On the surface, the calculation of economic damages in wrongful death cases seem straight forward but upon second glance, the complexity of these cases begins to come into light. The overall concept behind the calculation of economic damages is fairly simple, however: Damages are typically equal to the present value of the expected future financial contribution the decedent would have made to his or her family but for the defendant’s wrongful act.
Where the waters begin to muddy is in the consideration of the variety of factors used to calculate the family’s economic loss, ensuring that none of the financial contributions that would have been made by the decedent are missed or double counted.
Lost Earnings or Earning Capacity
One area that is of particular interest to the valuation expert is the decedent’s earnings history and the ability to extrapolate those earnings over his or her worklife expectancy. The valuation expert might find themselves in a situation, however, that this information is not available. Absent such history, the expert may consult studies prepared by government agencies or private sources that show average earnings of various occupations. Other factors that should be considered when deriving the decedent’s future earnings are education, experience, age, health and inflation.
One question I’ve heard many people ask is: What is considered future earnings? In some jurisdictions, plaintiffs are allowed to recover damages of lost earnings capacity. The appropriateness of this may be based on whether or not there is evidence that the decedent was qualified or if there was an indication that he/she would become qualified for a higher-paying position in the future.
Unfortunately, wrongful death cases not only affect adults but also include minors as well. The calculation of economic loss in relation to the wrongful death of a minor can be much more challenging. In such cases, a minor’s expected earnings or earning capacity depends on his or her level of education. One method available to the expert is to estimate the level of education the minor would have attained but for the incident causing the death, based on the age of the decedent. Typically, this determination is based on statistics showing probable levels of educational attainment by sex, race, geography, family income and educational background.
When calculating total damages, the valuation expert needs to not only consider “base earnings” but also the value of employer-provided benefits, such as retirement and health benefits. In the consideration of employer-provided benefits, it is important for the expert to avoid double-counting. For example, a decedent’s anticipated contributions to a 401(k) or other defined contribution plan are already included in the decedent’s wages. If the employer also contributes to the plan, however, those contributions must be counted.
For pension plans and other defined benefit plans, the expert typically projects the decedent’s anticipated post-retirement benefit stream, based on expected years of service, salary levels, retirement date and life expectancy. One final area of concern requiring special care is paid vacations and sick leave. These types of compensation are often part of an employee’s gross wages, so including them in damages may constitute double-counting.
The loss of benefits such as Social Security may also contribute to damages. Particular aspects, such as the decedent’s age and marital status, whether the decedent has children or other dependents and whether the decedent was retired at the time of death can all have an impact in determining the amount of the loss.
One area that might not immediately come to mind when performing a wrongful death calculation is household services. The value of these household services can be a significant loss. Items that might be included in household services are child care, cooking, cleaning, repairs and maintenance, lawn care and managing finances and investments. Often times, these tasks are attributed to the stay at home spouse but even decedents who were employed full-time contribute to household services to some extent.
One limiting factor when considering household services is that many individuals do not keep track of the time they spend on these services. To determine their value, an expert might utilize various different methods. One method might be to consult studies that estimate the number of hours family members spend on such tasks, and the value those services based on their average market costs. It is not uncommon to find this information broken down into such factors as age, education, income and family size.
Know the Facts
Economic damages in a wrongful death calculation involve a multitude of considerations. You and your financial experts should examine the facts of each case to determine how a decedent’s particular circumstances affect his or her family’s economic loss.
(Matt Stelzman is an Accredited Valuation Analyst and Certified Forensic Financial Analyst designated by the National Association of Certified Valuation Analysts. Matt has over 10 years of experience in business valuation and litigation support services. Matt works in the Specialized Services Group of Henderson Hutcherson & McCullough, PLLC. For more information visit their website at www.hhmcpas.com or call Matt directly at 702-8147.)