IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20110224

Docket: M51317

Registry:
Nanaimo

Between:

Ronald Kirk

Plaintiff

And

Jessica Dawn
Kloosterman

Defendant

Before:
The Honourable Mr. Justice Crawford

Reasons for Judgment

Introduction

[1]            
On September 25, 2009, after a four-week trial, a jury handed down its
decision regarding the liability and damages claims of the plaintiff, Ronald
Kirk, arising from a motor vehicle collision that occurred on September 3, 2006.
The jury apportioned liability 85% against the defendant, Jessica Kloosterman,
and 15% against the plaintiff.

[2]            
The injuries sustained by Mr. Kirk were catastrophic and tragic.
The initial injuries sustained in the motor vehicle collision paralyzed Mr. Kirk
from near his waistline down. Even more tragically and quite unusually,
infection entered the pristine channel of his spinal cord while he was in the
hospital and literally chewed up a further portion of the spinal cord so that
he has lost a great deal of his thoracic capacity and now his arms and
shoulders must bear his weight and provide all his strength.

[3]            
The jury awarded Mr. Kirk damages (subject to the 15% deduction) as
follows:

a)    non-pecuniary
damages: $327,100

b)    special damages:
$120,600

c)     past
income loss for:

2006:            $15,000

2007:            $48,000

2008:            $50,300

2009: $34,400

$147,700, subject to application of ss. 25,
52 and 54 of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996,
c. 231 [I(MV)A]

d)    future loss of
income: $1,240,400, subject to application of s. 25 of the I(MV)A

e)    cost of future
care: $2,000,000, subject to application of s. 25 of the I(MV)A

f)      in-trust
claim for Rachel Kirk: $200,000

g)   
court order interest on special damages:          $5,763.59

[4]            
On June 28 and 29, 2010, the parties tendered evidence and argued the
following remaining post-verdict issues
to be resolved by the trial judge alone:

1)    Part 7 deduction
from future loss of income and cost of future care awards;

2)    whether or not
the whole or a portion of the award should be subject to a structure pursuant
to s. 55 of the I(MV)A;

3)    management fees
and investment counselling; and

4)    tax gross-up.

[5]            
With respect to the award of past income loss, which is subject to
deduction as provided in ss. 25, 52 and 54 of the I(MV)A, the
parties agreed on the net award of past income loss being $105,712.02.

[6]            
Counsel did not speak to costs and disbursements.

ISSUE 1: Part 7 Deduction

Applicability

[7]            
At the time of the collision, Mr. Kirk was driving a motorcycle on
a highway. Although he had obtained his learner’s licence, he failed to apply
for his full licence at the end of the probation period. Thus, he was an ‘unlicensed’
driver.

[8]            
The defendant’s insurer, at the outset, denied Mr. Kirk no-fault
benefits either for wage loss or medical care on the basis that he was in breach of s. 55(3) (a) of Revised Regulation (1984) under
the Insurance (Motor Vehicle) Act, B.C. Reg. 447/83 [the I(MV)A
Regulation], which specified that “An insured shall not operate a
vehicle for which coverage is provided under … Part … 7 … if the insured
is not authorized and qualified by law to operate the vehicle …”.

[9]            
Mr. Kirk argued that as he was never “entitled” to Part 7
benefits, the deduction provisions of the I(MV)A did not apply. Section 25 of the I(MV)A, which was in effect at the time of
the collision, specified as follows:

(1)  In this section and in section 26,
"benefits" means a payment that is or may be made in respect of
bodily injury or death under a plan established under this Act,
other than a payment pursuant to a contract of third party liability insurance
or an obligation under a plan of third party liability insurance, and
includes accident insurance benefits similar to those described in Part 6
of the Insurance Act that are provided under a contract or plan of
automobile insurance wherever issued or in effect.

(2)  A person who has a claim for damages
and who receives or is entitled to receive benefits respecting the claim is
based, is deemed to have released the claim to the extent of the benefits.

(3)  Nothing in this section precludes the corporation
from demanding from the claimant, as a condition precedent to payment, a
release to the extent of the payment.

(4)  In an action in respect of bodily
injury or death caused by a motor vehicle or trailer or its use or operation, the
amount of benefits paid, or to which the claimant is or would have been
entitled, must not be referred to or disclosed to the court or jury until
the court has assessed the award of damages.

(5) After assessing the award of damages
under subsection (4), the amount of benefits referred to in that subsection
must be disclosed to the court, and taken into account, or, if the
amount of benefits has not been ascertained, the court must estimate it and
take the estimate into account, and the person is entitled to enter judgment
for the balance only.

(6)  If, for the purpose of this section or
section 26, it is necessary to estimate the value of future payments that the
corporation or other insurer is authorized or required to make under the plan
or a contract, the value must be estimated according to the value on the date
of the estimate of a deferred benefit, calculated for the period for which the
future payments are authorized or required to be made.

[Emphases added]

[10]        
Ms. Kloosterman says the law is clear and settled: if the plaintiff
acts so as to disentitle himself, then the Court must calculate and apply the
deduction. She argues that Mr. Kirk would have been entitled
to benefits under Part 7, had he possessed a valid driver’s licence.

[11]        
It is plain that the legislative intention is to prevent double
recovery, that is, to prevent a plaintiff from recovering the same amount of
monies both by way of the defendant through a tort action and by way of no-fault
insurance coverage. Given the legislative intention, it seems harsh and even
punitive to not only deny a plaintiff, who has been found substantially not at
fault in a motor vehicle collision and awarded damages for losses sustained,
no-fault benefits but also to deduct the amount of his or her potential
entitlement to Part 7 from the tort award. However, the case law is binding on
me, and can only be construed differently by the Court of Appeal:  see Baart
v. Kumar (1985), 66 B.C.L.R. 1 (C.A.); Si v. Enns,
2001 BCSC 1120.

[12]        
Accordingly, I accept the defendant’s submissions on this issue and find
that there must be a deduction.

Amount of
Deduction

[13]        
Mr. Carson and Mr. Gosling calculated the effect of deducting
the Part 7 benefits from the jury awards for future loss of income and cost
of future care. On the issue of future loss of income, the two experts are
within a few dollars of each other, and as such I set the net future loss of income
at $1,011,150. On the issue of cost of future care, again I find there is a
close equivalency in the range of figures provided by the two experts, and as
such I set the net amount for cost of future care at $1,569,550.

ISSUE 2: Structuring the Award

[14]        
Section 55(1) of the I(MV)A provides as follows:

The court must order that an award for pecuniary damages in a
motor vehicle action be paid periodically, on the terms the court considers
just,

(a) if the award for pecuniary damages is, after section 25
has been applied, at least $100 000 and the court considers it to be in the
best interests of the plaintiff, or

(b) if

(i)  the plaintiff requests that an
amount be included in the award to compensate for income tax payable on income
from investment of the award, and

(ii)  the court considers that the order, that the award be
paid periodically, is not contrary to the best interests of the plaintiff.

[15]        
Mr. Kirk does seek a gross-up to offset the effect of taxation on
the return from investing the award.

[16]        
Ms. Kloosterman proposed that Mr. Kirk’s award for future loss
of income in the amount of $1,011,150 be paid periodically. She does not
propose a structure for the cost of future care award.

Defendant’s
Proposal

[17]        
Counsel for Ms. Kloosterman tendered a structured settlement
proposal from Mr. Steel, an advisor, in a letter dated June 10, 2010. The
letter assumed funding April 22, 2010 and commencing May 22, 2010. It provided
a life contingent term certain annuity for 31 years and four months to age 65,
paying $5,005.60 per month, while Mr. Kirk is alive, indexed at 2.5% per
annum compounded annually. Alternatively, it provided a life contingent term
certain annuity for 36 years and four months to age 70, paying $4,634.30 per
month on similar terms was proposed.

[18]        
In Mr. Steel’s letter, the advantages of a structured settlement
were put forward, namely, (1) the plaintiff gets the monthly payments tax free;
(2) the contract is non-assignable and thus provides protection from creditors
and matrimonial breakdown; and (3) the monies are paid by a life insurance
company and guaranteed by ICBC.

[19]        
Further opinion from Mr. Gosling dated May 14, 2010 provided that
the lifetime payments would be “nearly as much” as the monies obtained from
investment.

[20]        
Counsel for Ms. Kloosterman argued there were concerns,
particularly given Mrs. Kirk’s evidence as to the demands her husband’s
injury had placed on her and on the strength of her marriage. As well, the
downturn in the world economy was noted as a significant risk in investing the awards.

[21]        
It was also noted that Mr. Kirk’s ongoing shoulder problems, which
may or may not be remedied by surgery, would put an additional ongoing demand
on Mrs. Kirk. Further, it was suggested that Mr. Kirk’s behaviour
prior to the collision was impulsive and thus the security offered by periodic
payments would be in his best interests.

Plaintiff’s
Response

[22]        
The submissions from counsel for Mr. Kirk began with the
observation that Mrs. Kirk demonstrated strength of character and
reliability in her evidence to the Court. Mr. Kirk says that Mrs. Kirk
is a good wife and that their marriage is sound.

[23]        
The Kirks do not plan to dissipate the funds and indeed they seek
management fees for investment advice. Mrs. Kirk made it clear that she
needed assistance, and therefore management fees, to sensibly manage the
awards.

[24]        
The evidence on historical rates of return is such that there is a
reasonable expectation that private investment of the award will exceed the
annuity fee proposal.

[25]        
While there may be concerns regarding market volatility on the
investment funds, counsel for Mr. Kirk noted that the long-term view
should also be taken into account. Inflation was not considered in the proposed
structure, but rather a factor of 2.5% was inserted. Nor was a guarantee given.
As well, Mr. Kirk was given an increased age rating to effectively “close
the gap” between the proposed structure and the potential return on investment
of the award, assisted by management fees and anticipated taxes.

[26]        
It was noted that the jury did not reduce the award for potential loss
of life expectancy below that argued for by Mr. Kirk’s counsel, and therefore,
one may assume that they did not reduce Mr. Kirk’s life expectancy; yet,
the structure proposed a reduced life expectancy with the effect being to draw
the settlement annuity closer to the yield from investing the awarded funds. The
effect on the structure, in any event, was still a lesser award. The lessened
amount of monies available speaks against the creation of a structured settlement.

[27]        
Moreover, the proposed structure does not allow for any estate to be
left for Mr. Kirk’s family should he die prematurely. It lacks
flexibility, for instance, to allow Mr. Kirk and Mrs. Kirk to buy a
new home.

[28]        
Further, the suggestion that the cost of future care award could be
intruded upon for other expenses is not sensible given the extensive nature of Mr. Kirk’s
injuries.

Discussion

[29]        
As I understand it, Mr. Kirk’s evidence is that the return
generated by investment would effectively be 15% more than the proposed structured
settlement. Thus, the effect of the defendant’s proposal is a lesser award.

[30]        
In my view, Mrs. Kirk has proved to be a strong person who has
stayed with her husband through the worst of the initial years of his very
serious injuries. I am sure she made as good an impression on the jury as she
did on me; and I anticipate that she will continue to care for her husband as
best she can. The future care award allows for attendant care for Mr. Kirk with
his daily needs and will be important in allowing Mrs. Kirk to regain some
independence in her own life.

[31]        
As discussed below, management investment advice will be needed, perhaps
not at the level proposed, but to allow the awards to be maximized and to prevent
unwise dissipation. Mrs. Kirk has been the family’s financial planner and
will undoubtedly need assistance in this respect. At the same time, both she
and Mr. Kirk will ensure that the funds are spent wisely.

[32]        
The lack of flexibility in the proposed structured settlement is another
concern. The Kirks have a young family and there will be difficult decisions
that Mr. Kirk must make not just for his own good but also his family. His
ability to use the award as he sees fit for himself and members of his family
should not be inhibited. Many unforeseen events may arise in the future.

[33]        
On the evidence before me, I do not see the proposed structure as being
in the best interests of Mr. Kirk and I will not order a structured
settlement as proposed.

ISSUE 3: Management Fees & Investment Counselling

[34]        
Detailed arguments were put forward by experts Mr. Carson and Mr. Gosling
as to the management fees appropriate for the awards of the cost of future care
and loss of future income. I have already set the net awards: see para. 13. The
two experts agreed on the type of investment portfolio mix.

[35]        
The Law Reform Commission of British Columbia’s Report on
Standardized Assumptions for Calculating Income Tax Gross-up and Management
Fees in Assessing Damages (Vancouver, B.C.: The Commission, 1994) [the 1994
Law Reform Commission Report] sets four levels of management fees,
ranging from simply setting up an investment to full-time management, the
latter of which is usually reserved for those legally incapable to run his or
her own affairs.

[36]        
Mr. Kirk was not an exceptional student; his formal education ended
at grade 11. Indeed, some of the evidence led me to query if he had a
learning disability. In my view, his career transition from a ski instructor to
manager of a sports and apparel store was the product of his good work ethic
and upbeat personality.

[37]        
Prior to the collision, Mr. Kirk was in charge neither of his business
nor personal finances. While he was the manager, I have no evidence as to his
abilities regarding the store’s day-to-day finances. I suspect he delegated financial
matters to others. In any case, his ability to motivate employees and keep
morale up, as well as his outgoing character, resulted in the proper and
efficient operation of the store. It is evident that Mrs. Kirk was the
person managing the household finances; she will continue to do so. But, Mrs. Kirk
was frank in admitting that she would need sound investment advice to manage
the awards for their intended purposes.

[38]        
This is not the case of a minor child or a brain-injured individual
without the necessary level of expertise, but rather a couple who will sensibly
seek appropriate assistance. While the Kirks are not incapable in the sense
they have neither legal nor cognitive capacity, there is no indication (in
terms of their ability, acumen and education) that they could, at least in the
near term, manage the awards in a competent manner in order to obtain the
returns necessary to care and provide for Mr. Kirk during the remainder of
his days.

[39]        
The calculations for investment management advice are premised on level
four requirements or full-time advice. In my view, that will not be necessary for
the whole of Mr. Kirk’s life. It will be necessary for the next 15 years,
while his children grow into adults and his time will be spent caring for himself
and his family as best he can, that management of the awards be in competent
hands and that the Kirks have access to investment management expertise.

[40]        
Investment management advice will inherently incorporate proper tax
avoidance strategies. But for the following 15 years, there is a lesser need
for advice and the awards will undoubtedly be managed in a more conservative
fashion, and by then Mr. and Mrs. Kirk will have acquired a fair
working knowledge of how the fund should be run. Lastly, there will be a need
for more advice over the remaining years when it may be anticipated that the
Kirks will be less able to manage the fund.

[41]        
In sum, there will be an order for level four management fees for the
first 15 years, the next 15 years at level three, and the balance shall be
a two‑thirds/ one‑third mix of levels three and four management
fees. I will leave it to counsel and their advisors to calculate the total
management fees, and if they cannot agree, the matter can be brought back to me.

ISSUE 4: Tax Gross-up

[42]        
Detailed arguments were put forward by experts Mr. Carson and Mr. Gosling
as to the tax gross-up.

[43]        
There is a division of opinion on the application of actuarial
principles. That division, as summarized in the 1994 Law Reform Commission
Report at p. 19, is not recent. Mr. Carson takes the view that
the application of survival probability is the generally accepted actuarial
method in calculating tax gross-up values; his view was endorsed as correct in the
1994 Law Reform Commission Report. However, this approach must be
applied to the reduced award and thus will simulate the tax rate that will
actually apply to the income from the award. On the other hand, Mr. Gosling
favours the life certain approach.

[44]        
Counsel referred me to cases where courts have favoured one method or
the other. One of the more recent cases is the judgment of Grist J. in Whetung
v. West Fraser Real Estate Holdings Ltd., 2008 BCSC 182, 80
B.C.L.R. (4th) 342 [Whetung]. At paras. 7-10 of BCSC, he stated:

[7]        The two actuarial models proposed by counsel to
account for depletion of the cost of care differ in that the approach employed
by the plaintiff’s expert … suggests the cost of care funds would be
accounted for as being depleted by the sum judged necessary to cover the
monthly expenditures, less a probability factor needed to discount for negative
contingencies, notably survivability. The method employed by the defendant’s
expert … would deplete the fund by the full cost of care required each month,
with no application of this probability factor.

[8]        The probability accounting method matches the method
employed to assess costs of future care and depletion of the fund on the
probability basis, at least notionally, makes the fund available through the
plaintiff’s lifespan.

[9]        The accounting on the basis of a full reduction
each month for the cost of care judged appropriate, will result in a depletion
of funds at a considerably earlier point in time. The additional effect of this
full deduction model is a shorter period of time during which funds are
available for investment, and a reduced requirement for a tax gross-up.

[10]      In my view, there
should be a consistent basis employed for the calculation of damages and in
accounting for the depletion of funds. Theoretical symmetry is not the only
question. I think it is likely that a person suffering a disability, knowing
that the cost of care needs to be sustained will make economies, accepting a
lower standard month-to-month, so that the funds applied each month will be
sustained as far into the future as can be reasonably managed, or will use
other resources to help defray costs. In either case this form of management is
better and more equitably described by the method proposed by the plaintiff.

[45]        
That is going to be the case for Mr. Kirk: he will not have the
full amount of the cost of future care award, and will have to make economies.

[46]        
I accept Mr. Carson’s approach on this matter, because it seems
consistent with the predominant actuarial opinion and with the reasons given by
Grist J. in Whetung; see also Burdett (Guardian ad litem of) v.
Mohamed, 2010 BCSC 311, [2010] B.C.J. No. 419 (QL); and Hodgins v.
Street, 2010 BCSC 455, [2010] B.C.J. No. 611 (QL).

Miscellaneous Issues

[47]        
As to CPP disability being included in first dollar income, the reality
is that the CPP disability will be paid and should be included in first dollar
income.

[48]        
I would not anticipate the care being provided to Mr. Kirk would be
full-time but rather part-time, though that may well vary from time to time.

[49]        
The application of survival rates should be on the fund revenue and the
management fees before taxes.

[50]        
Mr. Gosling points out the H.S.T. is 12% and may affect the
calculations.

[51]        
Again, these rulings probably mean that the experts will need to
recalculate; and, if the figure cannot be resolved, the issue may be brought
back to me for resolution.

Costs & Disbursements

[52]        
No argument was made by counsel regarding costs and disbursements. I
find that on the substantive items, the plaintiff has succeeded and is entitled
to his costs, unless other orders are sought, in which case, arrangements may
be made to appear before me through Supreme Court Scheduling.

“The Honourable Mr. Justice
Crawford”