In personal injury disputes, economic experts are asked to determine the sum of money that would fairly and reasonably compensate the plaintiff for the economic losses they suffered following their injury. Economic experts do not provide opinions on liability in personal injury matters.
The main components of a plaintiff’s economic losses are lost earnings, lost household services, and medical expenses. This article discusses the information economic experts rely upon to analyze lost earnings, lost household services, and future medical costs.
Lost earnings are composed of wages and employment benefits, net of taxes, the plaintiff lost as a direct result of the injury. To calculate lost earnings, it is ideal to know the plaintiff’s earnings for a period of several years before and after the injury, as well as the employment benefits they received. Employment benefits, such as insurance, retirement savings, and legally required benefits, can add up to a large portion of the plaintiff’s lost earnings. Therefore, it is important that we be able to determine the type of employment benefits and to quantify the value of the plaintiff’s employment benefits both before and after the injury.
Lost household services represent the value of household chores, such as cleaning, cooking, caring for children, or yard work, the plaintiff performed prior to the injury, but can no longer perform as a result of the injury. The plaintiff’s socio-economic characteristics, such as the plaintiff’s living situation, marital status, and number of individuals living in the household, are of particular importance in determining the value of lost household services.
Future medical costs must be discounted to present value in order to fairly compensate the plaintiff for their expected future medical costs. Life care planners detail the medical costs the plaintiff is expected to incur in the future, including when the medical costs will be incurred, and present the expected costs in today’s dollars. Economic experts apply the expected inflation of the future medical costs and the time value of money to calculate the present value of the plaintiff’s expected future medical costs detailed in the life care plan.
How can personal injury attorneys provide the information to assist economic experts to determine the plaintiff’s economic losses accurately, objectively, and fairly?
Attorneys can request the plaintiff’s financial records for several years before the date of injury, as well as for the period of time after the injury. Examples of such financial records include the following:
Pay stubs and earning statements. These records not only contain information about the plaintiff's wages, but can also include information regarding the plaintiff's employment benefits. Pay stubs and earning statements can also show if the plaintiff is paid hourly or a salary, their hourly pay rate, and the number of hours worked, among other information.
Form W-2's (Wage and Tax Statement) or Form 1099's (Miscellaneous Income). These records summarize the plaintiff's earnings for a calendar year and can also provide information about employment benefits the plaintiff receives. Form W-2's indicate that the plaintiff is an employee, as opposed to a Form 1099-MISC contract worker. In addition, Form W-2&'s can identify state income taxes and/or local income taxes the plaintiff may be liable for. Form W-2's alone may not paint a complete picture, as they do not specify what period of the year the plaintiff is being paid for (if not for the complete calendar year); Form W-2&'s can be complemented with information from other sources.
Tax returns. These records can provide information on the plaintiff's income for a calendar year. However, if the plaintiff files jointly with a spouse, their earnings may be combined and reported together. As with Form W-2&'s, tax returns do not identify the period of the year the plaintiff is being paid for. Tax returns can also be used to determine the plaintiff's effective Federal income tax rate, which is another component of lost earnings.
Social Security Administration earnings statements. These records provide a history of the plaintiff's reported Social Security earnings on an annual basis and by employer.
Employment records. These records can contain useful information, such as hourly pay rates, periods of employment, earnings progression, and details regarding the type of employment.
Weaver has developed a list Economic Experts in Personal Injury Disputes to assist economic experts with their analysis of the plaintiff's economic losses.
In addition to the records obtained and produced through discovery, other expert reports can be helpful in our analysis of the plaintiff’s economic losses. Particularly, vocational experts can determine if, and when, the plaintiff is capable of returning to work and at what level of earning capacity, which can be used as the basis for the plaintiff’s mitigating earning capacity.
Another useful source of information to better understand the plaintiff’s economic losses is the testimony they provide in their deposition. For example, through their deposition the plaintiff can provide information regarding their living situation; an individual’s living situation (filing status and number of dependents) can affect how the plaintiff files tax returns, and how we calculate their income tax liability. The plaintiff can also provide useful information regarding the household chores they performed before the injury, compared to the household chores they can perform after the injury. Details relating to household chores can rarely be obtained solely through documentation.
Having objective and reliable information assists economic experts to provide an accurate, reliable, and fair analysis of the plaintiff’s economic losses.
For more information about the use of economic experts in personal injury disputes, contact us. We are here to help.
Authored by Helga Zauner, CVA, CFE, MAFF, and Kevin Kozlowski, CFE.
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