In many personal injury actions, the income loss claim is the largest damage component. The income loss claim has two components, namely: (1) loss of past earnings and (2) impairment of future earning capacity. An understanding of both aspects is needed in order to pursue or defend such claims.
A claim for loss of earnings is straightforward. A plaintiff in a personal injury action may seek recovery of lost earnings caused by the tortfeasor. Standard proofs are required. Lost earnings should be reasonably easy to document. Problems may arise in the case of a self-employed person. In such circumstances, testimony from an accountant may be needed to fully explain the scope and extent of the loss.
A claim for impairment of earning capacity is somewhat more problematic. The Pennsylvania standard jury charge provides a good overview and starting point. Standard Charge 7.40 states that a plaintiff is entitled to be compensated for any loss or reduction of future earning capacity that will result from the harm sustained. In this regard, the jury is instructed to: (1) first decide the total amount that the plaintiff would have earned had the injury not occurred; and (2) then determine the total amount the plaintiff is now able to earn with the restrictions imposed by the disability. The difference between these two amounts is the loss of future earning capacity. The standard charge then lists the following factors to be considered in determining the loss of earnings capacity:
• Type of work the plaintiff did or was capable of doing;
• Type of work the plaintiff would have been doing absent the injury;
• Type of work the plaintiff will be able to do with the injury; and
• The extent and duration of the disability.
Other relevant matters, including the age, education and experience of the plaintiff, are to be considered. This formula is consistent with Pennsylvania law.
In Pennsylvania, a plaintiff may present a claim for impairment of earning capacity even if earning the same or more money after the accident. In Bochar v. J.B. Martin Motors, 97 A.2d 813 (Pa. 1953), the plaintiff sustained a serious injury to his knee, resulting in permanent restriction. As a result, the plaintiff was required to take a different job. That job, however, paid more money. The defendant asserted that there could be no claim for impairment of earning capacity in that situation. The Supreme Court rejected that defense, stating that parity of wages, alone, is inconclusive of impairment of capacity. In so holding, the court stated:
“It is not the status of the immediate present which determines capacity for remunerative employment. Where permanent injury is involved, the whole span of life must be considered. Has the economic horizon of the disabled person been shortened because of the injuries sustained as the result of the tortfeasor’s negligence? That is the test.” (See also, Ruzzi v. Butler Petroleum, 588 A.2d 1 (Pa. 1991).)
The claim for impairment of earning capacity, therefore, addresses an injured person’s economic horizons, not actual earnings. It is these economic horizons, as well as the diminution of same, that the plaintiff must prove at trial in order to recover damages for impairment of earning capacity.
In proving or defending a claim for impairment of earning capacity, the period of time for which the plaintiff is entitled to recover damages must be determined. In the case of a permanent disability, a plaintiff may often claim damages through age 65 or 70. The work life tables, however, establish that most individuals do not remain employed on a full-time basis in the work force to age 65. The tables, in fact, posit a smaller period of time for which loss is to be calculated. Certainly, a plaintiff may present evidence and testimony that he or she intended to work to age 65 or 70. However, an economic and/or vocational expert can be cross-examined on the basis of work life tables in an attempt to limit the duration of an impairment of earning capacity claim.
Claims for impairment of future earning capacity, it should be noted, are not subject to a reduction to present value. Prior to the 1980 decision of the Supreme Court in Kaczkowski v. Bolubasz, 421 A.2d 1027 (Pa. 1980), damages for loss of future earning capacity were reduced to present value. In eliminating this reduction, the Supreme Court stated:
“Henceforth, in this commonwealth, damages will be awarded for future lost earnings that compensate the victim to the full extent of the injuries sustained. Upon proper foundation, the court shall consider the victim’s lost future productivity. Moreover, we find as a matter of law that future inflation shall be presumed equal to future interest rates with these factors offsetting. Thus, the courts of this commonwealth are instructed to abandon the practice of discounting lost future earnings. By this method, we are able to reflect the impact of inflation in these cases without specifically submitting this question to the jury.”
Abandoning the reduction of future claims to present value substantially increases the amount of damages recoverable for impairment of future earning capacity.
Damages for lost earnings and impairment of earning capacity, similarly, are not subject to any discount for the effect of income taxes. It is axiomatic that while an award of damages in a personal injury claim is not subject to taxation — see Bent v. Commissioner of Internal Revenue, 835 F.2d 67 (3rd Cir. 1987) — no adjustment is made to a damage award to reflect that exemption. This, too, directly affects the amount of the award of damages in personal injury litigation.
Some limitations do exist, however, upon recoverable items of work loss in automobile accident litigation in Pennsylvania. In Tannenbaum v. Nationwide, 992 A.2d 859 (Pa. 2010), the Supreme Court determined that a plaintiff may not recover duplicate benefits by reason of the §1722 preclusion of the Motor Vehicle Financial Responsibility Law. In this regard, §1722 provides:
“In any action for damages against a tortfeasor, or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth in this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in Section 1719 (relating to coordination of benefits) shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers’ compensation, or any program, group contract or other arrangement for payment of benefits as defined in Section 1719.”
In precluding duplicate recovery of income loss, i.e., payment by disability carrier and recovery of damages in the tort/UM/UIM action, the Supreme Court noted that the collateral source rule had effectively been eliminated in automobile accident litigation in Pennsylvania and stated:
“In summary, under Section 1722′s plain terms, an insured’s recovery under UM/UIM policies may be offset by groups/programs/arrangement benefits, including disability benefits purchased, in whole or in part, by the insured, at least so long as benefits are not subject to subrogation.
This rule, too, should apply to Social Security disability benefits. Thus, recovery of work loss in motor vehicle cases is subject to some limitations. The application of the Tannenbaum rule to future loss of earning capacity claims may be somewhat problematic, recognizing that plaintiffs will argue that there is no guarantee of future disability payments while the disability will certainly endure.
James C. Haggerty is one of the founding partners of Haggerty, Goldberg, Schleifer & Kupersmith, a firm dedicated to the handling of complex civil litigation, personal injury, coverage and bad-faith matters on behalf of injured victims.
Teresa Rodriguez practices in the area of personal injury actions at the firm. She has represented hundreds of immigrant, migrant and seasonal farmworkers in labor and employment cases including wage-and-hour, unpaid minimum wage, unpaid overtime, concerted protected activity, health and safety, and discrimination.