8 steps to calculating economic damages in personal injury cases

1. Collect the client documents necessary to evaluate earnings and benefits losses

To determine what an individual was capable of earning had an injury not occurred, as well as what they have earned and what they are capable of earnings after an injury, you should start by reviewing the earnings and benefits documents they have received. Tax and employment documents provide insight into their earnings, and employee handbooks and contribution descriptions reveal employer provided benefits. [read more...]

2. Determine the length of the damages

In personal injury cases, damages continue until the person’s earnings and benefits are no longer affected by the injury. Doctors, life care planners, and vocational experts provide insight into the person’s length of recovery and return to work. This information, as well as public data documenting how long similar individuals are in the workforce, is used to determine the length of the damages. [read more...]

3. Calculate the earnings and benefits your client would have received, had they not been injured

The non-injury earnings and benefits are what your client is projected to have earned had they not been injured. In many cases, their historical earnings provide the best guide to what they would have earned. In other instances, when the historical earnings may not represent someone’s earnings capacity, averages for similarly-situated individuals may be used. [read more...]

4. Project the earnings and benefits they would have received in the future, had they not been injured

Once non-injury earnings and benefits have been determined, the next step is to project the damages into the future. Usually, the longer someone works, the more they earn. Projecting future losses of earnings and benefits accounts for these increases. Generally, a growth rate is applied to account for these expected increases. [read more...]

5. Calculate and project the earnings and benefits they will receive now that the injury has occurred

Next you will calculate the post-injury earnings - the earnings and benefits they have received since the date of the injury, and those they are projected to receive in the future. The actual earnings after the injury are documented in tax documents, pay statements and personal accounts of earnings. Each injury impacts someone’s work differently, so a combination of earnings history, vocational reports, and public data provide insight into their projected post-injury and non-injury earnings and benefits. [read more...]

6. Adjust for income taxes, if relevant

Depending on the jurisdiction, income taxes may need to be incorporated into an analysis of economic damages. The application of income taxes to an analysis may be relevant to one or more factors in an economic damage analysis, again, depending on the jurisdiction rules. [read more...]

When applying income taxes to the damages of an injured person, there are three common methodologies to determine the effective tax rate to apply: using the individual's historical taxes, historical taxes for similar people, or tax tables. [read more...]

7. Determine the past and future losses

Economic damages may be relevant for two time periods: from date of the injury to the present, and from the present into the future. These are referred to as past losses and future losses. [read more...]

8. Discount the losses to present value

The final step to calculating an injured person’s lost earnings and benefits is to adjust any future damages to present value. The present valuation of future damages accounts for the time-value of money. In short, money received today is more valuable than money received in the future, as money received today may be invested and earn interest over time. To convert the future damages to present day value, a discount rate is applied which accounts for projected interest. [read more...]

Damage Guide calculates economic damages in personal injury, wrongful death, employment, and business cases.

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