N.S. Appeal Court Confirms Future Wage Loss Calculated on Gross Basis in MacDonald v. MacVicar

On November 20, 2019, the Nova Scotia Court of Appeal confirmed pursuant to section 113BA(1) of Nova Scotia’s Insurance Act, in the context of a motor vehicle accident, awards for future income loss and future loss of earning capacity will be calculated on a gross – and not a net – basis. In MacDonald v. MacVicar, the Court also upheld the trial court’s findings in a number of additional areas important to insurers, including negligence against the defendant, causation for the plaintiff’s injuries, the plaintiff’s credibility, the plaintiff’s efforts to mitigate her damages, use of actuarial expert evidence, and costs. On the specific issue of the calculation of future income loss or loss of earning capacity, however, the overall message from the Court is that future income loss or future loss of earning capacity are to be calculated on a gross basis. The trial court’s award for gross future income loss of $335,514 (before reduction for negative contingencies) therefore remains in place. Accordingly, in the case of motor vehicle accidents, insurers should reserve future financial awards on the plaintiff’s gross income before statutory deductions. This result will certainly resonate for the foreseeable future.

The Trial Decision. Ms. MacDonald was a registered nurse. On September 4, 2012, she was a passenger in a vehicle in Glace Bay, N.S. when it was hit from behind. Ms. MacDonald claimed she suffered injuries and a total disability as a result of the accident. At trial, Ms. MacDonald successfully argued she was unable to return to her employment as a nurse. The N.S. Supreme Court awarded her damages for future loss of income without any residual earning capacity. The court stated section 113BA(1) of the Insurance Act “should not be construed as interfering with a plaintiff’s common law right to damages for future income loss based on a gross before-tax earnings without clear and unambiguous language”. The court found section 113BA(1) was clear that damages for income loss are calculated on a net basis for losses incurred before the trial, but on a gross basis post-trial for future income losses.

The Appeal Decision. The insurer argued the trial court erred in its interpretation of section 113BA(1) of the N.S. Insurance Act and the Insurance Tort Recovery Limitation Regulations. The insurer argued the Regulations define the meaning of “net” income loss and loss of earning capacity to capture future losses as well as losses incurred up to the time of trial. The Court of Appeal, however, disagreed and upheld the trial court’s finding, stating (at paragraph 80):

“The wording of s. 113BA(1)(a) and (b) is clear. Income loss suffered during the period before the trial of the action, whether it be loss of earnings or loss of earnings capacity, is to be calculated on a net basis.  There is nothing in the section that would oust the common law right to damages for future lost income based on gross before tax earnings.  As indicated by the trial judge, that would require clear language…“

Additional Implications. In addition to the result, the Court’s decision holds implications for future cases.

• Conflict Between Act & Regulations. The Court found there is no conflict between section 113BA(1) of the Act and the Regulations, concluding the “terms ‘net loss of earning capacity’ and “net income loss” refer to the scope of the particular head of damage and do not expand the language of the statute; rather they simply define the damages which are recoverable. The time period when these heads of damages are to be calculated is found in the clear language of the legislation and not within the Regulations.” However, the timing of when an award is calculated is not the cause of the confusion that section 113BA(1) of the Act and the Regulations (supposedly intended to supplement section 113BA(1)) creates. It is the categorization of the award as before the trial (past income loss/past loss of earning capacity) or after the trial (future income loss/future loss of earning capacity) when read in conjunction with the wording of the Regulations that is the cause of the confusion. The Regulations define “net loss of earning capacity” with reference to future losses. The inference to be drawn from the reference to future losses is that the Regulations intended to read future losses into section 113BA(1), in spite of section 113BA(1) itself being silent on future losses. Herein lies the conflict the trial court identified. The Appeal Court’s message seems to be that for the two to co-exist, one must essentially ignore the Regulations’ reference to future awards and defer to the Act.
• Section 113BA(1) v. 113A. The Court distinguished Holland v. Sparks, stating that while similar, section 113BA(1) (in MacVicar) and section 113A (in Sparks) were ultimately based in different contexts and use different language. The Court’s comments on these two seemingly related but distinctive provisions of the Insurance Act help clarify some of the confusion that has arisen around the calculation of income and financial losses in cases involving motor vehicle accidents.
• Insurance Premiums. What about the goal of reducing insurance premiums as outlined in both Holland v. Sparks and in Tibbets v. Murphy? The Court stated that “[a]dmittedly, the interpretation that future loss of income and earning capacity be determined on a gross basis does not advance the goal of the legislation to reduce damage awards to the extent that calculating both these heads of damages on a net basis would. However, the segmenting of the heads of damages on a net basis before the trial and gross basis after, would still reduce damage awards paid by insurers…”.

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