People will tell you that a life is priceless. But in a practical sense, a life has both economic and non-economic value to individuals, loved ones and friends. In the damages world, the value of a life is really a question of economic value. While theories of hedonic damages are sometimes put forth that attempt to quantify the non-economic value of one’s life, these esoteric arguments are greeted with high skepticism in the economic damage expert community. There is simply no reasonable way to quantify non-economic value.
But the economic value can often be quantified with a degree of reasonableness. Through a review of case-specific information and statistical data, one can calculate the economic value of a decedent for his or her estate and survivors. In its simplest form, the net economic value of a life is the difference between how much economic value the decedent would have earned or provided and how much it would have cost the decedent to do so.
The economic value earned or provided is measured as the capacity to earn money and economically valuable fringe benefits over time. In addition, it also includes the economic value (separate from the emotional value) of services that the decedent may have provided to his or her household and family members.
In Pennsylvania case law, from Strawn v. Strawn, 444 Pa. Super. 890, 664 A.2d 129, 132 (1995), a person’s earnings capacity is defined as “that amount which the person could realistically earn under the circumstances, considering his or her age, health, mental and physical condition and training.” A calculation of earnings capacity takes into account two main variables: (1) the sustainable realistic earnings capacity of an individual and (2) the individual’s earnings horizon.
In many cases, the sustainable earnings capacity of the individual is best supported by that person’s actual earnings history. This data usually provides case-specific insight into the quantifiable value the decedent brought to the labor market for which he or she was paid. Factors that may have affected that earnings history should be considered in making a judgment regarding whether the historic earnings are representative of future earnings amounts.
However, in some cases, an earnings history is not available. While this may be telling for adults, it does not provide any insight in cases involving minors. In such cases, statistical data related to earnings based on age, gender and education level is often used to estimate the earnings capacity of the minor, barring any extraordinary talents or limitations.
The earnings horizon of the individual involves an estimate of the number of years that the individual would have reasonably participated in the labor force. A common misconception is that the number of years until retirement is the same as the work-life expectancy of an individual. It is not. Statistical data related to work-life expectancy and years until retirement reflect this difference. Most individuals do not work in full-time, year-round occupations continuously until retirement. Thus, when retirement ages are assumed, adjustments should be made for unemployment, underemployment and temporary absences from the labor force in order to calculate one’s earnings capacity over their earnings horizon period.
Some experts argue that case law provides that earnings capacity should not take into account one’s work-life expectancy. However, this would violate a basic tenet of the damages remedy, which is to make the injured party whole, no more or no less.
In addition to earnings capacity, fringe benefits could have been earned that provide economic value. Fringe benefits usually include paid time off, health care insurance premium payments and retirement plan contributions. Paid time off is usually already incorporated in the earnings assumption and should not be double-counted in a calculation of loss. The loss of health insurance premium payments can be measured as the incremental cost spent to replace such benefits, if any. For a decedent, there is no loss. However, there may be loss to survivors who would have been covered by such benefits. The loss of retirement benefits is calculated as the incremental contributions above earnings that may have been provided to an individual by an employer during the individual’s work-life.
A loss of economic value may also be measured by estimating the value of services the decedent would have provided to survivors. This is typically quantified as a measure of household services, such as cleaning, cooking, shopping, yard work, etc., but could also include other services such as advice and counsel if economic value can be established. It is here where the economic and non-economic line of value is blurred. Often, I see experts use market hourly rates to estimate the value of advice and counsel that the decedent would have provided even though there is no evidence that the decedent possessed the skills or background necessary to justify the professional hourly rates used. While sweeping a floor may not require skilled labor (and thus using an hourly rate of a maid is appropriate for estimating the value of some household services), providing legal or financial assistance or guidance at a professional hourly rate does. Any quantification of professional skills as lost services should be viewed with caution.
In order for a decedent to have provided the earnings capacity and lost services claimed, the decedent would have had to remain alive and been healthy enough to provide such services. The expenses necessary to keep the decedent alive will no longer be incurred. Thus, an offset to the lost economic value should be made for a period of time that matches the claimed loss. For earnings capacity, this is limited to the number of years until the decedent would have stopped earning. For lost household services, this is limited to the number of years such services are claimed to be lost. This is an important distinction since many experts quantify a loss of household services well beyond a retirement age. Not making an adjustment for personal maintenance expenses during this period of time results in an overstatement of loss.
Data for personal maintenance expenses is usually taken from Consumer Expenditure Surveys based on household size and earnings before income taxes. These surveys provide a detailed breakdown of average expenditures and are often relied upon by damage experts to estimate such expenses. Based on Pennsylvania case law, the expenses to include are those which a decedent would be expected to spend, based upon his station in life, for food, clothing, shelter, medical attention and some recreation. •
William E. Harris is a shareholder in ForensicDamages. Harris has 22 years of experience in damage-related disputes in Philadelphia and the surrounding area. He has taught economic damage-related issues locally, nationally and internationally. He can be reached at 215-720-1570 and by email at email@example.com.