So you have a dispute matter that involves an injury to a person who claims to have been wronged in some way. What is the case worth from a compensatory damages perspective? Having a general idea about the answer to this question early will allow you to make informed strategic decisions regarding your approach in terms and determining the time and resources necessary to devote to the dispute. But how can you improve your discovery?
Compensatory damages in personal injury matters generally fall into three categories: (1) Lost earnings or earnings capacity; (2) Lost value of household services; and (3) Life care plan costs. Focusing your damages discovery in terms of these categories will yield better information for you and your forensic economic expert who will quantify the loss. While discovery often focuses mainly on the liability aspects of a dispute, a more balanced discovery approach with damages can significantly strengthen the plaintiff or defense side of any case.
In Pennsylvania, 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,” Strawn v. Strawn, 444, Pa. Super. 890, 664 A.2d 129, 132 (1995). A calculation of earnings capacity takes into account the sustainable realistic earnings of an individual over the individual’s earnings horizon. The basic questions to be answered is what is the difference between the amount of money the injured party could have reasonably expected to earn until retirement “but for” the injury; and the amount of money the injured party will now likely be able to earn given any temporary or permanent work limitations. Together with fringe benefits, this comprises the first element of compensatory damages in personal injury matters.
In many cases, the realistic projection of one’s earnings capacity is supportable by the actual historic earnings of the injured person before the injury occurred. A person who earned consistent amounts in the years before they were injured can reasonably expect to continue to do so absent a clear and convincing reason why this may not have been the case. In disputes where this is the case, the first step in the projected loss is relatively simple.
Unfortunately, the earnings of many individuals are not consistent for any number of reasons. In other cases, historic earnings may not realistically provide a reliable basis to project future earnings capacity. This may occur in instances where there is an injury to a child, a stay at home parent, a student, or someone in their early 20s. In such instances, a forensic economist and a vocational expert will make projections based on other facts and information which may not be case-specific and may instead be statistically based.
In my experience, individuals are often not good historians when it comes to their past earnings. The best place to get one’s actual historic earnings information is from tax records, W-2 earnings statements, employment records, or Social Security records. In an almost perfect world, an injured party keeps tax records and supporting documentation of their earnings for a number of years both before and after an injury and in some cases, this information is readily available from the plaintiff. If not, discovery can also be requested of employers and the Internal Revenue Service for W-2 statements, payroll records, paystub information, and tax transcripts. But getting this information can be time-consuming. As an alternative, one of the quickest ways to secure evidence of a plaintiff’s actual historic earnings is to ask them to sign-up for an account on the Social Security website (SSA.gov) and to print out their annual earnings history once their account is verified. Compared to subpoena responses which can be time consuming and not always fruitful, a person can often get their earnings history from the Social Security Administration in a matter of hours if not less. This information will tell you what an annual basis an individual’s earnings history.
There are times where an individual’s earnings history is not consistent from year-to-year which may be the result of individual traits, employment circumstances, or economic fluctuations which may not be in the control of the injured party. In such cases, a forensic economist will need to decide on the best representation of the individual’s sustainable earnings capacity by considering all the relevant information.
Once earnings capacity is determined, the lost or impacted worklife expectancy of the injured party needs to be determined. A common mistake by some attorneys and forensic economists is to simply subtract the age of the injured person from the number of years to an assumed retirement age to make this assumption. This is usually wrong. Instead, reliance on statistical worklife expectancy data specific to cohort groups who share similar characteristics in terms of gender, education, age, and work force participation status of the injured party is a better and more supportable method to project one’s worklife expectancy. Simply assuming a retirement age fails to account for inherent risk factors such as early mortality, temporary or permanent disability, or other reasons which may remove an individual either temporarily or permanently from the workforce before reaching an assumed retirement age. There are both worklife expectancy statistics and retirement age statistics specific to individual cohorts which forensic economists often rely upon in making projections of potential losses. While there may be case specific reasons to deviate from the general statistical information, doing so should only be done when there is reliable evidence in support of the deviation.
Earnings are not the only economic loss related to diminished employment for many injured parties. Many workers earn fringe benefits of economic value which can be lost if they lose employment. For many injured parties, such economic value is found in employer contributions to retirement plans and in employer payments towards healthcare insurance premiums. Typically, employer pays between 6 percent and 7 percent of employee earnings amounts towards employer benefit plans. For injured parties working relatively consistently for an employer prior to her injury, such contributions can usually be determined on the case specific basis. Alternatively, employer costs for employee compensation statistics are provided by the U.S. Bureau of Labor Statistics on a quarterly basis for a number of different fringe benefit and employer cost categories. This information is provided on both on average hourly dollar amount and on a percentage of cost basis. Lacking reliable, case-specific fringe benefit data (which should be available in many cases but often is not due to weak discovery), average cost data is often relied upon by forensic economists once an actual loss of a fringe benefit has been established. Unfortunately, some forensic economists assume a fringe benefit loss where none has been established as being likely to have occurred. This type of speculation reduces the expert’s credibility.
Employer information specific to fringe benefit information should be sought during the discovery process. By law, employers offering some benefit plans will have summary plan documents which describe in detail the parameters of the retirement plan and healthcare insurance benefit plan they offer. The cost of health care insurance is often shared between the employee and employer, and such costs can vary significantly. Costs and employer contributions amounts should be discovered when readily available and relevant to any particular case.
Depending on the venue and the type of case, adjustments to earnings for projected wage growth and discounting future losses to present value dollars may be necessary. In Pennsylvania, case law dictates that inflation and discount rates to present value will offset one another in non-medical malpractice matters. The practical aspects of this law is that future adjustments to earnings are only necessary for projected wage growth above the inflation rates for productivity wage gains which are supportable on a case-by-case basis. In medical malpractice matters however, inflation and discount rates are not automatically assumed to offset one another. Inflation projections are provided by various government entities are often relied upon to support the projection of future inflation by forensic economists. Discount rates are usually based on relatively safe investment vehicles such as government treasuries or high-quality, triple A-rated corporate bonds yields. The premise of using these interest rates is that an injured party, if awarded an economic loss amount today, could invest the award safely and earn interest so that future loss amounts would equal today’s dollars.
Forensic economists often work in conjunction with vocational experts to determine an individual’s post injury earnings capacity if it is not clear whether an injured party is able to work in some capacity after the injuries. Once this earnings information is determined, a similar analysis related to worklife expectancy, fringe benefits, potential wage growth and discount rates is also applied. The net result of this analysis will usually determine an opinion related to the past loss of expected earnings and future office of earnings capacity to an injured party.
But earnings do not represent the only economic loss category in personal injury matters. There is often a loss of economically valuable household activities or services that the injured party can no longer provide. Household activities of value such as cooking, cleaning, yard work, etc. have an economic value even though there may not be any transactional exchange of money for these activities. If an injured party can no longer perform some of the household activities that he or she would have likely performed, then there is a potential loss of value. A projection of the loss is generally made by multiplying the lost hours of services by a market value rate often determined by the average rate of pay in occupations such as maids, cooks, landscapers, etc. which is typically in the range of $10 to $15 per hour. This earnings data is provided in Occupational Employment Statistics published by the U.S. Bureau of Labor Statistics. If injuries are permanent, the loss would likely continue through what would have been the person’s healthy life expectancy.
Finally, an injured party may incur past and future costs for necessary care such as physician visits, diagnostic testing, therapies, medications, equipment, home care services, facility care needs, or other items related to their injury. Such costs can total millions of dollars and be more than the loss of earnings capacity for severely injured plaintiffs. There are life care plan experts who usually project these costs based on medical reviews and need assessments of the patient. Forensic economists will usually assist in projecting inflation rates based on the cost components projected in the life care plan.
With this compensable damages foundation in mind, attorneys representing both plaintiffs and defendants should structure their discovery to obtain the relevant information for the injured party. This will allow them to provide a better product for their client.
William E. Harris is the owner of ForensicDamages. Harris has 27 years of experience in providing damage-related disputes in thousands of matters. He has taught economic damage-related issues locally, nationally and internationally. He is hired by attorneys representing both plaintiffs and defendants in Pennsylvania, New Jersey and surrounding areas. He can be reached at firstname.lastname@example.org or in his Cherry Hill, New Jersey office at 856-489-1100.