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Acturial Assesment of Damages - Koch SAAJ 11 (2011)
Acturial Assesment of Damages - Koch SAAJ 11 (2011)
1. INTRODUCTION
1.1 In 1974 Milburn-Pyle & Van der Linde (unpublished) (MPVL74) presented a
paper to the Actuarial Society of South Africa (the Society) documenting the rules and
procedures governing actuarial calculations for the assessment of damages for loss of
support arising from the wrongful killing of a breadwinner. There have since been a
number of developments and this paper sets out to document the current state of affairs
as regards both death claims and claims for personal injury.
1.2
With a view to promoting greater community of practice in this field the Society
has set up a Damages Committee. This forms part of a general concern in the actuarial
profession to ensure quality in the delivery of actuarial services.
1.3
This paper sets out to summarise the present state of affairs as regards the actuarial
assessment of damages, with an emphasis on the legal as distinct from the actuarial.
Related topics such as claims for maintenance from deceased estates and claims for
breach of contract have not been fully documented in the anticipation that they will form
the subject of a future separate paper. Issues such as discount rates of interest and life
tables are also not discussed in any depth. Readers with an interest in the general quality
of actuarial services are referred to Lowther (2011), which covers inter alia ethical and
quality issues such as professional negligence, conduct before and at a trial, billing and
recovery of fees, and the content of actuarial reports.
1.4 The South African legal system is adversarial, which means that there is a
plaintiff (claimant) and a defendant and each presents her/his version of the facts by way
of witnesses and documents. In the event that parties are unable to settle their differences
by agreement the judicial officer is required to give a ruling. The actuary will usually
and ideally be acting as an impartial expert retained by one of the parties. The actuary
may be called upon to justify her/his calculations to the court and be subjected to crossexamination by the advocates representing each party. Under the continental inquisitorial
system the witnesses are cross-examined by the judge and the parties have the onus to
present witnesses to assist the judge in arriving at an informed decision.
1.5
For actuaries, the overriding goal is accuracy of calculation and information. For
lawyers, the overriding goal is agreement achieved by way of settlement or court ruling.
That agreement is the goal of lawyers is not always obvious while heated negotiations
and position-taking are under way. Lawyers, including the courts, may disregard science
and logic if this is necessary to achieve agreement. However, the dictates of science
and logic are important tools for achieving agreement. Notwithstanding the focus on
court procedure the vast majority of damages claims, particularly those against the Road
Accident Fund (RAF), are settled without being referred to a court.
1.6
The South African courts, unlike those in England, place great weight on actuarial
evidence and it is rare for a damages claim for personal injury or death to be settled in
or out of court without the benefit of an actuarial report. South African actuaries can be
proud of this trust placed in their quantification skills.
2.
2.1
Actuaries wanting to better understand how old authorities, precedent and statute
work together should read Hahlo & Kahn (1968).
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2.2 The role of judicial precedent can be confusing. A ruling by the Supreme Court
of Appeal is generally overriding. The extent to which it becomes binding on subsequent
courts depends on circumstances. Thus a ruling on the apportionment of family income
has been treated as binding1 precedent whereas a ruling on interest and inflation rates,
deemed factual issues, is not binding.2 Some judges, and their rulings, are not taken
seriously by the legal fraternity,3 or else are confined in application to the precise
circumstances giving rise to the ruling.4 Reported judgments are generally better known,
and more likely to be applied, than unreported judgments. The legal fraternity also has
a capacity to forget older rulings. These subtleties are not always obvious to an outsider
such as an actuary.
3.
3.1
The scope of this paper does not extend to a discussion of life tables, inflation
rates, and discount rates of interest, which is left for further research.
3.2 However, it is appropriate to record that South African actuaries generally
capitalise future earnings and support using a net capitalisation rate of 2,5% to 2,73% a
year. Allowance for real increases in earnings and promotions is made explicitly rather
than implicitly.5 In England the official net capitalisation rate is 2,5% a year.6
3.3
For future medical expenses there are instances where price escalation above the
rate of inflation is assumed and the costs are capitalised at rates of 1% or 0% a year or
even negative rates.7 There are no fixed rules in this regard and each case depends on the
evidence before it.
3.4 The Compensation for Occupational Injuries and Diseases (COID) Act,8
which replaced the Workmens Compensation Act (WCA), dictates that pensions
payable in terms of the Act are capitalised using the Commissioners tables based on
a net capitalisation rate of 4,5% a year (cf. Koch, 2011: 101). The calculations do not
distinguish between past and future payments. The pension increase for each year is
capitalised separately, a cumbersome approach.
4.
4.1
The determination of general damages is a legal issue, but actuaries are commonly
called upon to adjust old cases for inflation to the present time. Koch (2011) lists most
reported cases with the awards adjusted for inflation to date.
4.2
The judgment of an appeal court substitutes the judgment of the trial court, so the
adjustment for inflation should run from the date of the trial courts ruling and not from
the date that the appeal court handed down its ruling.9
5.
5.1 There is a rule of law that damages must be assessed at the date of the delict.
This is relevant to claims for damages to a motor car, for example. However, it is not
applicable to actuarial assessments for which discounting should be done to the date of
trial or settlement.10
5.2
Confusion reigns amongst lawyers and actuaries as to the correct approach to the
capitalisation of accelerated benefits. Discounting to date of death has been ordered;11 in
another instance the court ordered that nil allowance be made for inflation when projecting
future asset values.12 The problem is exacerbated by the poor understanding that many
lawyers, and even judges, have of the problem. A fuller exposition of accelerated benefits
appears below with the discussion of claims for loss of support.
5.3
For lost earnings in a foreign currency, discounting is usually done using interest
and inflation rates appropriate to the foreign country. The resulting capital sum is
expressed in terms of the foreign currency and converted to rands at the exchange rate
applicable as at the date of settlement or trial.13 Some claims involve earnings partly in
rands and partly in foreign currencies. For such claims it is usually acceptable to convert
all income flows to one currency before doing the capitalisation calculations. The same
holds true for claims for loss of support.
9
Bailey NO v General Accident Insurance 1987 2 SA 702 (AD); more generally see Koch
(unpublished: 25561)
10
General Accident Insurance Co SA Ltd v Summers; Southern Versekeringsassosiasie Bpk v
Carstens NO; General Accident Insurance Co SA Ltd v Nhlumayo 1987 3 SA 577 (A)
11 Mohan v RAF 2008 (5) SA 305 (D)
12 Searle v Guardian National Insurance 1996 (T) (unreported 11.10.96 case 5772/95)
13 Infolsdottir v Mutual and Federal Insurance 1988 (SWAZI) (unreported 27.5.88 case
1054/86); Bane v dAmbrosi 2010 2 SA 539 (SCA)
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6.
MORA INTEREST
7.
VALUE OF A CHANCE
7.1 The principle of value of a chance is a legally approved method for dealing with
uncertain past and future events.22 The principle states that if there is, for example, a 30%
chance of surgery costing R100000 then the compensation to be awarded is R30000,
30% of R100000.
7.2
Actuaries are trained to use the word probability to mean a chance both greater
than and less that 50%. For lawyers, probability means a chance greater than 50%. A
chance less than 50% is a possibility. However, many lay person, and medico-legal
experts, use possibility to mean any chance less than 100%.
7.3
The original actuarial evidence in the nineteenth century was directed at the cost
of purchasing a life annuity that would provide an income equal to that which had been
lost, a very practical approach. Inflation was not discussed, i.e. it was ignored. From
the late 1920s actuaries started explaining their calculations to the courts as being the
means to reproduce what is lost by consuming income and capital over the relevant life
expectancy, a simple but misleading approach.23 The affirmation in 1980 of the value of
a chance as a legally acceptable method of calculation allows actuaries now to explain
their calculations correctly as a year-by-year (or month-by-month) application of the
values of the chances of death in each period.
7.4 A life expectancy is the sum of the separate chances of survival: death by
degrees as it has been waggishly described.
8.
PROOF OF EARNINGS
8.1 Traditionally the earnings of a victim have been proved by way of payslip or a
certificate from the employer. More recently it has become fashionable to make use of
industrial psychologists who tend to rely on the corporate earnings surveys.24 The reader
may refer to Koch (2011: 107) for estimates of the expected survey results in 2011.
8.2 The earnings of street vendors and taxi drivers are commonly proved by way of
affidavits from persons working the same beat.
8.3
22
23
24
25
It is acceptable to assume that a child will earn at the same level as a parent.25
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8.4 There are emergency occasions, such as imminent prescription, when an actuary
may be called upon to provide guidance as to earnings assumptions without the benefit
of a report by an industrial psychologist.
9.
CAPPING OF DAMAGES
The latest RAF legislation27 has introduced a cap limit of R160000 a year to the
level of the loss that can be brought into the actuarial calculation. The cap only applies
to claims for accidents that happened after 1 August 2008 and is adjusted quarterly by an
RAF board notice published on the RAF website and in the Government Gazette.28 The
precise interpretation of this legislation by the courts remains to be seen. Meanwhile the
following approach is suggested: the cap applies to the total yearly loss suffered and not
to the actual earnings of the claimant or deceased. The actual loss before application
of the cap is the loss net after application of the ruling in Santam v Fourie,29 (see
below under discussion of dependants action) and after deduction of all contingencies,
including notional taxation and general contingencies. For claims for loss of support the
losses for all dependants in any one year must be added together before applying the cap.
Lump-sum payments and deductions should be spread with an appropriate annuity factor
over the lifetime of the claimant or the widow, or the remaining dependency of a child
dependant. This approach is based on a 2006 memorandum for the RAF prepared by
Schwalb Van Niekerk & Muller. An updated memorandum is currently being prepared
and actuaries active in MVA work can expect to be circulated and asked for their
comments. There is much to be said for assessing the normal lump-sum damages and
then spreading the result evenly over the lifetime of the claimant, or widow, and then
testing that annual amount against the cap. The legislation states that the cap in force at
the date of the accident shall apply. In order to avoid absurd results the actuary should
assume that this cap amount is regularly notionally increased after the date of accident to
offset the effects of inflation. The courts may hand down a rescue ruling as they have for
badly worded RAF legislation.30 A legal obstacle to using the annual losses after discount
26 Minister van Veiligheid v Geldenhuys 2004 1 SA 515 (SCA) at 1020G
27 s17(4)(c) of Act 19 of 2005
28 www.raf.co.za/Legislation/Documents
29 1997 1 SA 611 (A)
30 Marine & Trade Ins v Katz 1979 4 SA 96 (A) at 971H
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for interest is that it has been ruled that continuing loss comprises the monthly or yearly
losses before application of the discount for interest.31 For long periods of past loss there
will in years to come be some difficulties with achieving a fair result.
11.
INCOME TAX
11.1 The standard actuarial calculation should deduct the notional taxation that would
have been paid had the income been earned.32 It is usual to assume future adjustment of
the tax tables in line with inflation so that for constant real income the average rate of
taxation remains the same. For consistency with this approach, the capital sums awarded
as compensation are viewed by the tax authorities as capital and are thus not subjected to
taxation in the hands of the claimant.
11.2 An exception to this rule arises when the income lost is of short duration (such
as loss of profits on a contract) and the award constitutes taxable income.33 For wrongful
dismissal claims the parties will often request a calculation net of notional tax and one
gross of notional tax. The gross calculation will be tax-deductible in the hands of the
employer and the claimant may be able to claim tax concessions on the lump-sum
payment.
11.3 In circumstances where the claimant has failed to pay tax on her/his earnings the
courts will not deny compensation but will assess damages on the assumption that tax
would have been duly paid on the lost earnings, and then order that a copy of the court
record be transmitted to the revenue authorities.34
11.4 Pensions payable in terms of the COID Act are not subject to taxation.35 The
relevant section refers to injury claims only, but it is SARS practice to treat as tax-free
the COID pensions of widows.
12.
12.1 If as a result of an accident the life expectancy of the claimant has been reduced,
her/his mortality uninjured must be taken to be the same as her/his reduced life expectancy
now injured. Medical experts usually state reduced life expectancy as an explicit number
of years reduction to normal life expectancy or as a percentage reduction to normal. In
31 SA Eagle Ins v Hartley 1990 4 SA 833 (A) 8389
32 Victoria Falls & Transvaal Power Co Ltd v Consolidated Langlaagte Mines Ltd 1915 AD 1 at
page 29
33 Omega Africa Plastics (Pty) Ltd v Swisstool Manufacturing Co (Pty) Ltd 1978 3 SA 465 (A)
34 Santam v Fick 1982 (A) (unreported 24.05.82 case 282/79/AV); Twala v RAF 2006 (TPD)
(unreported 08/2006 case 01/15178)
35 s10(1)(gB) of Income Tax Act 58 of 1962
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the ensuing actuarial calculation the most common form of adjustment is a percentage
extra mortality, but other techniques can be appropriate such as adding years to age for a
drastically impaired life.
12.2 The logic behind this rule is that the award for loss of earnings is to be applied
to meeting normal living expenses. If the claimant dies early she/he is spared living
expenses for the years that might otherwise have lived, the so-called lost years.36
12.3 The main objection to disallowing a claim for the lost years is the financial
interest that dependants may have had in the earnings of the victim during those years.
South African law, at least in theory, allows a claim to the dependants for loss of support
during the lost years. In practice this requires proving that the victims death, when it
does occur, is causally related to the original wrongful act, a tough assignment 20 or 30
years after the original damage-causing event. For a more comprehensive discussion the
reader may refer to Koch (unpublished: 347 et seq.). A neat solution in the South African
context would be to allow an immediate right of action by the dependants as soon as
there is proof of reduced life expectancy caused by the damage-causing event.
12.4 Choice of life table and adjustments for AIDS are not covered by this paper; they
are left for further research.
13. DIFFERENCING
13.1 The standard approach to the calculation of loss of earnings is to calculate on one
hand the capitalised value of all the earnings that the claimant would have received had
she/he not been injured, and then on the other hand the capitalised value of all that he
will receive now injured. The difference between these two values, after adjustment for
general contingencies, is the loss she/he has suffered.37
13.2 A more complex version of this differencing process has regard not only to
earnings but also to living expenses and underlies the adjustments made under general
contingencies for saved living expenses.38 The payment of damages is ideally directed
at restoring the net patrimonium to what it was immediately prior to the damage-causing
event. In a real world this is, of course, not possible, but the ideal does provide a guiding
light. The determination of the net patrimonium for a breadwinner victim uninjured and
for non-breadwinner uninjured is illustrated in Tables 1 and 2 respectively.
36 Lockhats Estate v North British & Mercantile Insurance Co Ltd 1959 3 SA 295 (A) at pages
306/307; Singh v Ibrahim (413/09) [2010] ZASCA 145
37 Dippenaar v Shield Insurance 1979 2 SA 904 (A) at page 917E
38 cf. Koch (unpublished: 2335)
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R000
900
150
Liabilities
taxation
own services in home
40
350
200
230
30
270
50
bond on house
Total
R000
180
1330
net patrimonium
Total
90
170
1330
R000
320
40
5
Liabilities
taxation
R000
70
150
350
200
30
30
car
15
net patrimonium
70
Total
670
Total
1330
13.3 For death claims the focus is on the support that would have been
provided had there been no death. Many alternative sources of support are ignored.39
Deductions are made, however, for remarriage, inheritance, State welfare payments and
COID benefits.
14.
GENERAL CONTINGENCIES
14.1 It is useful to look back to the early nineteenth century judgments and bear in
mind that in those days the compensation was based on the cost of purchasing a life
annuity. For example:
She had lost an annuity for the joint lives of herself and her son The value of the annuity
spoken to in the evidence was the value of an annuity on Government or other very good
39 Groenewald v Snyders 1966 3 SA 237 (A), MPV 1974 pages 3323; Assessment of Damages
Act no. 9 of 1969; Constantia Versekeringsmaatskappy Bpk v Victor NO 1986 1 SA 601 (A)
(adoption)
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and:
security, and that the annuity lost was that Secured by the personal security of the deceased
and, therefore, of much less value.40
When the Fatal Accidents Act, 1846, was passed, it was thought for a short time by some
that damages might be given to the full extent of a perfect compensation It would be
most unjust [however] if whenever an accident occurs, juries were to visit the unfortunate
cause of it with the utmost amount which they think an equivalent for the mischief done.41
Until the passing of the Fatal Accidents Act, English law followed the Roman-law rule
that the body of a freeman has no value and thus that no damages could be awarded for
the killing of a breadwinner. This was a deviation from the medieval English law, which
allowed a claim for wergilt. In another judgment it is stated:
A thousand circumstances might have prevented him from making that income if he had
remained well, and the accident had not happened the jury would be wrong if they did
not consider those circumstances as upon the doctrine of chances.42
14.2 The so-called normal deductions are 5% past and 15% future. In practice,
deductions can range from 0% to 90%. In theory the determination of these deductions is
the prerogative of the court. In practice they are often negotiated between the parties. It
is not unusual for an actuary with experience in damages claims to be asked by the Court
to express an opinion on general contingencies.
14.3 It often happens that a victim continues in employment, but with increased
difficulty due to the injuries. Allowance for this reduced mobility in the job market
is commonly made by applying a larger general contingency percentage to the value
of earnings now injured.43 It was said that These risks which would have attached to
the plaintiff in any event are more likely to affect him in the future because of his
disability.44 In another case differential contingencies were rejected because of high
risks attaching to the pre-injury occupation.45
14.4 The actuarial assumption may be that the victim will never work again. The
deduction for general contingencies may then be increased to allow for the chance of
some employment. Thus, in one instance, the 10% deduction for earnings uninjured was
increased to 35%.46
Rowley v London & NW Rail [186173] All ER Rep 823 (Exch) 828
Rowley v London & NW Rail [186173] All ER Rep 823 (Exch) 82930
Phillips v London & SW Rail [187480] All ER Rep 1176 (CA) 11801
Van Drimmelin v President Versekeringsmpy 1993 4 QOD E2-19 (T)
Brijlall v Naidoo 1961 1 QOD 266 (D) 271. See too Hutchings v General Accident Insurance
1986 3 QOD 737 (C) 744; Venter v Mutual & Federal Versekeringsmpy 1988 3 QOD 749 (T)
759; Brink v The MVA Fund 1991 (C) (unreported 2.8.91 case 6038/89)
45 Shield Insurance v Hall 1976 4 SA 431 (A) 4435
46 Krugell v Shield Versekeringsmpy 1982 4 SA 95 (T) at 105E
40
41
42
43
44
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47 Sumesur v Dominion Insurance 1960 1 QOD 228 (D) 2323 (7,5% deducted); Maasberg v
Hunt Leuchars & Hepburn 1944 WLD 2 12
48 Dhlamini v SA Eagle Insurance (T) (unreported 01.02.94 case 8951/93)
49 Reid v SAR&H 1965 2 SA 181 (D) 190F-H; Carstens v Southern Insurance 1985 3 SA
1010 (C) 10234 1027I-J confirmed in General Accident Insurance Co SA Ltd v Summers;
Southern Versekeringsassosiasie Bpk v Carstens NO; General Accident Insurance Co SA Ltd
v Nhlumayo 1987 3 SA 577 (A); Dusterwald v Santam Ins 1990 4 QOD A3-45(C) at 60 69
50 Bane v dAmbrosi 2010 2 SA 539 (SCA).
51 Shearman v Folland [1950] 1 All ER 976 (CA); Lim Poh Choo v C&IAHA [1979] 2 All ER
910 (HL) 921; Roberts v Northern Assurance 1964 4 SA 531 (D) 537G-H; Marine & Trade
Insurance v Katz 1979 4 SA 961 (A) 979inf; Dyssel v Shield Insurance 1982 3 SA 1084(C)
1086A-G; Kontos v General Accident Insurance 1989 4 QOD A2-1 (T)
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15.
COLLATERAL BENEFITS
15.1 Benefits accruing after the accident will not be deducted if they are gratuitous or
the result of privately negotiated insurances.52 Benefits that accrue as a part of the contract
of employment, such as government-service pension benefits, will be deducted.53
15.2 State welfare benefits are generally deductible.54 However, the State foster-care
grant is not deductible.55 State welfare benefits are subject to a means test.56 Once the
victim has substantial capital by way of an award she/he will no longer be entitled to
the State benefits and it is appropriate to assume termination on the date of the trial or
settlement. For smaller claims the benefit will not fall away and the future payments need
to be capitalised and deducted.
15.3 The Assessment of Damages Act57 provides that life insurance, pension benefits,
and a refund of pension contributions, payable as a result of the death, must be ignored.
This Act does not apply to claims for loss of earnings.
15.4 Where there is an apportionment of damages for contributory negligence, the
collateral benefits are deducted before apportionment. COID benefits are an exception
to this rule; the COID award is deducted after apportionment.58 The Apportionment of
Damages Act does not apply to death claims for loss of support.59 (There is one exception
that rarely arises, which is when the Assessment of Damages Act has been applied to
exclude life insurance and pension benefits.) For a general discussion of collateral
benefits the reader may refer to Koch (unpublished: 179212).
15.5 The RAF commonly makes offers to dependants reduced for a risk discount. This
is not an apportionment for contributory negligence, but a commercial discount for the
risk that the dependants may be unable to prove negligence on the part of the insured
driver and then get nothing at all.
16.
16.1 A major component of a claim for personal injury is often the additional
living expenses that the victim now needs to incur. This may be by way of surgery,
52 Santam Versekeringsmpy v Byleveldt 1973 2 SA 146 (A)
53 Dippenaar v Shield Insurance 1979 2 SA 904 (A)
54 Zysset v Santam Insurance 1996 1 SA 273 (C); Indrani v African Guarantee 1968 4 SA 606
(D)); RAF v Timis 2010 (SCA) (unreported 26.03.2010 case 29/2009)
55 Makhuvela v RAF 2010 1 SA 29 (GSJ)
56 For details cf. Koch (2011: 105)
57 Act no. 9 of 1969
58 RAF v Maphiri 2004 2 SA 258 (SCA)
59 cf. ss2(1B) 2(6)(a) Apportionment of Damages Act 34 of 1956; Koch (unpublished) at 34245
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or wheelchairs, or the need for a personal attendant. The RAF normally provides an
undertaking to pay such expenses as and when they are incurred so future expense
calculations are not really needed for RAF claims. The actuary is, however, frequently
requested to capitalise future expenses for RAF claims either for reasons of jurisdiction
(a claim worth less than R100000 falls within the jurisdiction of the magistrates court
and costs are then awarded on the lower tariff) or because the RAF is agreeable to paying
an up-front lump sum for reasons of convenience.
16.2 The actuary is frequently required to make calculations for multiple expert reports
with overlapping and duplicated expenses. There is no need for the actuary to adjust
for such overlaps and duplications because the legal representatives will themselves
make the necessary adjustments, just as they have the final word as regards general
contingencies.
16.3 If hip-replacement surgery has a present cost of R120000 and has a 25% chance
of being needed twenty years from now, the claimant will be compensated with the value
of the chance of incurring the expense, that is to say 25% of R120000, discounted for the
chance of being alive after 20 years and also for the investment-return excess or shortfall
relative to the expected rate of escalation in the cost of such surgery. There will also be
a calculation for the expected loss of earnings while off work after the surgery. For this
latter calculation lawyers prefer that sick leave entitlement be ignored. In one case60 the
actuaries calculated the small value of the chance that the claimant might have needed
the sick leave for some other contingency.
16.4 Loss of earnings may take the form of the cost of employing an assistant in the
business. Such an expense is usually tax-deductible and needs to be reduced for the
notional tax relief that the claimant can expect.
16.5 For those with serious brain damage a curator bonis may need to be appointed. As
a general rule 7,5% will added to the overall award including general damages, though
in one case 5% was added.61 Depending on the assumptions made as regards the mix of
interest-bearing and growth investments a variety of different percentages would emerge
from a calculation. In the event that security must be provided, 18,4% is added instead
of 7,5%. Security is not necessary for attorneys acting as curators as they are covered by
the Attorneys Fidelity Fund.62
17.
LOSS OF SUPPORT
17.1 The calculation for loss of support claims is directed at the support that would
have been provided had there been no death. Each dependant has a separate right of
action and the actuarial calculation must provide separate values. South Africa, unlike
other countries, allocates the net-after-tax earnings of the deceased with two parts to
each parent and one part to each child. This convenient algorithm, originally adopted
to get around inadequate evidence as to the actual division of household expenditure, is
nowadays applied as though it were a rule of law.
17.2 In one instance63 the deceased had expended a disproportionate amount of his
income on himself. The Court ordered that he be allocated three parts in the actuarial
calculation.
17.3 In another instance64 the family had been giving regular financial assistance
to three street children. It was ruled that the cost of such charity was part of normal
household expenses and that such amounts should be included in the compensation
payable to the legal dependants. In other words, that there should be no deduction for the
cost of the granting of charity.
17.4 In circumstances where a breadwinner has a so-called common-law wife, or
houvrou, to whom he is not married but in a permanent relationship, the two parts she
consumed will usually be ignored because there was no duty to render such support. Three
or sometimes four parts may be allocated to the deceased to allow for the contingency of
marriage. There might then also be explicit allowance for the birth of further children.
The duty of support extends to grandparents and grandchildren. Between siblings it falls
away at age 21, but continues for life between parent and child. Parties to customary
marriages, both black and Islamic have a reciprocal duty of support.
17.5 However, when both parents are working, two parts will be allocated to each
parent with a view to making proper allowance for the contribution by the surviving
parent to the support of the children. This will be done even if the parents do not cohabit.
17.6 If a child is killed in the same accident that killed the deceased then the parts
that would have been consumed by that child must be ignored.65 It remains to be seen
whether this same principle will be applied when both mother and father have been
killed in the same accident. It is eminently arguable that the parts that would have been
consumed by the breadwinners deceased spouse should be ignored.
63 Van Aardt NO v Southern Versekerings-Assosiasie Beperk 1986 (O) (unreported 27.2.86 case
523/82)
64 President Versekeringsmpy v Buthelezi 1977 1 PH J26 (A)
65 RAF v Monani 2009 (4) SA 327 (SCA)
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17.7 A prospective spouse does not have a claim for loss of support if the partner is
killed shortly before the wedding.66 A life partner in a same-sex relationship does have
a right to claim for loss of support if the breadwinner is killed.67 However, a life partner
in a malefemale relationship other than marriage is not entitled to claim damages if
the breadwinner is killed,68 but is entitled to claim maintenance from the estate of her/
his partner provided the relationship has been formally registered.69 The Maintenance
of Surviving Spouses Act70 applied for a limited period of two years from 21 February
2005 or until Government passed appropriate amending legislation. The Civil Union
Act71 now applies and requires formal prior registration of a relationship if the surviving
partner is to be successful with a claim for maintenance.
17.8 When parents of the deceased claim for loss of support it is usual to allocate to
each such parent a one-part childs share. Entitlement to a State pension from age 60 is
relevant. Since April 2011 the amount of the pension has been R13680 a year, increasing
to R13920 a year from age 75.
17.9 When a breadwinner dies, household expenses do not necessarily reduce by
two parts. The South African approach using two parts to each adult and excluding the
deceaseds two parts from the compensation money will, in many instances, undercompensate the dependants. In Botess case72 the spouses had occupied a flat for which
the rental did not reduce after the death. The court ordered that the widow be compensated
with only half the rental. The effect of this ruling is that household expenses must be
assumed to reduce by two parts even if this is not the reality.
17.10 Some breadwinners receive benefits in kind at work that are not shared with their
family. They are personally spared part of their own living expenses and it is appropriate
to allocate less than two parts to the breadwinner.
17.11 In the event that a breadwinner was saving part of her/his earnings the calculation
is not based on what the breadwinner actually expended on keeping her/his dependants
but will include the saved portion of her/his earnings.73
17.12 Black customary law allows a man to have more than one wife and these wives
are entitled to claim damages for loss of support. The legislation granting them a right
66
67
68
69
70
71
72
73
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of action74 provides that, when there is more than one widow, the damages payable must
not exceed what would have been payable had there been only one widow. The usual
approach to this problem is to divide the allowable two parts equally between each
widow. Thus, if there were three widows then each would be allocated two-thirds of a
part.
17.13 Before 2 December 1988 the conclusion of a civil marriage nullified all previous
customary unions. From that date onwards the position is reversed and a civil marriage
concluded during the subsistence of a customary marriage has been null and void.75 This
obscure volte-face legislation has been occasion for some unpleasant shocks for widows
in possession of marriage certificates.
17.14 It is appropriate to make explicit allowance in the actuarial calculation for
contingent events such as the birth of further children or the marriage of a single
breadwinner had she/he lived. These assumptions are really part of general contingencies
and a second calculation is usually needed in which such speculation is left out of account.
17.15 When the parent of an illegitimate child is killed it is general practice to allocate
two parts to the deceased, and one part to each child. This is done even if the deceased
had never in her/his lifetime contributed a single penny to the support of the child.
However, in circumstances where there is evidence as to the payments of support by
the deceased, the calculation will be based on such payments even if the payments are
much less than a one-part share. This can mean a monetary handout to a child way in
excess of what would have been had there been no death. The child who never received
any support should, strictly speaking, get only a nominal amount for the small chance of
receiving some support had the breadwinner lived.
18.
18.1 If both husband and wife were working then their net after-tax incomes are
aggregated and the total combined income apportioned two parts to each parent and
one part to each child. To the extent that the spouses earnings exceed her/his two-part
share she/he is deemed to contribute in equal amounts to the support of the children.
If the earnings of the deceased do not exceed her/his two-parts share then the claim
values will be nil.76 In such circumstances a small award is possible for the chance that
the survivor would have predeceased the deceased had she/he lived, and rendered the
children dependent on her/his income alone.77
74
75
76
77
18.2 It may happen that the deceased breadwinner had employment that did not
provide pension benefits, whereas her/his spouse is entitled to substantial pension
benefits. In later years the latter spouse would have been supporting the former after his/
her retirement. In general, gains are offset against losses, so it is appropriate to reduce the
deceaseds claim for the support she/he would have provided to her/his spouse in future
years after her/his retirement. Not all actuaries share this view and there are no court
rulings on the subject.
18.3 In the event that a surviving spouse was not employed at the time of the death she/
he is not obliged to go out and seek employment to mitigate her/his damages.78 However,
the evidence may reveal that even if there had been no death she/he would nonetheless
have gone out to work. It is then appropriate to bring her/his post-accident earnings into
account.
18.4 In the event that the spouse is injured in the same accident that killed her/his
spouse, she/he has a claim for loss of earnings. This is a separate claim from that for loss
of support.79 It follows that the calculation of her/his loss of support should assume the
earnings she/he would have received had she/he not been injured. A separate calculation
is then needed for her/his claim for loss of earnings having regard to her/his injury. Loss
of earnings by a spouse who stops working by reason of the death of the deceased, be it
shock or religious custom, will, strictly speaking, only be compensated if she/he satisfies
the causal requirements for a separate claim for loss of earnings.
19. REMARRIAGE
19.1 It is appropriate to make a deduction for the surviving spouses prospects of
remarriage. For this purpose it is usual to use the remarriage table produced by Thomson
(unpublished a; b) based on South African census statistics. There are no statistics for
black persons so the coloured rates are usually used for this purpose. For black persons
who subscribe to the old customary law, remarriage of a widow is discouraged because
she remains the property of her house and is expected to bear further children by way of
ukungena, the seeding of a widow by the brother of the deceased. For black widows it may
thus be appropriate to use a reduced rate, say 50% of the tabular rate. There is reason to
believe that remarriage rates are very low in low-income communities. There can also be
religious objections to remarriage and it is then appropriate to make little or no deduction.
19.2 The tabular deduction presumes that, on the remarriage of a widow, the new
husband will earn at the same level as the deceased. Where the deceased was a big
78 Munarin v Peri-Urban Areas Health Board 1965 1 SA 545 (W); 1965 3 SA 367 (A);
Nochomowitz v Santam Insurance 1972 1 SA 718 (T); Nochomowitz v Santam Insurance
1972 3 SA 640 (A)
79 Evins v Shield Insurance Co Ltd 1980 2 SA 814 (A)
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earner it can be appropriate to apply a reduced percentage for remarriage prospects. For
reasons explained in Thomson (unpublished a; b), no remarriage table was prepared
for the remarriage of a widower. If a female breadwinner is wrongfully killed then a
remarriage deduction may be appropriate. It is usual to use the Thomson table based on
female remarriage rates. This probably overstates the chances for a widowed older man
with poor job prospects.
19.3 When a widow has remarried it is usual to terminate her loss-of-support
calculation from the date of the remarriage. It has, however, been ruled that an explicit
calculation may be done having regard to the actual earnings of the new husband.80
19.4 Nil deduction is made for the adoption of a child after the death of the breadwinner.81
When making this ruling the Appellate Division recorded their dissatisfaction with the
making of a deduction for remarriage, but acknowledged that the practice was too well
established in South African law to permit a judicial retraction thereof. In many overseas
jurisdictions there is no deduction for remarriage, notably England from where the South
African practice was grafted (Luntz, 1990). In England the deduction has been removed
by statute whereas in South Africa it continues to apply.
20.
80
81
82
83
20.5 Independently of the claim for damages for loss of support, a child has a right to
claim maintenance from the estate of his or her deceased parent. If such a claim has been
successfully lodged before the finalisation of the concurrent damages claim then 100%
of the estate maintenance money is deductible.84
20.6 The Assessment of Damages Act85 states that life insurance and pension benefits
payable as a result of the death must be ignored. This means that the estate accounts need
to be reworked to exclude such payments and a notional inheritance calculated.
20.7 In the Du Toit case86 the deceased breadwinner was a pensioner. After his death
the spouse continued to receive part of his pension. The Court ordered that the spouses
pension be ignored by reason of the Assessment of Damages Act and her loss of support
calculated as though there was no such pension.
20.8 Actuaries are divided as to the proper approach to the calculation of the deduction
for inheritance. In the light of the above discussion the following approach would be a
reasonable standard:
Inherited assets are assumed to escalate in line with inflation from date of death subject
to explicit evidence to the contrary. (The general rule is that supervening events will
not be ignored; cf. 20.9.)
Discounting is done to date of trial or settlement. (Discounting to date of trial for
claims involving continuing loss is settled law.87)
Allowance is made for the widows survival to date of trial or settlement.
The value of the use of non-business assets is added to the deceaseds income as a real
rate of return on the notional estate in each year.
The family home is included with assets subject to an explicit allowance for the use
of it by way of the real rate of return mentioned above. (This has the effect that for a
marriage out of community of property there is a deduction for the family home, but
for a marriage in community of property there is nil deduction.)88
The value of the use of business assets used by the deceased to generate her/his
earnings is excluded from the use calculation if the associated business income has
been included in the earnings of the deceased.
20.9 A court will have regard to the factual change in estate asset values between date
of death and date of trial. In one instance89 the widow had trashed the business she had
Heyns v SA Eagle Versekeringsmpy 1988 (T) (unreported 6.7.88 case 13468/86)
Act no. 9 of 1969
Du Toit v General Accident Ins 1988 3 SA 75 (D).
General Accident Insurance Co SA Ltd v Summers; Southern Versekeringsassosiasie Bpk v
Carstens NO; General Accident Insurance Co SA Ltd v Nhlumayo 1987 3 SA 577 (A)
88 cf. Mohan v RAF 2008 (5) SA 305 (D); Snyders v Groenewald 1966 3 SA 785 (C); Maasberg v
Hunt, Leuchars & Hepburn Ltd 1944 WLD 2
89 Santam Insurance v Meredith 1990 4 SA 265 (Tk)
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85
86
87
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inherited. The court ordered that nil deduction be made for the inheritance of it. The same,
one would expect, would apply to the value to be placed on the family home and other
immovable property if these have been sold between date of death and date of settlement.
20.10 In Groenewald v Snyders90 the deduction for acceleration for the spouses
inheritance exceeded the value of her lost support. The Court ordered that the excess
should not be deducted from the claims of the children. This decision is authority for the
general proposition that a gain obtained by one dependant cannot be offset against the
loss incurred by another.
20.11 In the Nochomowitz case91 the Court ordered that a deduction be made for the
accelerated value of the inheritance of the deceaseds business, but that the income
generated from it by the widow should be ignored because, but for the death, she would
not have worked.
20.12 Assets placed in trust for a widow can give rise to a deduction for acceleration.92
The fact that a childs inheritance has been placed in trust does not prevent a deduction for
inheritance because application can always be made to release such assets for purposes
of the childs support.
21.
SUNDRY OBSERVATIONS
21.1
The liability of a parent to maintain a dependent child continues after age 21.93
21.2 The duty of support between healthy siblings falls away when the dependent
sibling attains age 21.94
21.3 The parents of the deceased may claim for loss of support provided they can
prove that they were receiving support before the death and that they are indigent.95
21.4 A parent who owns immovable property may be illiquid but is not indigent.96
The claim by parents for loss of speculative future support from a deceased unemployed
young child will usually be pressed to extinction by the weight of accumulated
contingencies.
90 1966 3 SA 237 (A). MPVL74: 3323
91 Nochomowitz v Santam Insurance Co Ltd 1972 1 SA 718 (T); Nochomowitz v Santam
Insurance Co Ltd 1972 3 SA 640 (A)
92 Marks v Santam Insurance 1995 4 QOD L226
93 Bursey v Bursey 1999 3 SA 33 (SCA)
94 Boberg (1977) at 276; Seatle v Protea Assurance 1983 (C) (unreported 6.5.83 case I.77/81)
95 Burger v POF 2000 QOD L2-1 (OFS); Fosi v RAF 2007 L2-14(C)
96 Volkenborn v Volkenborn 1946 NPD 76; Boberg (1977: 268)
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ACKNOWLEDGEMENTS
The author extends special thanks to those actuaries who brought new judgments and developments
to his attention. Many relevant damages judgments go unreported. Copies of the judgments listed
in this paper can be obtained from the author. The author also extends special thanks to Mickey
Lowther who patiently read and commented on multiple drafts of this text.
The opinions expressed and conclusions drawn in this paper are those of the author alone and
are not attributable to the Society. The financial assistance of the Actuarial Society towards this
research is acknowledged.
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AMA (1993). Guides to the Evaluation of Permanent Impairment. 4th edn., American Medical
Association, Chicago, Illinois, USA
Boberg, PQR (1977). The Law of Persons & the Family. Juta, Cape Town
Hahlo, HR & Kahn E (1968). The South African Legal System and its Background. Juta, Cape
Town
Koch, RJ (unpublished). The reduced utility of a life plan. LL.D. doctoral thesis with University of
Stellenbosch (1993). Available from www.robertjkoch.com
Koch, RJ (2011). The Quantum Yearbook. Van Zyl Rudd, Port Elizabeth
Lowther, MW (2011). Promoting quality in the actuarial assessment of quantum of damages in
South Africa. South African Actuarial Journal 11, 85110
Luntz, H (1990). Assessment of damages for personal injury and death. Butterworth, Sydney,
Australia
Milburn-Pyle, P & Van der Linde, JH (unpublished). The actuarial aspects of compensation for loss
of support. Transactions of the Actuarial Society of South Africa 2(2), 1974, 292374
Thomson, RJ (unpublished a). The Determination of the Deduction for Remarriage. Transactions
of the Actuarial Society of South Africa 7(1), 37288, 1987, www.actuarialsociety.org.za/
Publications/Transactions-of-AS/1980-to-1989-582.aspx
Thomson, RJ (unpublished b). The determination of the deduction for remarriage from the
pecuniary loss of a widow. De Rebus 67, 1988
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