Opinion ID: 2332096
Heading Depth: 1
Heading Rank: 3

Heading: Failure to Instruct on Tax Status of the Award

Text: Under Section 104 of the Internal Revenue Code of 1954 (26 U.S.C. § 104), awards for impairment of future earning capacity stemming from personal injury actions are exempt from the federal income tax. Such an award is also exempt from state income taxation by operation of 36 M.R.S.A., § 5121, which defines taxable income for a state resident as the individual's adjusted gross income for federal purposes. The defendant requested an instruction designed to inform the jury of these facts. The proffered requested instruction reads as follows: I instruct you that damages awarded by you, if you make any such award, are not subject to federal or state income tax. The defendant contends that the Court's refusal so to instruct the jury constituted reversible error. We disagree. We note initially that the requested instruction merely alerted the jury to the fact that their award of damages would be tax free to the plaintiff. The true cautionary instruction would add the following: Should you find that plaintiff is entitled to an award of damages, then you are to follow the instructions already given to you by this Court in measuring those damages, and in no event should you either add to or subtract from that award on account of federal [or state] income taxes. See Domeracki v. Humble Oil & Refining Co., 443 F.2d 1245, 1248-1249 (3rd Cir. 1971). Was this truncated requested instruction suggested for the very purpose of having the jury consider, at least subconsciously, the free tax status of the award of damages which they were to assess at present value for loss of earning power as reflected through the loss of future earnings which jurors know would have been taxable, if the plaintiff had not been prevented from earning the same by reason of the accident, in the hope of obtaining a reduced award in the final analysis? We agree, however, that the avowed purpose of such a request is to discourage a jury from enlarging an award, because they may entertain an erroneous belief that the plaintiff will be called upon to pay income taxes thereon. It may be conceded that there does exist a possibility of harm if the jury is left uninformed respecting the tax status of the award; on the other hand, it is conceivable that the plaintiff could be prejudiced if they were told of the tax exemption provision. As stated in Hall v. Chicago & North Western Railway Company, 5 Ill.2d 135, 125 N.E.2d 77, 86 (1955): In either case, however, the possibility is speculative and conjectural, and such being the case, it is better to instruct the jury on the proper measure of damage and then rely on the presumption that they will properly fulfill their duty by following said instructions. If such an instruction as suggested by the defendant were proper, what objection could there be to a requested instruction informing the jury that the fees of the plaintiff's counsel (ordinarily not recoverable as damagessee Gagnon v. Turgeon, Me., 271 A.2d 634 (1970)) are not elements of damage, even though plaintiff will have to pay them out of the award or that the defendant will not be paying the verdict out of his own pocket, since there is insurance coverage. These matters are of no concern to the court or jury. Similarly, whether the plaintiff has to pay a tax on the award or not is a matter that concerns only the plaintiff and the government. Again, as well said in Hall v. Chicago & North Western Railway Company, Id., 125 N.E.2d at 86: [I]f the jury were to mitigate the damages of the plaintiff by reason of the income tax exemption accorded him, then the very Congressional intent of the income tax law to give an injured party a tax benefit would be nullified. In the case of insurance liability coverage, this Court said in Sawyer v. J. M. Arnold Shoe Company, 90 Me. 369, 38 A. 333 (1897): We think that to allow juries, in cases of this kind, to take into consideration the fact that an employer was insured against accidents, would do more harm than good, and would increase the already strong tendency of juries to be influenced, in cases of personal injury, especially where a corporation is defendant, by sympathy and prejudice. This Court has consistently maintained to this day that the existence or non-existence of liability insurance coverage is wholly immaterial and is prejudicial when introduced in the course of a trial in a negligence action; the rule would apply to the court's charge to the jury. See Downs v. Poulin, Me., 216 A.2d 29 (1966); St. Pierre v. Houde, Me., 269 A.2d 538 (1970). As stated in St. Pierre v. Houde , the impropriety of consideration of insurance or the lack of it in personal injury cases has its origin in the long established rule that the wealth or poverty of a party is not a proper issue in such cases. Similar improper influences could possibly result from a jury instruction on the tax free status of a personal injury damage award. Even though most of the commentators, who have dealt with the subject, favor the giving of such an instruction, [5] the over-whelming weight of authority is that the refusal so to instruct on request is not reversible error. Scalise v. Central Railroad Company of New Jersey, 129 N.J.Super. 303, 323 A.2d 525 (1974); Nichols v. Marshall, 486 F.2d 791 (10th Cir., 1973); Elston v. Shell Oil Company, 481 F.2d 608 (5th Cir., 1973); Davis v. Fortino & Jackson Chevrolet Company, 510 P.2d 1376 (Colo.App., 1973); Norfolk Southern Railway Company v. Rayburn, 213 Va. 812, 195 S.E.2d 860 (1973); Senter v. Ferguson, 486 S.W.2d 644 (Mo.App., 1972); Raines v. New York Central Railroad Company, 51 Ill.2d 428, 283 N.E.2d 230 (1972), cert. denied 409 U.S. 983, 93 S.Ct. 322, 34 L.Ed.2d 247 (1972); Gorham v. Farmington Motor Inn, Inc., 159 Conn. 576, 271 A.2d 94 (1970); Stallcup v. Taylor, 62 Tenn.App. 407, 463 S.W.2d 416 (1970); Henninger v. Southern Pacific Company, 250 Cal.App.2d 872, 59 Cal.Rptr. 76 (1967); Kawamoto v. Yasutake, 49 Haw. 42, 410 P.2d 976 (1966); McWeeney v. New York, N. H. & H. R. R. Co., 282 F.2d 34 (2nd Cir., 1960); Spencer v. Martin K. Eby Construction Company, 186 Kan. 345, 350 P.2d 18 (1960); Hardware Mutual Casualty Co. v. Harry Crow & Son, Inc., 6 Wis.2d 396, 405, 94 N.W.2d 577, 581 (1959); Bracy v. Great Northern Railway Company, 343 P.2d 848 (Mont., 1959), cert. denied 361 U.S. 949, 80 S.Ct. 403, 4 L.Ed.2d 381 (1960); Louisville & Nashville Railroad Co. v. Mattingly, 318 S.W.2d 844, 848 (Ky., 1958); Briggs v. Chicago Great Western Railway Company, 248 Minn. 418, 432, 80 N.W.2d 625, 636 (1957); Highshew v. Kushto, 235 Ind. 505, 134 N.E.2d 555 (Ind.1956)-235 Ind. 509, 135 N.E.2d 251 (Ind.1956); Missouri-Kansas-Texas Railroad Co. v. McFerrin, 156 Tex. 69, 90, 291 S.W.2d 931, 945 (1956); Mitchell v. Emblade, 80 Ariz. 398, 298 P.2d 1034 (1956); Hall v. Chicago & North Western Railway Company, 5 Ill.2d 135, 125 N.E.2d 77 (1955). Contra: State Highway Department v. Buzzuto, 264 A.2d 347 (Del., 1970); Geris v. Burlington Northern, Inc., 277 Or. 381, 561 P.2d 174 (1977) (prospectively only), but see Plourd v. Southern Pacific Transportation Co., 513 P.2d 1140 (Or.1973); Burlington Northern, Inc. v. Boxberger, 529 F.2d 284 (9th Cir. 1975) (also prospectively only); Domeracki v. Humble Oil & Refining Co., 443 F.2d 1245 (3rd Cir. 1971), cert. denied 404 U.S. 883, 92 S.Ct. 212, 30 L.Ed.2d 165 (1971) (also prospectively only). The fallacy of the defendant's contention that, if the instruction is not given, the jury is likely to enhance the award by including an amount for income taxes, is based on the unjustified assumption that the jury will formulate their own rules in assessing damages, contrary to the instructions of the court. Such misconduct on the part of juries cannot be taken for granted and the verdict in the instant case does not reflect such transgression on the part of the jury. This Court must presume that the jury followed the trial court's instruction respecting the several elements of damage to which the plaintiff was entitled, once they had decided on the question of liability, and that they did not base any part of their dollar verdict on matters not mentioned in the evidence nor in the charge. It must be presumed that the jurors were influenced in their verdict only by the law as given to them by the trial justice and the legal evidence presented to them during the course of the trial, and that no significant extraneous matter infiltrated their decision-making. Goldstein v. Sklar, Me., 216 A.2d 298, 302 (1966); Quinn v. Moore, Me., 292 A.2d 846, 852 (1972); McCann v. Twitchell, 116 Me. 490, 494, 102 A. 740 (1917). Any other rule would assume misconduct on the part of the jury, an assumption in which we are not justified to indulge.