SC: Future Prospects of Career to be Considered when giving compensation to the victim in a Motor Accident claim

The Supreme Court of India, on 27th July, stated that when applying the multiplier method in computing Motor Accident Compensation, future prospects on advancement in life and career of the victim should also be taken into account. The bench comprising of Justices Sanjay Kishan Kaul, Ajay Rastogi, and Aniruddha Bose corrected that the multiplier should be 18 and not 17 after including the future career potential in the said case where the deceased was between 15-25 years at the time of her accident. The victim and complainant, Ms. Erudhaya Priya, appealed to the SC claiming that she is entitled to enhancement of compensation over and above what was granted by the Motor Accidents Claim Tribunal (MACT). 

 
In this case, the victim, Ms. Priya met with an accident in 2011. The State Corporation bus in which she was travelling collided with a lorry and she suffered disability of 31.1% of the whole body. She approached the MACT and filed a compensation claim and it directed the State Corporation to pay Rs. 35,24,288/- interest @ 7.5% per annum from the date of petition till realization of the payment. The case was then appealed and the Karnataka High Court confirmed the negligence of the bus driver but reduced the compensation to Rs. 25,00,000/- on the ground that the multiplier method for quantifying loss of earning power had been incorrectly applied as it had not been shown that how the injuries suffered by Priya had a bearing on her earning capacity as a software engineer. The interest rate was also sustained. 

What is a Multiplier?  

The Tribunals and Courts, in an aim to be non-arbitrary to be provide just and fair compensation, courts have evolved a standard method of calculating the amount of just compensation. This standard method brings consistency in the matter of calculation of compensation payable to the victims or their legal heirs.  

The standard method is followed by the courts involves the following steps: 

(i) Calculate the income of the deceased/injured with future prospects 

(ii) Deduction for personal and living expenses of the deceased 

(iii) Selection of multiplier 

(iv) Computation of compensation. 

A landmark SC case in this aspect was National Insurance Company Limited vs Pranay Sethi wherein the court stated that this concept of ‘fair compensation’ should be determined on grounds of fairness, reasonableness, and on acceptable legal standards since there can never be in an exact arithmetic formula. In cases of death, the multiplication is normally based on the net annual value of the dependency, if any, on the date of death of the deceased. As soon as the net annual loss (multiplicand) is assessed considering the age of the deceased, this amount is multiplied by a multiplier to compensate for the loss on the dependence. In some cases, the SC said that the determination of multiplier is determined by the age of the deceased, the age of the complainant, marital status, education and employment of the plaintiffs, and loss of financial benefits.