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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
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
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
Analysis of past 3 to 5 years
Closely – held business owners Post-injury earnings
What are actual earnings from incident to trial?
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
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
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)].
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
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
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
Cost to employer or value to employee?
Why vacations, holidays, etc. are not lost fringes Future economic outlook considerations in evaluating lost
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
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
Individual or family income?
Consider ages of children
Are any children disabled and will need lifetime
support? Insert Your Logo Here Personal Consumption
Note: May need to consider payment of expenditures
from sources other than income, such as savings and
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
Wrongful death Discount rate adjusted to offset taxes on interest income
Estimation of future tax rates Insert Your Logo Here 42-6 Growth rates
Pre- Injury rate
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 components of the Consumer Price Index
upward bias Insert Your Logo Here 42-7 Growth rates
Future inflation estimates
President’s Council of Economic Advisors
The 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
Insert Your Logo Here Loss period: Worklife expectancy
Factors in worklife estimates
Date of injury or date of trial?
Active or Inactive?
Person may be active but not working—Still considered
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
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
Insert Your Logo Here Worklife
Probability of survival each year is established from life
tables Probability that worker would participate in
workforce each year is established from government
Specialized worklife tables
Skoog, Gary and James Ciecka “Worklife Expectancies of Railroad Worker.”
Journal of Forensic Economics 11:3 237-252. Shortened worklife
Reliance upon other experts
Is it probable?
Insert Your Logo Here 42-9 Life Expectancy
When losses may extend beyond worklife
Medical and life care expenditures
Vital Statistics Division of the National Center for Health
Age, Race and Sex
Date of injury is measurement date
 Pfeifer v. Jones & Laughlin Steel, 678 F:2d 453 (1982). Insert Your Logo Here Discounting losses to present value
“Best and safest” investment
Present value of Future loss
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
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
Problem with using an average of historical interest
rates Insert Your Logo Here 42-11 Other calculations
Loss of inheritance damages
Connecticut, Georgia, New Mexico, Mississippi Loss of society awards
Support to parents by child
Gross up damages for taxes. Higher taxes applicable to
lump sum payment
 Rejected: Dashnaw v. Pena 304 U.S. App. D.C. 247 (D.C. Cir
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
Vocational Rehabilitation Report
Life Care Report
Insert Your Logo Here 42-12 What has caused economic testimony to be excluded?
Failure to issue a complete report by the
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
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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