The Calculation Of Compensation In The Case Of Non-Earning Deceaseds: Kirti V Oriental Insurance1
The Supreme Court has recently clarified that a "notional" income should be considered for deceased, non-earning victims (including homemakers) of motor vehicle accidents, and that future prospects should be assessed based on such notional income in order to arrive at fair, just, and reasonable compensation.
The Supreme Court was hearing an appeal from a judgment where the High Court had disallowed the future prospects awarded by the Motor Accident Claims Tribunal for a deceased victim who was a homemaker.
The notional income of a deceased victim is usually ascertained where there is no proof of income. There is no standard formula to calculate compensation in these cases and the Courts have followed different methodologies to calculate notional income, including:
- The Opportunity Cost Method: Assessment of what the homemaker would have earned had he/she not remained at home;
- The Partnership Method: Valuation of the homemakers' income at half of the earning spouse's salary; and
- The Replacement Method: Determining the cost that would have been incurred if the homemaker had been replaced with paid workers.
The Supreme Court partly allowed the appeal and enhanced the awarded amounts, including future prospects for the deceased, holding as follows:
Re Notional Income
Notional income is calculated where: (i) the victim was employed, but the claimant is unable to prove his/her actual income, or (ii) the Court has to determine the income of non-earning victims, such as children, students, or homemakers. In relation to homemakers, the Court said that various methodologies could be applied to determine the notional income and the appropriate methodology would vary from case to case, as the Court has to ensure that the compensation awarded is fair, just, and reasonable. Accordingly, the calculations should be neither too conservative nor too liberal.
Re Future Prospects
The assessment of future prospects is integral to providing just compensation. The Courts have held that compensation for future prospects is to be granted even when a deceased person's income is not proved and the Court therefore has to calculate notional income. The Court held that this principle would apply where there are non-earning victims, such as homemakers. The compensation will also have to account for inflation and improvement in skills with experience. However, the Court has not provided a fixed rate or percentage for calculating future prospects. Instead, it has said that the calculation will vary from case to case and will be determined according to the principles set out in its earlier judgments2.
The Supreme Court's judgment negates the notion that homemakers do not "work" or that they do not add economic value to the household or otherwise. This decision will provide useful guidance to courts and tribunals tasked with assessing compensation for victims of motor vehicle accidents, particularly homemakers.
1 Kirti v Oriental Insurance Co Ltd Civil Appeal Nos 19-20 of 2021 [Judgment dated 5 January 2021].
2 Hem Raj v Oriental Insurance Company Limited (2018) 15 SCC 654; Sunita Tokas v New India Insurance (2019) 20 SCC 688.
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