Reality bites: TV boss awarded $250,000 in lost pay07 August 2012 Topics: Insurance
The Queensland case of Balnaves v Smith  QSC 192 is arguably one of the most important recent cases involving the determination of future economic loss for high net worth individuals who suffer personal injury.
Importantly, the case highlights some key implications for personal injury insurers.
The executive chairman of Southern Star Group Ltd (SSG) was awarded $250,000 for ‘economic loss’ arising from a horrific boating accident. Mr Balnaves was out on the water when a collision with another boat ‘smashed’ his right leg into his abdomen and ‘imploded’ his pelvis. He had more than 40 bones broken. It is important to note that the amount awarded was significantly less than the $7.9 million that he originally claimed.
The case centred on economic loss arising from the sale of SSG to Southern Cross Broadcasting Ltd (SCB). Mr Balnaves argued that the sale of SSG would not have occurred if he had not been injured in the accident. He made this argument despite the fact that during the sale Mr Balnaves had performed in his role with enthusiasm and the boards of both SSG and SCB wanted him to remain in charge of SSG after the sale.
The Court’s decision and reasoning
The Court found that there was only a small likelihood that Mr Balnaves would not have accepted the takeover had the accident not occurred, given that:
- the offer was obviously attractive to shareholders
- he would earn $3 million from the sale
- he would receive a seat on the board of SCB and continue as executive chairman of SSG for at least three more years
- he was about to turn 60 and it was speculated that he would retire at around 65 years of age.
The Court further found that SCB’s bid was supported by the other directors because SSG had no capacity for domestic growth and, despite diligent investigation, no favourable alternative opportunities for overseas acquisitions had been found.
Overall, Mr Balnaves’ injuries and related restrictions were found to be of no great influence in the decision to accept the takeover. There was a very high degree of probability he would have made the decision to embrace the takeover regardless of injuries.
The Court considered Mr Balnaves’ future earning capacity and commented that ‘in principle, mere difficulty of assessment of a loss is no impediment to an award of damages: the Court must do the best it can’.
It further noted that assessment of damages for personal injuries ‘is not an exact science’ and ‘must be governed by considerations of practical common sense in the context of the facts of the particular case’, citing Paul v Rendell (1981).
The Court found that:
- Damages for loss of opportunity to retain a shareholding in SSG were not too remote because it was ‘foreseeable that personal injury may adversely affect the value of shares in a corporate vehicle, the fortunes of which depend, to an extent, on a plaintiff’s personal exertion’.
- Mr Balnaves, nearing retirement at the time of loss, would have retired at the age of 65 and in that time would have received an income of around $1,050,000 per annum, which broadly accorded with the remuneration paid to his successor and amounted to a total loss of around $2.3 million.
- There was roughly a one-in-10 chance that, had Mr Balnaves not been injured, he would not have facilitated SCB’s takeover in 2004. Therefore under that assessment, the economic loss was around $250,000 and the Court awarded this amount as future economic loss.
Lessons for insurers
In an assessment of damages for personal injury claims involving high net worth individuals engaged in business, careful consideration must be given to the specific factors associated with each claim for economic loss, which may include:
- the degree of detriment to the individual, given their age and stage of life, interests and other personal or business activities
- key factors driving the decision-making processes
- the economics and volatility of the marketplace for the specific type of business.
For these particular individuals, a close examination of company documents, including board reports, and an analysis by a forensic accountant are essential.
Awards for future economic loss vary widely due to the unique circumstances of each individual.
Insurers and insurance professionals are encouraged to seek legal advice for an accurate evaluation of the weight and relevance of factors and strategies for managing this type of claim.
If you would like further information on any of these issues, please contact Quentin Owen or Leah Vida of our insurance team on 07 3231 2444.