The Economic Expert’s Role in Personal Injury Disputes

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. It’s important to remember that 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. Providing the economic expert with thorough and reliable information aids in analyzing the components of the loss and assessing the potential loss in the case.

Lost Earnings

Lost earnings consist of wages and employment benefits 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 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

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 socioeconomic characteristics, such as the plaintiff’s living situation, marital status and number of individuals living in the household, are particularly important in determining the value of lost household services.

Future Medical Costs

Future medical costs are often presented in life care plans, which detail the future medical costs the plaintiff is expected to incur, including when the medical costs will be incurred and the expected costs in today’s dollars. Economic experts apply the expected inflation of the future medical costs detailed in the life care plan. When required by the court or to assist with settlement negotiations, economic experts can also discount these future costs to present value in order to fairly compensate the plaintiff for their expected future medical costs.

How can personal injury attorneys provide the information to help economic experts 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 and for the period of time after the injury. Examples of such financial records include:

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 provide information on plaintiff’s base rate of pay, the number of hours worked, benefit participation and information on other earnings payments such as overtime, shift differentials and bonuses/commissions.

Form W-2 Wage and Tax Statements

These records summarize the plaintiff’s earnings for a calendar year and can also provide information about employment benefits the plaintiff receives. Form W-2s indicate that the plaintiff is an employee, as opposed to a Form 1099 worker. In addition, Form W-2s can identify state income taxes and/or local income taxes the plaintiff may be liable for. Form W-2s alone may not paint a complete picture, since they do not specify what period of the year the plaintiff is being paid for (if not for the complete calendar year). Additionally, Form W-2s can be complemented with information from other sources.

Form 1099 and Schedule C

Not all plaintiffs are W-2 employees of a business. Some are self-employed, work as independent contractors or work “gig” jobs. In these scenarios, plaintiffs will receive Form 1099s reporting the gross income paid to the plaintiff. There are several different types of Form 1099s, and the type of form the plaintiff receives will vary depending on the nature of work and payment. Plaintiffs are then able to declare allowable expenses against this income. In this scenario, a Schedule C will be filed summarizing the plaintiff’s gross income, allowable expenses and reported net profit. It is important to receive the completed Schedule C, as Form 1099 does not accurately represent the earnings to the plaintiff.

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-2s, tax returns do not identify the period of the year the plaintiff is being paid (if less than a full year).

For cases that require an adjustment for income taxes, the plaintiff’s tax returns can be used to determine the appropriate effective federal, state and local income tax rates.

Corporations and partnerships are required to file separate tax filings. Plaintiffs who are owners of a company (or multiple companies) may receive compensation in different ways. Many company owners receive wage compensation and also accrue the profits of the company. While many companies are required to file separate tax returns, they are often pass-through entities and incur no direct tax liability. Profits of the company are passed through to the owner(s) of the company and reported on personal tax returns. It is important to obtain copies of corporate or partnership returns and any Form W-2s and Schedule K-1s attributed to the plaintiff in addition to personal income tax returns.

Social Security Administration Earning Statements

These records provide a history of the plaintiff’s reported Social Security earnings on an annual basis and by employer. While this statement does not provide the same level of detail as other documentation of earnings, it provides a consolidated listing of plaintiff’s employers. It also provides a long-term history of earnings, usually well beyond the availability of tax returns.

Employment Records

These records can contain useful information, such as pay rates, periods of employment, earnings progression and details regarding the plaintiff’s type of employment. Such records can also provide information on benefit availability, participation and any periods of leave the plaintiff may have taken.

Union Records

For a plaintiff who is a member of a labor union, obtaining union records can be critical for properly valuing economic damages. Such records can include collective bargaining agreements, wage and benefit schedules, hours logs, benefit statements and summary plan descriptions. Depending on the union, it would be common for these documents to be maintained by different entities. The local union would generally have information regarding wages and hours worked. On the other hand, benefit funds are generally a separate legal entity, requiring their own individual requests. Some union members also participate in benefit plans administered at the national level.

In personal injury and wrongful death cases, it is important to secure proper union documentation. Collective bargaining agreements establish wage and benefit information for members and information on changes in total compensation. Many union members, especially in the construction trades, work on a project basis, moving from project and employer as the work requires. Obtaining a history of the plaintiff’s annual hours worked through their union can help determine an average of hours worked. Additionally, because the requirements for overtime will fluctuate by project, a history of hours worked will allow for a better representation of overtime potential. Many union members also participate in defined benefit pension plans. A clear record of pension credit history allows the economist to assess the financial implications of an incident on the union member’s pension benefits.

Expert Reports, Deposition Testimony and Interviews

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. This 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.

Conducting interviews with a plaintiff and their family can provide valuable insights into potential economic losses. These interviews allow the economist to ask specific questions about the economic impact of injuries, as well as to gather information and context that may not be captured through traditional discovery methods.

Having objective and reliable information assists economic experts in providing an accurate, reliable and fair analysis of a plaintiff’s economic losses.

Weaver has developed downloadable content, “Useful Information for Economic Experts in Personal Injury Disputes,” to assist with the analysis of the plaintiff’s economic losses. For more information about the use of economic expert witnesses in personal injury disputes, contact us. We are here to help.

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