Calculating Economic
Damages in a Personal
Injury Case
Presented by:
1.
Principles and Methodology
A.
Determining Loss Period
B.
Determining Earning Capacity Absent Injury
I. At time of Incident
II. Post-incident
C.
Determining Mitigation Earning Capacity
D.
Present Value Calculations
2.
Checklists of Data
A.
Actuarial Data
I. Work life expectancy
II. Life expectancy
B.
Inflationary tables
C.
Family History
1. Evidence of other experts
A. Medical professional
B. Vocational Rehabilitation Expert
C. Determination of Disability by Social Security Administration, etc. (may not always indicate permanent disability)
2. Measuring Work-life for Totally Disabled Plaintiffs
A. Work-life expectancy: by gender, education, industry, profession, pension plan actuarial data
B. Years to retirement or final separation
C. Social Security retirement ages (62, 66, 70)
D. Plaintiff’s intended date of retirement
1.
Earning Capacity vs. Lost Earnings
2.
Lost Earning Capacity
A.
Determining Earning Capacity at Date of incident
B.
Determining Future Lost Earning Capacity
3.
Mitigation Earning Capacity
A.
Actual if plaintiff is working
B.
Determined by other expert testimony if not
C.
Raises/promotions in new job
Earning Capacity vs. Lost Earnings
1.Plaintiff can lose earning capacity even if not employed.
2.If employed, earning capacity can be measured by actual
earnings at time of event – presumption is average
person chooses to maximize earnings
Determining Earning Capacity
1. Wages or salary
A. Wage rate/salary at time of incident
B. Wage rate/salary history for five years prior to incident (trend pay increases with consideration of earnings ceiling)
2. Benefits
A. Health – COBRA letter (medical/dental/vision) B. Retirement/savings benefits
C. Defined benefit (pension) vs. defined contribution (401k) D. Social security
E. Other: bonuses, stock options, etc.
3. History of hours worked in career prior to incident: plaintiff’s history or union/industry average annual hours worked
1.
Likelihood of raises or promotions
A.
Past history of raises
B.
Past history of promotions
2.
Likelihood of layoff
3. Likelihood of change in benefits
1.
Injury to child, young adult, housewife returning to the
labor force, workers with undocumented earning
history, foreign workers
A.
Education expectations (educational level of parents;
plaintiff’s future plans)
B.
Age/earnings profile data (U.S.)
C.
Wage/hour data for country of origin
D.
Earnings for occupation according to surveys
E.
Testimony
If person cannot do former job –
1.
Evidence of other experts
A.
Work limitations (medical expert)
B.
Appropriate job (vocational expert)
2.
Salary/wages in mitigation employment
3.
Benefits in mitigation employment
4.
Actual work history since incident
1. Net Discount Rate: Risk Free Return Divided by Wage Growth Rate [e.g., (1.03 / 1.02) - 1 = 1.0%]
2. The higher the discount rate, the lower the damages. The
present value of damages is generally lower than the total of all future payments (gross value).
3. Consistency is important for an accountant/economist/actuary from case to case
4. Typical wage discount rates are 0% to 3% but in the present
environment can be negative, e.g., -1%, if the wage growth rate exceeds the time value of money (meaning present value is
*higher* than future value)
1. Net Discount Rate: Risk Free Return Divided by Medical Cost
Inflation Rate [e.g., (1.03 / 1.02) - 1 = 1.0%]; can be negative meaning that future cost increases exceed the time value of money.
2. Medical cost escalation measured historically by indices for various categories of medical expenses, e.g., medical commodities;
physician services.
3. Defense may want to introduce evidence of amounts paid by insurance or typically paid rather than fee for service rates for medical expenses.
4. Care costs may be reported by vocational expert or life care planner in conjunction with treating physicians or medical experts.
5. Wage loss for time spent undergoing and recovering from future medical procedures may also need to be valued.
Measuring and Discounting to Present
Value: Future Medical Expenses
1.
Defense may elect not to present an opposing expert
under the theory that this suggests there
*are*
damages
(but it may be prudent for defense to hire an economist to
consult with and have in reserve – otherwise the only
damage calculation presented is the plaintiff’s)
2.
Opposing side may overreach: need to show what is
most reasonable/probable and why
1. Social Security Itemized Statement of Earnings (Plaintiff can request from SSA)
2. Form 1040 Tax Returns (privileged) (Plaintiff can request from IRS)
3. Subpoenaed personnel and payroll records from former and current employers: 5 Years Preceding Injury; All Years Post-Injury
4. W-2 Wage and Tax Statements (Employees) or Forms 1099 (Independent Contractors): 5 Years Preceding Injury; All Years Post-Injury
5. Schedule C Profit and Loss Statements (Self- employed
Workers): 5 Years Preceding Injury; All Years Post-Injury 6. Bank Statements; Invoices; Testimony
7. Depositions of Employer; Work Supervisor; Human Resources Representative
8. Plaintiff’s: Deposition(s); Responses to Form and Special Interrogatories; Responses to Requests for Production of Documents
9. Independent Medical Expert’s Report and/or Treating Physician’s Report: return to work date; permanent and stationary date; work restrictions
10. Offsets (in CA medical malpractice): Social Security/Private Insurance Disability Payments/State Disability Insurance Payments (SDI)
11. Opposing & Retained Expert(s): Report/Complete File/ Deposition
