Written By: Aidan Vining and Keanin Parish, Student-at-Law
The Inflation Crisis
Canadians are no strangers to rampant inflation. At year-end 2021, inflation hit its highest level since 1991 – six months later, another record was set for the country’s highest inflation rate since 1983. Despite efforts by the Bank of Canada to rein in the economic crisis, recent evidence suggests that current inflation rates have worsened still.
The result has been hardship for consumers: increased prices for common goods like homes, groceries, or rent bills are some of the more obvious challenges. But inflation is pervasive. Its influence extends beyond the supermarket, gas station, and mortgage applications. Indeed, payouts from personal injury lawsuits have also come within its grasp.
How are Injured People Compensated?
The two main systems for securing compensation for motor vehicle collision victims are statutory accident benefits and the tort system. Statutory Accident Benefits are no-fault benefits included in all auto insurance policies in Ontario that kick-in right away. They help pay for expenses related to car collision injuries, such as health care costs not covered by OHIP, or income replacement to help individuals with cost-of-living expenses as they recover.
The tort system involves a lawsuit against the negligent party, or parties, who caused you or a loved one to suffer injuries. The tort law system is aimed at recovering compensation for damages that are not covered by the statutory accident benefits system.
The Impact of Inflation on Your Statutory Accident Benefits
The statutory benefit schedule has not been updated to match the costs associated with inflation. In fact, these benefits were reduced by government-instituted changes to the scheduling system in 2016. Before then, people with catastrophic injuries may have been entitled to up to $1 million in medical rehabilitation benefits from the insurance company and up to $1 million for attendant care. However, the changes reduced these benefits by half by combining medical, rehabilitation and attendant care benefits and limiting the combined amount to $1 million. This change heavily benefits insurance companies at the expense of victims.
To make matters worse, the $1 million available to victims who have suffered a catastrophic injury has not been adjusted to keep up with inflation. The result is that individuals with catastrophic injuries will not be able to afford and receive as much treatment as they previously could.
Income Replacement Benefits are another important component of statutory accident benefits that are impacted by inflation. This benefit compensates victims of injury who cannot work at all, or to the same extent that they could prior to injury, by providing a base level of income. This benefit is capped at $400 per week and does not increase with inflation. Some may claim that this figure is inadequate by itself, but if current inflationary trends continue, the buying power of that benefit will weaken even further.
The Impact of Inflation on the Tort System
When you commence a lawsuit against a negligent party or parties, the damages you are entitled to are either pecuniary or non-pecuniary.
Pecuniary damages are designed to compensate and put the injured person back in to the position they were in before the injury. These damages can be calculated and are measured in terms of money. One example is damages for loss of income. There is no cap on this type of loss.
On the other hand, non-pecuniary damages cannot be easily calculated. They provide compensation for an individual’s pain and suffering, loss of life expectancy, and are aimed at providing reasonable solace for a person’s hardship. In 1978, non-pecuniary losses were capped by the Supreme Court of Canada at $100,000. This figure is tied to inflation – as of June 2022, the upper limit was $435,000.
Every province has a minimum dollar amount for third-party liability coverage. For example, the minimum coverage in Ontario is $200,000. Most insurance companies provide for more than that, though; and generally, drivers purchase about $1 million in insurance. But therein lies the rub: if inflation has raised the limit of non-pecuniary damages to $435,000, that leaves $565,000 to support other elements of life that are necessary for supporting a dignified lifestyle for critically injured people. While the latter figure may seem like a lot, the amount of resources needed to meet the necessities of life after experiencing a serious injury can often be much greater.
Another area of tort law that is tied to inflation is the statutory deductible. Unfortunately, this mechanism is applied to the disadvantage of those who are injured. The Insurance Act provides that unless the non-pecuniary damages awarded are above a prescribed threshold, the award will be subjected to the deductible and be reduced by that amount.
As of January 2022, an award for non-pecuniary damages that is below the threshold of $138,343.86 will be subjected to the deductible and be reduced by $41,503.50. Another hike is set for January of 2023, and if inflation continues to climb it is reasonable to expect the deductible to climb in tandem
One way to address this situation is through government intervention to raise insurance minimum insurance limits. Patrick Brown, prominent personal injury lawyer and Principal Partner for McLeish Orlando Lawyers recently advocated for change and stated: “when you’ve got inflation increasing at the rates we’re seeing… you hope government would step in to raise the minimum third-party insurance limits, increase the cap on income replacement benefits, and restore medical rehabilitation/attendant care benefit cap back to the previous two million dollars.” Nevertheless, despite being crucial to the provision of adequate compensation for people with critical injuries, changes to policy are slow.
What we know for sure is that inflation takes its unfair share. If you or a loved one have suffered an injury, it is more crucial now than ever to ensure you receive competent legal advice to ensure you receive the compensation you are entitled to. At McLeish Orlando, our team of personal injury lawyers are dedicated to helping injured people navigate the legal system on their road to recovery. Contact our office for a free consultation to discuss your next steps.