Calculating Economic Damages in a Personal Injury Case. Presented by: Warren M. Johnson, CPA, CFF

Transcription

1 Calculating Economic Damages in a Personal Injury Case Presented by: Warren M. Johnson, CPA, CFF 1

2 Personal Injury Damages 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 2

3 Determining Loss Period 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 3

4 Determining Lost Earning Capacity 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 4

5 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 5

6 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 6

7 Determining Future Earning Capacity 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 7

8 Special Issues 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 8

9 Mitigation Earning Capacity 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 9

10 Discounting to Present Value: Wages 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) 10

11 Measuring and Discounting to Present Value: Future Medical Expenses 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. 11

12 Opposing Experts 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 12

13 Discovery- Data Requests 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 13

14 Discovery - Data Requests 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 14