in the UK and Ireland: A Cmparisn with Damages Assessment in the United States and Canada, presented at the Allied Scial Science Assciatins Cnference, Philadelphia, Pennsylvania, January 7-9, 5. [] C.C. Fischer, The aluatin f Husehld Prductin: Divrce, Wrngful Injury and Death Litigatin, American Jurnal f Ecnmics and Scilgy, vl. 53, pp. 87, 994. [3] A.C. Martin, J.W. Beardmre, A.P. Gallp, P.G. Kennedy, J.L. McKenzie, R. Owen, C.C. Patel, C.T. Pettengell and P.W. Wright, Damages: Persnal Injury Awards, presented at a Seminar f Institute f Actuaries, Lndn, December 9, 997. [4] H. Haslifah, The Revisin Methd f Human Life alue and Needs Analysis, Ph.D dissertatin, Schl f Finance, Actuarial Science and Applied Statistics, Australian Natinal University, Canberra, 8. [5] R. Lewis, R. McNabb, H. Rbinsn and. Wass, Lss f Earnings Flling Persnal Injury: D the Curts Adequately Cmpensate Injured Parties?, Ecnmic Jurnal, vl. 3, pp. 568 584, 3. ISBN: 978--684-6-9 6