Personal Injury & Wrongful Death Economic Damages Analysis

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Learn about the processes, economic studies, online statistics and well known statistical studies used in a personal injury and wrongful death loss of earning capacity economic damages analysis.


<ul><li> 1. The Numbers, Studies and Statistics Behind aPersonal Injury/Wrongful Death EconomicDamages Analysis Presented by: Robert Vance, CPA, ABV, CFF, CVA, CFP Forensic &amp; Valuation Services, PLC 901-507-9173</li></ul><p> 2. SOURCES OF INFORMATION Determining Economic Damages, JamesPublishing, Gerald Martin, Ph.D. is beta testing Advocate PersonalInjury Economist, Employment Law Economistand Wrongful Death Economist National Association for Forensic which publishes the Journal ofForensic Economics A number of studies and websites will be referencedthroughout 3. WHAT IS DISCOUNTING TO PRESENT VALUE?The process of converting future cash flow(s) into a current, present value, lump-sum figureCash flows are discounted to account for the Time Value of Money End of Year0 +1 +2 +3+4 3%$1,000 $1,000$1,000$970.87$942.60$915.14 $2,828.61 = PVA3 4. WHY DOES PRESENT VALUE MATTER? Economic losses are calculated to the PresentValue to quantify a steady stream of lost pastand lost future income into a single, lump-sumfigure for settlement or award purposes The Present Value of the economic losses isThe Replacement Value of a Life 5. THE REPLACEMENT VALUE OF A LIFEEssential Elements1. Loss of Earning Capacity that would have been earned from jobs or occupations, less mitigating earnings, if any2. Loss of Fringe Benefits that are part of the jobs or occupational income streams3. Loss of Household Services that would have been performed, less services still able to perform 6. THE REPLACEMENT VALUE OF A LIFEEssential Elements4. Medical &amp; Rehabilitation Bills incurred in the past plus estimates of future bills from a Life Care Plan5. Discount all Losses to Present Value, usually to the Trial Date 7. TIMELINE FOR A DAMAGES ANALYSISLoss of Earning Capacity &amp; Loss of Fringe BenefitsLoss of Household Services &amp; Medical Bills Injury TrialWorklife LifeDateDateExpectancy Expectancy Past orFuture orPre-Trial Post-Trial 8. Essential Elements1. LOSS OF EARNING CAPACITYa) Establish the earnings base/earning capacity (what was earned or could have been earned)b) Over Worklife Expectancy from date of injury Source: The Markov Process Model of Labor Force Activity: Extended Tables of Central Tendency, Shape, Percentile Points, and Bootstrap Standard Errors (Skoog &amp; Ciecka) Journal of Forensic Economics 22(2), 2011, pp.165-229 2011 by the National Assoc. of Forensic Economics Gary R. Skoog, James E. Ciecka and Kurt V. Krueger 9. Essential Elements1. LOSS OF EARNING CAPACITYc) Inflation often removed from earnings increases (and correspondingly from the discount rate) under the Constant Dollar methodd) Earnings based on education, training &amp; experience Consider promotions &amp; career ladder at employer Age, health, intelligence &amp; record of employment 10. Essential Elements1. LOSS OF EARNING CAPACITYf) Deduct the mitigating earnings still able to earng) Taxes are not usually deductedh) Injury or death of a child No work history and usually not married &amp; no children Project earnings based upon a survey of family educational background and socio-economic status 11. Joan Smith10-30-9512-20-06 Gregory Smith - Father Allison Smith - Mother BA - BusinessAssoc DegreeAssoc Degree / Navy Asst Mgr Diet ConsultantDistrict Market Mgr ($50,000)Carol Nesmith (sister) (Nashville, TN) Susan White (sister)David Smith (brother)PhD LawAssoc Applied Science(Deerfield Beach, FL) BS Nursing / Assoc Applied SciencesCertified Diagnostic SonographyMS Computer IS / BA AccountingAtty at Law ($50,000)RT(R),RDMS,RVT,RCS ($91,000) Chief Ops Officer ($100,000) Thomas Nesmith (brother-in-law)Mike White (brother-in-law) (Age 39) Margaret Smith (sister-in-law) PhD MedicineBA Marketing BA JournalismBS Biology Assoc Electronic TechSpecial Events CoordinatorChief of Vascular Surgery ($800,000)Facility Ops Spvr ($57,000) Eugene Smith Alma Sue Elway Thomas Elway BS Econ/Fin Wilma Jean Smith Assoc Degree BA SociologyPhD Veterinary / ArmyMA EducationTeacher / Child Care ProviderTeacher / Social Case WorkerMedical Officer US Dept Agr ($73,000)Bus/IT Instructor ($100,000)Sara Smith RE SmithBA Education Owner / Operator Teacher RT Smith Lumber CompanyElijah Smith Raymond SmithMS - Business Owner / OperatorBA Business RT Smith Lumber Company Business Manager 12. Joan SmithFamily Member Education and Income SummaryAnnual Value Annual Value AnnualWeeklyin Indexed to FutureOccupationSOC Co d e Wage Salary and Education Attainment Table**Hours 2005 Dollars Future Year YearAttorney2 3 10 11 50,000Wage and Salary Workers (Part-Time) High School20 12,81814,019 2014Business Manager119 19 965,430 *Wage and Salary Workers (Full-Time) Some College 40 29,64033,068 2016Business/IT Instructor2 510 11 100,000Wage and Salary Workers (Full-Time) Bachelors 40 42,27648,114 2018Certified Diagnostic Sonography2 9 112 491,000Wage and Salary Workers (Full-Time) Bachelors/Advanced40 51,11660,537 2022Chief of Vascular Surgery2 9 10 6 7800,000Chief Operating Officer 1110 11100,000**Current Population Survey, U.S. Department of Labor, Bureau of Labor Statistics, T able 17: Median usual weekly earningsCPA 13 2 0 11 43,650 *of full-time wage and salary workers 25 years and over by educational attainment and sex, 2005 annual averages.Diet Consultant2 9 10 3 1 40,080 *District Market Manager112 0 2 250,000Electrical Engineer 172 0 7159,730 *Facility Operations Supervisor119 19 957,000The use of government statistical wage and salary earnings is justifiedMarketing Manager 112 0 2 1 89,380 *given that the family history of annual earnings on average is in fact higher.Medical Office Manager119 111 66,740 *Medical Officer 119 111 73,000Owner / Operator1110 2 150,000 *Owner / Operator1110 2 150,000 *Special Events Coordinator13 112 142,230 *Teacher2 52 0 2 1 45,560 *Teacher2 52 0 2 1 45,560 *Teacher / Child Care Provider2 53 0 9 9 34,540 *Teacher / Social Case Worker 2 53 0 9 9 34,540 *VP of Marketing 112 0 2 1126,470 *Average Annual Wage 96,132*Occupational wage information provided by U.S. Department of Labor, Bureau of Labor Statistics, May 2005, Annual Median Wage, Area T N-MS-AR; otherwise by family members.Degree(s) Held by Family Members High School AssociatesBachelorsAdvanced22 6189100% 27% 82% 41% 13. Essential Elements1. LOSS OF EARNING CAPACITYh) Sources of Income Data: W-2s, 1040s, paystubs, depos of family Government surveys and statistics Bureau of Labor Statistics, Department of Labor, Occupational Employment Statistics (OES) Survey http:/ US Dept. of Commerce, Bureau of the Census: Money Income of HouseholdsMoney Earnings by Sex, Age &amp; Education, &amp; US Industry &amp; Trade Outlook 14. Essential Elements1. LOSS OF EARNING CAPACITYh) Sources of Income Data (contd): A vocational rehabilitation expert (also: impairment) Industry specific Accounting: American Institute of CPAs, Robert Half &amp; Assoc. Legal: ABA, Altman Weil, Inc., Medical: AMA, Medical Group Management Assoc., Medical Economics Military: 15. Essential Elements1. LOSS OF EARNING CAPACITYi) Personal Consumption - in WD cases, generally subtract a % (might justify the lower Personal Maintenance) Purchases made by an individual family member exclusively for his or her own benefit, such as haircuts, food, clothes, toiletries, jewelry, medical expenses, etc. The amount of income that would have gone toward the consumption of the decedent is usually subtracted from the projected lost income 16. Essential Elements1. LOSS OF EARNING CAPACITYi) Personal Consumption (contd) Assumptions often made for the number of persons in a household as this impacts the % consumed Income level usually affects the % consumed Source: Patton-Nelson Personal Consumption Tables 2005-06 Journal of Forensic Economics 20(3), 2007, pp. 217-225 2009 by the National Assoc. of Forensic Economics Michael R. Ruble, Robert T. Patton, and David M. Nelson 17. Essential Elements2. LOSS OF FRINGE BENEFITSa) Part of the job or occupationb) Expressed in the calculation as a % of gross lost Earning Capacityc) Can be 20% - 40% 18. Essential Elements2. LOSS OF FRINGE BENEFITSc) Examples: 11.7% Employer paid FICA, Unemployment &amp; Workers Comp. (Legally-Required) 11.6% Health &amp; Other Insurance3.0% Retirement Plans9.8% Employer paid Holidays &amp; Vacations?On-site Child Care &amp; Meals 36.1% 19. Traditional Fringe Benefits-Private IndustryBureau of Labor Statistics Economic News Release, June 7, 2012, "Employer Costs for Employee Compensation",March 2012, Table A. Relative importance of employer costs for employee compensation, All Workers.Private IndustryPaid leave9.8%Health Insurance 11.0%Other Insurance 0.6%Defined contribution plan 3.0%Legally required 11.7% Percentage of Wages 36.1%Civilian Workers Private IndustryComp.Comp.Component % of Wages Component % of WagesWages and salaries 69.3%70.3%Benefits 30.7%29.7%100.0% 100.0%Paid leave7.0%10.1% 6.9%9.8%Supplemental pay2.4% 3.5% 2.9%4.1%Health Insurance8.5%12.3% 7.7% 11.0%Other Insurance 0.4% 0.6% 0.4%0.6%Defined benefit plan2.8% 4.0% 1.5%2.1%Defined contribution plan 1.8% 2.6% 2.1%3.0%Legally required7.8%11.3% 8.2% 11.7% 30.7%44.4%29.7% 42.3% 20. Essential Elements2. LOSS OF FRINGE BENEFITSd) Sources of fringe benefit data: Interview or depo of employer or family Government &amp; private surveys &amp; statistics U.S. Department of Labor, the Bureau of Labor Statistics, in a study titled "Employer Costs for Employee Compensation, June 7, 2012 U.S. Research and Analysis Center, U.S. Chamber of Commerce , "The 2008 Employee Benefits Study" 21. Essential Elements2. LOSS OF FRINGE BENEFITSe) Unvested or unconventional benefits Lucrative defined benefit pension plans Stock options Stock performance awards Unfunded retirement plans Deferred compensation plans Use of company vehicles 22. Essential Elements3. LOSS OF HOUSEHOLD SERVICESa) Services that can no longer be performed due to injury or deathb) Not just for the loss of a homemakerc) Include unpaid tasks that maintain and enhance the lives of those in household Cooking, Cleaning, Lawn care, Child care &amp; transportation, Home &amp; vehicle maintenance &amp; repairs, Gardening, Shopping, etc. 23. Essential Elements3. LOSS OF HOUSEHOLD SERVICESd) The loss, even though not directly compen- sated like regular employment, has value to the family nonetheless since the tasks will: Not be done at all or not as often Be done by someone else in the household (at the expense of other things the "someone else" might have been doing) Require outside assistance who may have to be compensated 24. Essential Elements3. LOSS OF HOUSEHOLD SERVICESe) Valuation methods are generally based on hours spent times an hourly rate Opportunity Cost Method (reference to what the individual could have earned in the marketplace) Replacement Cost Method (reference to the cost to hire in the marketplace)f) Over the life expectancy Source: National Vital Statistics Reports 25. Essential Elements3. LOSS OF HOUSEHOLD SERVICESg) Most do not keep a log of hours spent on household choresh) Source: The Dollar Value of a Day, Expectancy Data (estimated hours by chore along with hourly rates) 26. Table 6. Married males that work full-time, wife does not work, youngest child ages 13 to 17Dollar Weekly Waking Hours Standard Weekly Hourly ParticipationValue SecondaryWithError Time Use CategoryHours ValueAt Home Rate of a Day Child Care FamilyPercentInside Housework 0.87$10.33 $ 14.6% 21.1%Food Cooking &amp; Clean-up1.29 9.86 1.810.000.801.1030.115.5Pets, Home &amp; Vehicles5.05 12.118.740.002.014.8138.9 9.2Household Management 0.76 15.021.630.000.380.5825.415.8Shopping 1.78 11.462.910.001.190.1332.111.2Obtaining Services 0.10 2.326.4Travel for Household Activity1.81 11.963. 7.9Household Production 11.6511.81 19.650.005.957.5578.3 5.6Household Children 1.26 11.011.99 n/a1.080.5622.318.4Household Adults 0.17 5.751.2Non-Household Members0.68 11.391.100.000.420.27 8.532.2Travel for Household Members 0.63 for Non-Household Members 0.30 13.150.560.000.170.00 8.019.5Caring and Helping 3.04 11.765.100.002.300.9630.811.5 Table 35. Married females that are not in the labor force and not disabled, husband works, youngest child under age 13Dollar Weekly Waking Hours Standard Weekly Hourly ParticipationValue SecondaryWithErrorTime Use Category Hours ValueAt Home Rate of a Day Child CareFamily PercentInside Housework 12.29$10.33$18.14 8.75 6.2111.99 79.6%1.9%Food Cooking &amp; Clean-up9.989.86 14.067.93 5.72 9.8089.4 1.2Pets, Home &amp; Vehicles2.3912.11 4.131.74 1.51 2.1324.0 4.2Household Management 1.4815.02 3.171.00 0.85 1.2530.1 4.5Shopping 4.9911.46 8.173.32 3.78 0.0955.0 2.4Obtaining Services 0.2213.18 0.420.14 0.11 0.16 5.512.3Travel for Household Activity2.8111.96 4.811.90 2.23 0.0758.1 2.4Household Production 34.16 10.8452.89 24.7920.4025.4998.1 1.0Household Children 19.94 11.0131.37 n/a19.4216.9588.4 1.3Household Adults 0.2411.23 0.380.13 0.19 0.13 7.912.6Non-Household Members0.7411.39 1.210.38 0.59 0.1613.610.5Travel for Household Members 2.2413.15 4.210.18 1.83 0.0344.4 2.1Travel for Non-Household Members 0.3713.15 0.690.20 0.27 0.0011.5 5.0Caring and Helping 23.54 11.2637.870.8922.3017.2789.9 1.2 The Dollar Value of a Day, 2003 27. Essential Elements4. MEDICAL AND REHABILITATION BILLSa) Bills already incurredb) Estimated future bills from a Life Care Plan Indexed using the Medical Price Index rather than the general Consumer Price Indexc) Present valuing a Life Care Plan is often a separate engagement 28. Essential Elements5. DISCOUNT ALL LOSSES TO PRESENT VALUEa) Pre-Trial Losses Calculate losses prior to Trial Date (past) and compoundwith interest to Present Value -1Trial Date +1 +2 +3 29. Essential Elements5. DISCOUNT ALL LOSSES TO PRESENT VALUEb) Post-Trial Losses Calculate losses after Trial Date (future) and discount toPresent Value -1Trial Date+1+2+3 30. Essential Elements5. DISCOUNT ALL LOSSES TO PRESENT VALUEc) Discount Rate Using a risk-free rate (U.S. Treasury Bonds) The best and safest investments as per Jones and Laughlin Steel Corporation v. Howard E. Pfeifer (462 U.S. 523; 1983; US Supreme Court) Inflation often removed from the discount rate (and correspondingly from earnings increases ) under the Constant Dollar method Real rate of interest thought to be around 2-3% 31. Bring the 5 Essential Elements Together Wrongful Death Economic Damages Report Case Information Plaintiff James Smith"Injury" Date 08/23/2011SexMale Age at Injury 41.4 RaceWhiteInjury Year Fraction0.36Birthdate03/25/1970Life Expectancy38.1Worklife Expectancy23.0Age at End of Life Expectancy79.5 Retirement Age64.4 End of Life Date9/28/2049End of Worklife Date 8/22/2034Life Date Fraction0.46 Worklife Year Fraction0.36 Valuation Date04/13/2013 Discount Rate 1.8%Assumed "Trial"...</p>


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