We were recently engaged to calculate the economic loss of a taxi operator who was significantly injured in a motor vehicle accident and was off work entirely for around 3 months.

Background

The plaintiff argued to his solicitor that he had lost a fortune as a result of the accident. His tax returns only showed a very low taxable income. For those of you who have worked with taxi drivers in personal injury, you will know that they tend not to declare very much in their tax return. On face value, the plaintiff’s claim did not look very good at all. The solicitor listened to his client and engaged us to prepare a report.

During the initial conference with the plaintiff, it became apparent that the plaintiff was not a taxi driver, but a taxi operator with 14 taxis under management and the plaintiff had a clear and concise understanding of how his business worked and its future direction.

One of the first things that we do when listening to the plaintiff’s story is compare that with the story of the financial statements. Financial statements and income tax returns tell us a story, they provide evidence of the transactions of the business. We were able to establish that the plaintiff’s story was turn and that he had in fact lost over $300,000 per year as a result of the accident, yet his tax returns had only shown an income in the year of the accident of $25,000.

How you ask?

The plaintiff was building upon his taxi fleet. Taxis have a life of 6.5 years before they must be replaced, he bought the taxis new and financed the over three years with 0% residual. So in the first 3 years, the profitability of each taxi was marginal, but in the following 3.5 years he would make a significant monthly profit on each taxi. By developing a financial model of the business, that we matched to past performance, we were able to show with a high degree of probability that, if not for the accident, the plaintiff’s income in the year following the accident (when a large proportion of the taxis debt-free) that his taxable income would have been around $140,000 and increased each year that point.

Conclusion

The plaintiff settled for a very significant amount, but it was dependent upon some important factors:

• The plaintiff’s story agreed with the story of the financial statements.
• We were able to rely upon the financial statements, and build a solid financial model based on those financial statements.
• As a taxi operator rather than a taxi driver, the plaintiff’s circumstances were unique and should not be compared with a taxi driver.

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2. Common Mistakes in Economic Loss Part 2 – Expenses not deducted
3. Unfair and Oppressive Conduct Case Study
4. Case Study 1: Shareholder Disputes – Building Company
5. Fox v Wood Claims

Tagged as: Case Study, Economic Loss, Financial Statements, Personal Injury