Calculating Future Loss of Earnings: What is the Best Method? | Mauritius

The 2023 judgment of the Supreme Court of Mauritius in Moollan v Phoenix Insurance (Mauritius) Ltd has significantly changed the way that future loss of earnings is calculated in Mauritius. The claimant, Mr Moollan, was involved in a road accident and suffered serious injuries, which left him unable to work. He sued his insurer, Phoenix Insurance, for damages, including future loss of earnings. The judgment has generated a lot of interest among legal practitioners and the public due to the large amount awarded to the claimant and the way future loss of earnings was calculated.

The Supreme Court did not use the capitalisation method to calculate future loss of earnings. This method, which has been used for decades in Mauritius, involves capitalising the monthly or annual income of the claimant, usually at a rate of 8%. However, the Supreme Court used the multiplier method, which involves multiplying the annual income by a multiplier. The multiplier is calculated taking into account a number of factors, such as the severity of the injury, the claimant’s age and employment prospects, etc.

The multiplier method factors in the discount for accelerated receipt. This is a percentage that is deducted from a lump sum payment to reflect the fact that the money is being received earlier than it would have been if it had been paid out over time. The discount is calculated by taking into account the prevailing interest rates and the length of time over which the money would have been paid out if it had not been paid in a lump sum. In the Moollan case, the discount for accelerated receipt was 11.5%.

Had the capitalisation method been used in the Moollan case, the amount calculated for future loss of earnings would have been higher, even if the rate had been 4.5% – as applied by the Supreme Court in a 2021 judgment – instead of the usual 8%. The fact that the multiplier method factors in the discount for accelerated receipt probably explains why the amount of future loss of earnings calculated using this method is usually lower than that using the capitalisation method.

A lump sum is difficult to manage without the assistance of a financial adviser. Also, a lump sum can prove to be either too little or too much, depending on how long the claimant lives. There are alternatives to lump sump awards, calculated using the methods described above. For example, an award could be in the form of structured payments made over the claimant’s lifetime. However, a change in the law would be required, allowing courts to order such structured payments. Ultimately, what is most important is to ensure that the claimant is awarded as fairly as possible for future loss of earnings.