1 Personal Injury Cases Getting the Right Information By Don Bays, CPA/ABV, CVA, CFF (480) ~ Ned owned his own electrical contracting business. He ran the business with two technicians and an administrative assistant who served as his office manager. Ned was the rainmaker for his company, often getting referral work from several residential home builders and commercial building contractors in his city. He had spent several years developing his referral sources. Not only was he well-liked by them, but they also valued the quality and pricing of his work. Before the current economic recession shut down many builders, Ned had a very lucrative business. The recession started to affect Ned s earnings. He was on the verge of letting one of his technicians go when the accident occurred. A Most Unfortunate Event One day, while enroute to a construction site where his two field employees were working, Ned was stopped in his truck at a traffic signal just a mile from where he was headed. Ned glanced up at the traffic light waiting for the light to give him the notice to move out. The light turned green and Ned started to slowly accelerate. It was later determined by a crash scene expert that this forward motion of Ned s truck probably saved him from even a worse fate than what awaited him. As Ned pulled away from his stop, he heard a screeching of tires behind him. He quickly glanced at his rear view mirror to see the cement mixer truck bearing down on the rear of his truck. It had been a cold winter morning and Ned could see that the windshield of the cement mixer truck was covered over with a thin layer of ice. Things seemed to move in slow motion at this point. Ned had time to notice that the driver of the truck had scraped away a small speck of ice on the windshield glass and was peering through it. The driver, it would later be determined, did not see the traffic light. The driver also did not see Ned s truck in front of him until well, until he smashed into the rear of Ned s truck. Ned was thrown forward in his truck s cab, only to be snatched back by the seat belt constraints. His head jerked violently as it snapped back against the neck rest behind him. The truck s crash bags never
2 deployed. They apparently were built to ignore rear DATA GENERALLY OBTAINED FOR ANY PERSONAL DAMAGES ENGAGEMENT Name of claimant Date of birth, race, and sex Date of injury, death or incident Educational level of claimant Professional licenses or certifications held by claimant Spouse s name and date of birth Children s names and dates of birth Income tax returns Forms W 2 and 1099 Personal records Educational records Medical records Vocational report Report of independent medical examiner Depositions Lawsuit complaint Report of opposing expert end collisions. Ned s hands hit violently against the steering wheel and dash of the truck. He then went into unconsciousness. Waking Up The next thing Ned remembered was waking up in a hospital emergency room with two doctors and a nurse standing over him and calling out his name. They asked him to speak. No intelligible words would come out of Ned s mouth. The emergency room personnel asked him if he knew what happened to him before he got to the hospital. Ned did not remember. It took him several minutes before he fully comprehended that he was lying in a hospital bed in a hospital emergency room. Aftermath Several weeks passed before Ned was able to walk very far without experiencing severe pain in his back, legs, neck, hands and arms. He also experienced severe headaches and was under the constant care of physicians and physical therapists. Ned also was evaluated by psychologists to determine just how much his ability to think, as he did before the accident, was now affected. Ned not only did not have the same motor skills as he did before the accident, he also did not have the same comprehension ability. More importantly, he no longer had the physical skills or mental acuity to run his business. Ned had suffered brain damage. How much, and for how long, remained to be seen. Seeking Counsel Two months passed. Ned s sister, Irma, suggested that he contact an attorney. After all, it was clear to everyone that Ned was not the same person that he once was before he got hurt. He could no longer run a business much less work as an electrician. The attorney Ned visited had a reputation in town as being very good at personal injury cases. He told Ned that his firm would take Ned s case on a contingency basis and would hire an economic damages expert, a CPA, to prepare calculations that would show how much money Ned was going to lose because he would never be able to work again. Ned was 42 years old. The attorney figured Ned would lose all
3 INFORMATION GENERALLY OBTAINED FOR PERSONAL INJURY Employment Information ENGAGEMENTS the money he could have earned as an electrical contracting manager or supervisor for some large company from age 42 until a Job position at time of injury Employer s name and address Employer paid fringe benefits normal retirement age of 65. In addition, the attorney knew that Ned would have many medical bills for the rest of his life as a result of Medical Information Medical history of claimant Medical treatment as a result of the injury Continuing medical consequences of the injury Medical expenses incurred to date Medical expenses expected to be incurred in the future Fringe Benefit Information Health insurance benefits before injury Retirement benefits before injury Vacation, holiday, and sick leave policy of employer Postinjury Employment Actual or expected date of return to Actual or expected job upon return to Actual or expected wages upon return to Personal Information Amount of work time missed or expected to be missed as a result of injury Expected retirement age before injury Expected retirement age after injury Description of housework and chores performed before injury Hours spent per week on housework and chores before injury Description of housework and chores performed after injury Hours spent per week on housework and chores after injury Childcare information, including ages of children and time spent in care and training the injuries he sustained in the crash. Ned would need the CPA to prepare calculations to support the attorney s assessment. The CPA would then have to testify in a courtroom about his opinions regarding the calculations. Without Ned to run it, his business lasted only three months after the accident. The attorney told Ned that the loss of the value of his business would have to be taken into consideration as well. The attorney said he would file suit on Ned s behalf against the driver of the cement mixer truck, the driver s boss, and the insurance company providing the insurance coverage for the cement truck driver. The Economic Damages Calculations i The CPA expert was now ready to prepare the first draft of his calculation of the amount of lost earnings to be experienced by Ned over his remaining work life. Before he could begin, the expert needed certain information pertaining to Ned s claim of lost work-life earnings. The expert prepared a list of preliminary information, some of which he already had, needed for his calculation. The expert s list included data regarding Ned s date of birth, the exact date of the injury, his marital status, personal and business income tax returns, and wage history, years of education, vocational and medical reports, and
4 an assessment of Ned s health before the accident. Some Basic Assumptions Used for the Lost Earnings Calculation Ned s attorney initially did not believe Ned would ever be able to work again at any job. However, at a later deposition, Ned admitted that he had been doing occasional work as a laborer for his brother, who had a carpet sales and installation business in a near-by town. He even said his arms, hands, back and legs felt much better. He still suffered from occasional headaches, however he said. But Ned also made it clear he simply did not have the brain power to ever run an electrical contracting business. Based on reports from vocational and rehabilitative consultants, the CPA expert decided that Ned would have been able to work as a job supervisor for another large electrical contracting company had he not owned his own business. The expert researched how many remaining years of work life Ned truly had from various library sources to which he had access. The expert then calculated the amount of lost earnings as an electrical contracting job supervisor Ned would have earned in each year until his expected retirement age. The expert also set Ned s compensation at a level of a laborer making minimum wage earnings over his remaining work life. These wages, to be deemed equitable by the court, had to be offset against the wages the expert calculated for Ned to earn as a job supervisor. The expert also had to discount the earnings difference each year to a present value amount using a reasonable risk discount rate. The expert arrived at the projected lost earnings for Ned, to which he added amounts for the present value of future medical expenses to be incurred by Ned, plus other miscellaneous additions. The expert also calculated a value for Ned s lost business. The Outcome After the subsequent trial, the judge decided that the CPA expert s lost earnings calculation was fair and awarded the calculated amount to Ned. The judge also determined that Ned would not incur all the future medical expenses calculated by the expert, however, and awarded Ned these expenses for a period of ten years only again at their present value amounts. Counsel for the insurance company argued that Ned should not get compensated for the value of his lost business because the award would be duplicative that is, already considered in the lost earnings calculation. The judge disagreed, stating that Ned could have sold his business right before the accident, took the proceeds, and then went to work for another electrical contracting company. Ned received an amount for the value of his lost business as well.
5 Summary When determining economic damage amounts in personal injury cases, getting complete background information on the injured party is crucial to the calculation. Input from physicians, psychologists, vocational and rehabilitative professionals will also be important to the calculated damage amount. In addition, the ability of the expert to explain complex lost earnings schedules to a judge or jury in an easy and simple manner is equally important in obtaining a fair settlement for the wrongfully injured plaintiff as well as the party having to pony up the awarded damage amounts. Don Bays, CPA/ABV, CVA, CFF, is a Director of Henry & Horne, LLP s Business Valuation & Litigation Support Services. He has over 39 years of experience in public and private accounting and has testified as an expert witness on numerous civil cases. He can be reached at (480) or Endnote: i Source for sidebar information: Consulting services Practice Aid 98 2, American Institute of Certified Public Accountants, Calculation of Damages from Personal Injury, Wrongful Death, and Employment Discrimination, Appendix A. Tempe Scottsdale Casa Grande 2055 E. Warner Road 7098 E. Cochise 1115 E. Cottonwood Suite 101 Suite 100 Suite 100 Tempe, AZ Scottsdale, AZ Casa Grande, AZ (480) (480) (520)