Pretend you won’t be compensated to mitigate your losses

This is a sequel. In my last column, I asked you to imagine being self-employed in a one-person operation, giving several random examples including a roofer, tile setter, realtor and interior decorator. Whatever the business, I asked you to imagine that you have the potential to make a lot of money on a particular project or from a client.

Before you start the project or get started with the client though, some irresponsible driver blows a red light and disables you from working, at least for the time being. I offered what I suspect to be a typical reality, that you would focus all of your attention on making it through your days in pain, confident that the insurance company will be fair about compensating you for the obvious fact that you are losing money by not working.

I cautioned that it may be obvious to you that you are losing money, but that obvious reality may not be something that you can prove, and if you cannot prove it, the insurance company will completely disregard it. I focussed last week’s column on the need to preserve the evidence necessary to prove these losses.

I promised that this week I would address another important issue, the legal duty imposed on injured victims claiming for their losses—the duty to take reasonable steps to keep those losses at a minimum. In legal circles, this duty is called a duty to mitigate those losses. If you fail to act on that duty, your very real losses may go uncompensated, even if you can prove them.

Yes, while you are focusing your attention on making it through your days in pain, you must also be looking after the insurance company, taking reasonable steps to slow the bleeding of your financial losses that the insurance company will have to compensate you for. In a construction context, this might mean hiring a labourer or two to do the physical work while you, loaded on pain killers, supervise.

You may be not be able to do the physical work, but not disabled from supervising others doing the work. If paying $12 per hour for one, or $24 per hour for two labourers will prevent you from losing the $100 per hour you are contracted to be paid, the law requires that you take that reasonable step.

In a real estate agent context, this could mean hiring another realtor on a part-time basis to look after your listings and accompany your potential buyers. You might have to give up a huge chunk of your commissions to that other realtor, but at least it would mean not giving up those commissions altogether.

In some scenarios, being out of the market or industry for a month or two might have a devastating long-term impact on your business. It might make sense to give up every dollar of your income to a subcontractor or hired help just to keep the business going so as to avoid that long-term devastation. It might make sense to go in the hole for that purpose.

The advice I give to my clients is to pretend that your injuries, and the resulting income loss, is going to go completely uncompensated. Pretend that you are struggling through your pain for your own financial survival, not busting your butt to keep your claim at a minimum for the benefit of the insurance company.

Your lawyer will be able to help you to brainstorm ways that you might be able to mitigate your income losses up front, to avoid the insurance company, with the benefit of 20/20 hindsight, nailing you down the road. It may be necessary to bring in a chartered accountant or business advisor as well.

Aside from being a legal duty—and that as such the failure to do so might cause those losses to go uncompensated— there is another really good reason for struggling as hard as you can to keep your losses at a minimum. Even if your lawyer is successful in forcing the insurance company to pay 100 per cent of those losses, you will end up with only two-thirds of the amount after paying your lawyer’s contingency fee.

Published September 5, 2010 in Kelowna Capital News

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