42 Sharp[1] - Economic Damages for Personal Injury Holly Sharp Comments and opinions expressed by the speaker do not necessarily reflect the

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Unformatted text preview: Economic Damages for Personal Injury Holly Sharp Comments and opinions expressed by the speaker do not necessarily reflect the positions, opinions or beliefs of the AICPA and should not be construed or interpreted as such. Speakers retain the copyright for all of the following materials. Any replication without written consent is unlawful. Session 42 AICPA NATIONAL FORENSIC ACCOUNTING CONFERENCE AICPA National Forensic Accounting Conference Holly Sharp, CPA, CFE, CFF LaPORTE SEHRT ROMIG HAND September 25, 2009 The Swan Hotel, Orlando, Florida Insert Your Logo Here Calculating damages in personal injury, wrongful death and wrongful termination Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983) Calculation of lost earnings is a rough approximation Inflation may be considered Monessen Southwestern Railway Co. v. Morgan, 486 U.S. 3330 (1988) Rejects total offset method Norfolk & Western Railway Co. v. Liepelt, 444 U.S. 490 (1990) Taxes should be subtracted from projections of lost earnings on a wrongful death Chesapeake & Ohio R. Co. v. Kelly 241 U.S. 485 (1916) Future damages should be reduced to present value Daubert v. Merrell Dow Pharmaceuticals, Inc. 509 U.S. 579 (1993) Sufficient facts or data Reliable principles and methods used and applied Insert Your Logo Here 42-1 Projecting lost earnings Pre-injury earnings Analysis of past 3 to 5 years Special issues Self-employed Closely – held business owners Post-injury earnings What are actual earnings from incident to trial? Earning capacity? Vocational rehabilitation experts Insert Your Logo Here Projecting lost earnings Selecting the wage base Analysis of past earnings Plaintiff who hasn’t entered workforce? Consideration of future promotions Consideration of voluntary unemployment Earning capacity Work-related expenses Subtract from base earnings Wage Studies: Bureau of Labor Statistics Occupational Employment Statistics National Compensation Survey Are your assumptions reasonable? Insert Your Logo Here 42-2 Fringe Benefits Legally mandated work-related fringes Social Security 6.2% of wages matched by employer for social security taxes. Social Security formula determines benefits; contributions by employer and employee are not the basis of the formula Case law: Social Security benefits should not be included in projections of damages based on lost earnings. [Flemming v. Nestor, 363 U.S. 603 (1960)]. Medicare 1.45% of wages matched by employer for Medicare taxes for general fund to pay for Qualified workers are eligible for Medicare benefits at age 65 Workers’ compensation Unemployment compensation Calculation of loss must factor periods of unemployment to include a value for lost unemployment compensation Insert Your Logo Here Fringe Benefits Discretionary work-related fringes Employer-matching for retirement Medical insurance Life and disability insurance Using statistics to calculate lost fringes Bureau of Labor Statistics U. S. Chamber of Commerce Common errors when percentages are used to determine lost fringes Cost to employer or value to employee? Why vacations, holidays, etc. are not lost fringes Future economic outlook considerations in evaluating lost fringes Insert Your Logo Here 42-3 Medical costs and Life care costs Medical costs and Life care costs Reliance on other experts Omit life care expenses not caused by the tort Watch for duplications in household services Insert Your Logo Here Collateral source rule Insurance proceeds that pay for injury and injury-related expenses do not offset damage calculation in most jurisdictions. Medical insurance Disability insurance Life insurance May provide windfall to plaintiff “The collateral source rule allows a plaintiff to seek full recovery from a tortfeasor even though an independent source has compensated the plaintiff in full or in part for the loss.” Green v. Denver & Rio Grande Western RailroadCompany,59 F 3d 1020 (10th Cir. 1995). Insert Your Logo Here 42-4 Personal Consumption Wrongful death cases Based on an individual’s consumption of expected future income Household income Individual or family income? Consider ages of children Are any children disabled and will need lifetime support? Insert Your Logo Here Personal Consumption Consumption studies Note: May need to consider payment of expenditures from sources other than income, such as savings and subsidies Department of Labor: Consumer Expenditure Survey Patton-Nelson Personal Consumption Tables: Journal of Forensic Economics, Vol 20, No. 3. Krueger study of personal consumption: Journal of Forensic Economics, Vol. 20., No. 1. Insert Your Logo Here 42-5 Household services Cooking, cleaning, home maintenance Consider ages of children Managing household Value of service that must be replaced Cost to replace service Time spent by injured or deceased person Opportunity cost? Consider personal consumption in wrongful death cases Household services studies Expectancy data: The Dollar Value of a Day Insert Your Logo Here Income Taxes Federal cases and other jurisdictions What taxes are considered? Federal income tax State and local income tax Social Security and Medicare taxes “ “Medicare, Social Security, Railroad Retirement Tier I and II Benefits and Payroll Taxes: Federal Case Law and Errors by many Forensic Economists,” by Thomas Ireland and Paul Taylor, Litigation Economics Digest, 1996, 2(1): 79-88. Lost earnings calculated after-tax Personal injury Wrongful death Discount rate adjusted to offset taxes on interest income Estimation of future tax rates Insert Your Logo Here 42-6 Growth rates Base earnings Pre- Injury rate Post-injury rate Mitigation factors Age earnings adjusted figures Growth rates may vary over time Earnings do not increase at a constant rate Insert Your Logo Here Growth rates Medical costs Medical components of the Consumer Price Index unrelated components upward bias Insert Your Logo Here 42-7 Growth rates Future inflation estimates President’s Council of Economic Advisors http://www.gpoaccess.gov/eop/ The Livingston Survey http://www.phil.frb.org/research-and-data/real-timecenter/livingston-survey/ Social Security www.ssa.gov/cola Bureau of Labor Statistics www.bls.gov Employment and Earnings Employment Cost Index Relationship between indexed and non-indexed Treasury bonds Insert Your Logo Here Loss period: Worklife expectancy Factors in worklife estimates Age Date of injury or date of trial? Race Education Working status Active or Inactive? Person may be active but not working—Still considered Active Can’t find work Temporary family responsibilities School or training Increment Decrement theory Insert Your Logo Here 42-8 Statistical worklife tables Bureau of Labor Statistics Worklife Estimates: Effects of Race and Education Ciecka, Donley and Goldman “A Markov Process Model of WorkLife Expectancies Based on Labor Market Activity in 1997-98.” Journal of Legal Economics 9(3):33-68. Ciecka, Donley and Goldman “A Markov Process Model of WorkLife Expectancies by Educational Attainment Based on Labor Market Activity in 1997-98.” Journal of Legal Economics 10(3):122. Skoog and Ceicka “The Markov (Increment-Decrement) Model for Labor Force Activity.” Journal of Legal Economics 11(1):1-90. Krueger, Skoog and Ciecka “Worklife in a Markov Model with Full-time and Part-time Activity.” Journal of Forensic Economics 19:1, 61-82 Insert Your Logo Here Worklife LPE Probability of survival each year is established from life tables Probability that worker would participate in workforce each year is established from government sources. Specialized worklife tables Railroad employees: Skoog, Gary and James Ciecka “Worklife Expectancies of Railroad Worker.” Journal of Forensic Economics 11:3 237-252. Shortened worklife Reliance upon other experts Arbitrary worklife Is it probable? Insert Your Logo Here 42-9 Life Expectancy When losses may extend beyond worklife Medical and life care expenditures Retirement benefits Household services? Vital Statistics Division of the National Center for Health Statistics Age, Race and Sex Date of injury is measurement date[1] http://www.cdc.gov/nchs/products/life_tables.htm [1] Pfeifer v. Jones & Laughlin Steel, 678 F:2d 453 (1982). Insert Your Logo Here Discounting losses to present value “Best and safest” investment Past loss Present value of Future loss Trial date Report date Do you need to update your report before trial? Static rate or laddered approach? Insert Your Logo Here 42-10 Discount rate Net Discount Rate (1+discount rate)/(1+growth rate) Removes inflation from loss calculation Combining all factors into single discount rate may be difficult to explain to jury Real interest rate Interest rate net of inflation Nominal interest rate Insert Your Logo Here Discount rate Rates to consider U. S. Treasury AAA- rated municipal bonds http://www.federalreserve.gov/releases/h15/Current/ Problem with using an average of historical interest rates Insert Your Logo Here 42-11 Other calculations Loss of inheritance damages Survival actions Connecticut, Georgia, New Mexico, Mississippi Loss of society awards Support to parents by child Foreign plaintiffs Gross up damages for taxes. Higher taxes applicable to lump sum payment[1] [1] Rejected: Dashnaw v. Pena 304 U.S. App. D.C. 247 (D.C. Cir 1994). Insert Your Logo Here Collecting information Checklists: pros and cons Lawsuit and pleadings Birthdates of plaintiff, spouse and children Level of education of plaintiff Income tax returns Forms W-2 and 1099 Employee manuals Depositions Vocational Rehabilitation Report Life Care Report Medical Reports Insert Your Logo Here 42-12 What has caused economic testimony to be excluded? Failure to issue a complete report by the scheduling deadline. Unreasonable assumptions Base earnings substantially higher than actual earnings prior to accident. Career projections not supported by evidence. Double-digit annual wage increases. Not supported by record. Reliance on an unreliable study Insert Your Logo Here References/ Resources Ireland, Thomas R. PhD, “The role of a Forensic Economist in a Damage Assessment for Personal Injuries” (Draft 4/6/04) http://www.umsl.edu/~irelandt/ Ireland, Thomas R. PhD, James D. Rodgers, PhD and Stephen M. Horner, PhD, Valuing Economic Damages in Personal Injury and Wrongful Death Actions: A Reference Guide. Lawyers & Judges Publishing Company, Inc. (2002) Ireland, Thomas R., Forensic Economics UM- St. Louis http://www.umsl.edu/divisions/artscience/economics/ForensicEconomics/ Martin, Gerald D. and Ted Vavoulis. Determining Economic Damages. James Publishing Co. Santa Ana, California, Revision 21 July 2009. Journal of Forensic Economics www.econ.unt.edu/jle/ Journal of Legal Economics www.nafe.net Litigation Economics Digest www.nafe.net Advocate Software www.advocatesoftware.com Insert Your Logo Here 42-13 ...
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This note was uploaded on 01/12/2012 for the course ACCT 555 taught by Professor Briggs during the Spring '11 term at University of Texas at Dallas, Richardson.

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