Damages in Personal Injury Claims – A Shifting Landscape

Monday, June 10th, 2024
Author: Francis Valletta, ACII, Chartered Insurer

Newsletter Q3, 2024

The concept that compensation should be paid when one causes injury to another person, or causes loss or damage to their property, dates to the beginnings of civilisation with Babylonian law, the code of Hammurabi, that contained extensive provisions in this sense and was developed even further by the Romans.

Roman law in fact distinguished between different types of damages, including:
• “Damnum emergens” which referred to actual or direct damages suffered by the victim, such as the cost of repairing damaged property or medical expenses.
• “Lucrum cessans” which referred to loss of profit or income resulting from the wrongful act.
• “Pretium doloris” which referred to compensation for pain and suffering.

The Romans therefore recognised that a person should not only be compensated for any economic loss suffered as a consequence of the negligence of another person, but also for any pain or distress caused to the mind or body. These damages are known as “moral damages” but also as “non-material” or “non-pecuniary” damages, and most legal jurisdictions in Europe specifically allow for them.

While Malta’s Civil Code refers to the awarding of “Damnum emergens” and “Lucrum cessans” damages, it makes no mention of “Pretium doloris” or any other type of moral damages. According to Claude Micallef Grimaud , the exclusion of moral damages was intentional, a decision attributed to Sir Adrian Dingli who in 1853, as Crown Advocate, started to draft several Ordinances that would eventually constitute the Maltese Civil Code. One of his main concerns about moral damages that led him to decide to exclude them was the fear that such damages could result in unjustified enrichment of the injured party. He felt that awarding such damages could go beyond the concept of restitutio in integrum (the principle of restoring a person or situation to the position they were in before a loss occurred, or as we refer to it in insurance “indemnity”).

The lack of detailed provisions in Maltese law as to the way damages are calculated has meant that the quantification of damages has very much been left up to the judiciary. The formula laid down in the landmark judgement of Butler v Heard has influenced the awards of most judgements relating to personal injury cases in our courts, even if over time it has been refined and adapted to the circumstances. This formula is still the basis for calculating the loss of future earnings of the injured party during the remaining working life, resulting from the degree of permanent, physical disability suffered. If strictly interpreted, compensation should only be allowed if it is shown that the disability would actually result in the injured party’s future earning potential being reduced, however this factor is hardly ever considered by the courts. If for example, the injured party has incurred a 20% permanent disability (as rated by medical experts), this percentage of future income would be fully considered as lost as a result of the disability, even if the disability does not impact his or her income in any way.

The Court of Appeal, in a case going back to 2002 , had commented that it was unfair not to compensate a victim that suffered a permanent disability as a result of a traffic accident on the grounds that he suffered no actual loss of earnings. This was because such a person had no right under Maltese Law to claim moral damages, for such things as pain and suffering and for the diminution of the quality of his life owing to his disability. Our courts have been grappling with this issue for long, and aside from accepting that any permanent disability will always affect future income, in recent years it has become common for the courts to also accept that some compensation is awarded for what is termed as a “permanent psychological disability”. This may result from the trauma incurred in the accident, such as post-traumatic stress disorder, especially if the physical disability incurred was a serious one. This has however created some controversy as assessing psychological as opposed to physical disability is more difficult, while there is often doubt as to the genuine nature of such a disability and whether it is in fact temporary rather than permanent.

The fact that there are no clear and defined rules, and that we do not have binding precedent in our legal system, means that there is always a degree of uncertainty when an insurer needs to decide on the reserve to put aside for a personal injury claim. This is because the damages awarded by the court in a specific case may sometimes be surprising and occasionally new factors that had not been considered in previous cases are introduced.

In one such case, Bugeja v Camilleri , the court awarded compensation for the “psychological trauma” incurred by the owner of a sports car (Bugeja), when his friend (Camilleri) crashed with it and rendered it a total loss. The car itself suffered damages costing €25,700, so naturally Camilleri had to compensate Bugeja for this financial loss, but in addition, the court also ordered him to pay an additional €59,000 as damages for the psychological disability incurred by Bugeja. Although Bugeja suffered no physical injury, he was not even in the car when it crashed, he was diagnosed as having suffered from “emotional disturbances” that changed him and that affected his work and social habits as a result.

In the meantime, an ongoing case in front of the Constitutional Court is challenging the validity of the Butler v Heard formula. This was brought by the heirs of a man who had died in a work-related accident as they are claiming that the use by the courts of this formula was in breach of their rights. They are arguing that it is discriminatory as it bases the calculation, among other things, on the victim’s age. Their father had died as a result of injuries received when he was hit by a truck manoeuvring on a narrow road. It is likely that using the formula would result in the amount of compensation payable being rather low since technically there was hardly any loss of future income considering that deceased was already past retirement. The plaintiffs are probably expecting that the outcome of the case will be that a different method of calculating compensation that takes into consideration other heads of damages is used, possibly therefore including some form of moral damages.

This uncertainty surrounding the calculation of damages often also serves as a barrier when insurers and the lawyers representing the injured party are trying to negotiate a fair out-of-court settlement in personal injury claims. Insurers in Malta have in fact long lobbied for changes in the law to bring more clarity as this would likely result in less cases going to court and in speedier negotiations.

An effort was made in 2011 to amend the existing legal framework of civil damages through Bill 78 that was aimed at amending articles 1045 and 1046 by incorporating new provisions, including limited non-pecuniary damages. This bill however never made it beyond the First Reading stage in parliament. Then in 2014 the Justice Minister of the time had set up a commission to recommend changes to the way in which compensation is awarded by the courts. The commission’s report was never made public, but in an interview given by Dr Paul Cachia to the Times of Malta who headed the commission, he had made this very relevant comment on moral damages, “This is a very thorny issue. Should you compensate for moral damages at all? How do you quantify pain and suffering? And what about the effect of moral damages on the economy? At the end of the day, policyholders will end up paying for any compensation awards through their motor insurance premium, for example. It is not in the interest of Malta to go to the extremes seen in other countries.” He also said that “We must never forget that justice needs to be done not only with the claimant but also with the defendant.”

Whether the required changes in the way damages are calculated and awarded come about as result of court judgements, or due to amendments in the law, what ultimately matters is that the method used to calculate compensation is not only fair but also transparent and consistent. It must bring about enough certainty and confidence that will allow insurers and injured parties to reach swift agreements on the settlement of claims, and thus make it less likely for these cases to end up in court. Ultimately, we must keep in mind that it is not only important that injured parties receive a fair amount of compensation but that they also receive compensation in a timely manner, and that they do not have to wait years for it, which is an injustice in itself.

Our Featured Courses

With almost 40 years’ experience, MITC is geared to meet the demands of the modern participant, offering a professional training environment and a selection of the best speakers in the industry.

Why Choose Us

MITC is made up of a close-knit team with a real passion for learning and insurance, who believe in the continuous development and empowerment of individuals through learning. We understand all of the nuances and challenges that come with insurance training and, that is why we’re here to help you get your training right.

Our courses are developed following in-depth research and consultation on the subject matter and the related market, thus ensuring participant needs are met. All our trainers are experts in their field and actively contribute towards the continuous development of the courses which they deliver.

Our training services are accredited by the Malta Further and Higher Education Authority (MFHEA) and the European Qualifications Framework platforms. MITC’s homegrown insurance programmes are recognised by the renowned Chartered Insurance Institute, UK.

Let's stay in touch

Stay updated with MITC news updates and courses. We promise not to spam your email or share your email with third parties.