Assessing Economic Losses in Personal Injury

8/18/2019 Assessing Economic Losses in Personal Injury

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ASSESSING ECONOMIC LOSSES

IN THE PERSONAL INJURY CASE OF

ALAN J. POLLACK, v. PLAY-SET SYSTEMS, INC.

Analysis Pr!ar" #y a F$rnsi% E%$n$&i%s E'!r(

R(ain" #y () La* Fir& $+ () Plain(i++

I. CERTIFICATION

I certify that all assumptions, sources, methods, and calculations contained herein stem from theobjective application of the existing body of knowledge and methodology available to me for the purpose of determining pecuniary losses.

I further certify that my professional compensation associated with this economic loss report and possible subsequent services is strictly remuneration for time expended on such services and notcontingent on the outcome of subject matter.

As part of my responsibility as practitioner of forensic economics, I pledge adherence to theStatement of thical !rinciples and !rinciples of !rofessional !ractice of the "ationalAssociation of #orensic conomics $"A#%. A printable copy of this Statement is available athttp&''nafe.net'!ages'thics.aspx and can also be provided on request.

((((((((((((((((((((((((( lias ). *rivoyannis, !h.+.

II. OPINION OF ECONOMIC LOSS

!laintiffs counsel retained me in order to calculate economic damages suffered by plaintiff allegedly as a result of personal injury. -he analysis set forth herein is based on information provided to me by plaintiff and plaintiffs counsel, either written or verbal, as it pertains to thismatter.

/aving relied on this information, as cited in the report, and in accordance with generallyaccepted economic and statistical principles, it is my professional opinion that the total value of pecuniary losses sustained by Allan 0. !ollack, based on alternative probable future events

described in the report, is between

1 234,356 and 1 758,897 after tax on his adjusted incomeor

1739,883 and 1456,879 before tax on his adjusted income


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III. CASE ACKGROUN AN STATISTICAL ASSUMPTIONS

Plain(i++ In+$r&a(i$n

!laintiff& Allan 0. !ollack: born 0uly 8;, 842;

Injury date and age& August


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In(n"" *$r2 li+ '!%(an%y

At the time of his injury, >r. !ollack was planning to retire at age


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3445 PRE-INJURY EARNINGS

PERIO OF 53 6EEKS

YEAR

HOURLY

6AGES

ANNUAL

6-3 GROSS

6AGES

ANNUAL

ASE

EARNINGS

ANNUAL

O7ERTIME

EARNINGS

6EEKLY

A7G.HOURS

O7ERTIME

6EEKLY A7G

HOURS $+

6ORK

$a% $b% $c%M$a %x35x96 $d%M$b%C$c%$e% M J$d%'$a%x$8N 5.9%K'96 $f% M 35N$e%

6559 189.55 1 9;,3arch of 655< and at the time of his injury, Oopyt Services, ) in #lemington, "ew 0ersey, employed >r. !ollack in the same capacity. /is 6; weeks of preCinjury

compensation for 655< is summari?ed as follows&

3448 PRE-INJURY EARNINGS

PERIO OF 39 6EEKS

F#r0ary 3:, 3448 ($ A0;0s( 8, 3448

PERIO

HOURLY

6AGES

YT PAYSTU

GROSS

6AGES

YT

REGULAR

EARNING

S

YT

O7ERTIME

EARNINGS

A7ERAGE

6EEKLY

HOURS OF

O7ERTIME

A7ERAGE

HOURS

OF 6ORK

PER 6EEK 6'62'655<C7'


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+uring the year of his injury, >r. !ollack was expected to work a regular forty $35% hour week plus an average of r. !ollackswork. If he is on a job that needs to be finished, he needs to finish the job by working overtimeJSBE=)& !laintiffs +eposition dated 0une, 64, 6554, page 832K. /is overtime does notdepend on current economic conditions but on the maintenance of heating and airCconditioning

equipment JSBE=)& !laintiffs +eposition dated 0une, 64, 6554, page 834K.

>r. !ollack received health, prescription, dental, and eyeglass'vision insurance coverage throughhis employer 9 estimated at 89P of gross earnings after adjusting for the contributions of theemployee.

P$s(-in/0ry +0n%(i$nali(y, %0rrn( &!l$y&n( s(a(0s, %$&!nsa(i$n an" #n+i(s

>r. !ollack reports that, prior to his injury, excepting a fracture of his left clavicle in 0uly 8443while he was in the army


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In response, Oopyt Services, ) had to train other employees to perform >r. !ollacks tasksJSBE=)& !laintiffs +eposition, dated 0une 64, 6554, page 837, and !laintiffs response to our !ersonal Injury LuestionnaireK. -he following table reports >r. !ollacks actual gross wagesduring the last four years, from 6559 to 6557, and reveals the declining average hours of work per week after his injury in 655S ACTUAL EARNINGS

PERIO OF ? YEARS

3445 ($ 344@

PERIO

HOURLY

6AGE

RATE

ACTUAL

ANNUAL

6-3 GROSS

6AGES

ACTUAL

ANNUAL

REGULAR

EARNINGS

ACTUAL

ANNUAL

O7ERTIME

EARNINGS

A7ERAGE

6EEKLY

HOURS OF

O7ERTIME

ACTUAL

A7ERAGE

HOURS $+ 6ORK

PER 6EEK

$a% $b% $c%M$a%x35x96 $d%M$b%C$c%$e% M J$d%'$a%x$8N 5.9%K'96 $f% M 35N$e%

6559 189.55 19;,3ore specifically, he is contemplating possibly joining the public relations company of his stepCmother in "ew 0ersey. JSBE=)&!laintiffs response to our !ersonal Injury LuestionnaireK


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Such a transition will have the following implications for >r. !ollack. According to the Dureauof abor Statistics, public relations specialists Fengage in promoting or creating good will for individuals, groups, or organi?ations by writing or selecting favorable publicity material andreleasing it through various communications media. >ay prepare and arrange displays, and make

speeches. -here are no defined standards for entry into a public relations career. A collegedegree in a communicationsCrelated field combined with public relations experience is excellent preparation for public relations work. >any entryClevel public relations specialists have a collegedegree in public relations, journalism, advertising, or communication. JSBE=)&http://www.bls.gov/oco/ocos!".htmK.

Since >r. !ollack has the personal connections in this industry, but he does not have theacademic training for this occupation, it is expected that his starting salary will be in the first 85 th

or 69th percentile of the wage scale for this occupation. -he Dureau of abor Statistics,Bccupational mployment and Hages, >ay 6557 report, estimate these percentiles and they aresummari?ed below.

Pr%n(il 6a; Es(i&a(s +$r B3:-949= P0#li% Rla(i$ns S!%ialis(s

Pr%n(il 85 P 69 P

H$0rly 6a; 183.34 187.3<

Ann0al 6a; 1;5,835 1;7,355

JSBE=)& http&''www.bls.gov'oes'6557'may'oes62;5;8.htmQnat K

#or purposes of this report we will assume that >r. !ollack will not transition to a public

relations job in the near future, because starting his new career at the 69 th percentile of thecompensation scale, by earning an annual wage of 1;7,355 will be catastrophic for his family because he will not be able to support himself and his two young children. >r. !ollacks original plan of starting his own business is also not considered in this report.

#or purposes of this report we will assume that >r. !ollack will remain employed on a fullCtime basis in his preCinjury occupation, and will not transition to any alternate career paths moresuitable to his postCinjury state of health that he is currently contemplating.

http://www.bls.gov/oco/ocos086.htmhttp://www.bls.gov/oes/2008/may/oes273031.htm#nathttp://www.bls.gov/oes/2008/may/oes273031.htm#nathttp://www.bls.gov/oco/ocos086.htm


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Earnin; Ca!a%i(y

An economic damage due to loss of wages or salary caused by injury is measured by an earningcapacity standard2. arning )apacity is defined as Rthe ability to earn moneyR and Rimpairment

of earning capacity means the diminution or loss of the ability to earn money7

.R -he loss of theability to work is in itself a compensable element of damages. arning capacity goes beyondsomeones actual loss: even an unemployed, or sporadically employed, plaintiff is entitled torecover for the deprivation of what he could have earned. arning capacity could encompasswhat a person could conceivably earn if such possibilities can be demonstrated with reasonablecertainty4. !ast behavior is strong evidence of what a person was capable of doing in the past,and absent identifiable changes, strong evidence of what that person would be capable of doingin the future. Actual earnings data is often the starting point for measuring capacity.

#or purposes of this report we will assess earning capacity impairment by comparing plaintiffsactual preCinjury earnings with his postCinjury earnings. -he preCinjury earning capacity of >r.

!ollack has been assessed to be 1r. !ollacksannuali?ed preCinjury earnings during the year of his injury.

H$0s)$l" Srvi%s

!rior to his accident, >r. !ollack did share significantly in household services with his spousesuch as mowing the lawn, weedCwhacking, house maintenance and up keeping. >rs. !ollack reports that, as a result of his injury, the plaintiff is unable to perform such household tasksJSBE=)& +eposition of "atalie A. !ollack, dated Bctober 6, 6554, pages 95C9;K.

A number of studies have been made over the years that measure the value of services and thehours devoted to each service in the average family. -hese studies involve preparing a list of services and a time study sheet that is then taken into a sample of homes of various si?es and

7Stephen >. /omer and #rank Slesnick, F-he @aluation of arning )apacity& +efinition, >easurement

and vidence Journal #f Forensic Economics 86$8%, 8444, pp. 8;CC;6

8>in?er, >., 0. "ates, ). Oimball, +. Axelrod, and =. *oldstein, $amages %n &ort 'ctions( 'ugust )**)

+umulative Supplement, Volume -, b $eit and So0ol, 1., "ew Gork, "G& >atthew Dender, 8448, p. ;8.

9 See& 2Fitpatric0 v. 3nited States, 8448, p. 85;7%, 2+ourtne v. 'llied Filter Engineering, 4nc., 8474, p.

494%, and 25al0er v. 6an0ston, 8445, p.


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used to record precisely the type of work and the time spent in accomplishing it. -he results of these studies are summari?ed below&

Hours per Week Spent in Household Work

=esearcher /usband HifeSanik 8;.55 3;.55

Dryant 86.29 ;3.79

Sanik 83.8< 38.86

/unt'Oiker 85.7< 33.3<

!eskin 89.86 ;;.22

Halker 88.65 98.85

Sanik 88.45 32.r. !ollack performed household services averaging seven point five $2.9% hours per week, or 8.52 hours per day. -his estimate is only sixty percent $


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Age /our per +ay /ours per Heek /ours per Gear

Ep to


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aslin Earnin;s

>r. !ollacks earnings history at the year of his injury is presented in the table that follows.

Yar E&!l$yr 6a; Ra( Ann0al Earnin;s

6559 Air )ontracting, ) 189.55 19;,3r. !ollacks age cohort experienced an average unemploymentrate of about 9P per annum. JSBE=)& E.S. +epartment of abor, Dureau of abor Statistics,abor #orce Statistics from the )urrent !opulation Survey, Enemployment =ate,http&''www.bls.gov'cps.K /owever, since many workers recover part of their lost earningsthrough state unemployment compensation benefits, we lower this rate to ;.7P.

In%$& Ta' A"/0s(&n(

-his downward adjustment accounts for the reduction in income due to the potential payment of federal and state income tax liabilities. -ax burdens can vary significantly from taxpayer totaxpayer and to accurately estimate income taxes without extensive knowledge of the taxpayers profile can be a daunting task. Dy analy?ing >r. !ollacks 6559 to 6557 federal and state taxreturns, we calculated an effective combined federal and state tax rate of 83 P. JSBE=)S&!laintiffs #ederal Income -ax =eturns, State of "ew 0ersey =esident Income -ax =eturns, HC6Hage and -ax Statements, 6559C6557, and 655< pay stubsK.

Frin; n+i(s A"/0s(&n(

!laintiff reports receiving health insurance, prescription coverage, dental insurance, aneyeglass'vision plan through his employers. >r. !ollack continues to receive these fringe benefits postCinjury. +ue to the prospective nature of insurance we value fringe benefits at 89 Pof gross earnings and we dont assess any loss of fringe benefits in past years and future years.

L$ss $+ N( Earnin;s in Pri$r Yars


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a%2 Pay L$sss1

-his loss component consists of the income >r. !ollack most likely would have earned, had henot been injured, from August


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Gear nding

!artof theGear

Gearsfrom -rial


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period the plaintiff did not have constructive use of the money. In the absence of specificinstructions, it is assumed that the court will undertake the calculation of this interest.

It is noted that plaintiffs pastClost earnings $lost back pay% of 12;,;64 are after tax calculations.!reCtax lost past earnings can be calculated simply by comparing the F*ross !otential arnings

and F*ross Actual arnings in the above charts. -his calculation, adjusted for unemployment, becomes 179,6r.!ollacks


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safely in a portfolio of financial instruments, would allow the individual to draw out a stream of earnings year by year that was just large enough to replace the losses projected for eachsucceeding year.

He note that interest earnings from any award in this case will be subject to future income

taxation in each subsequent year. -his poses a problem since the award will be, in effect, taxedindirectly when no provision has been made for this tax burden. -hus, it is assumed that anylumpCsum award will be used to purchase investment instruments that will provide a flow of nontaxable payments to plaintiff.

-he present value of plaintiffs future loss of earnings JfrontCpayK after taxes is found to be5=?,8=4, if plaintiff retires at age


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Pr$/%(" F0(0r P$(n(ial Earnin;s $+ () Plain(i++ i+ N$( In/0r"

Trial ($ R(ir&n(

!art Gears *ross ost Income !laintiff

Gear of the #rom !otentialEnemployC

ment #ringe -axHould/ave

nding Age Gear


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Pr$/%(" F0(0r A%(0al Earnin;s $+ () Plain(i++

i+ ) R&ains in () Sa& O%%0!a(i$n *i() )is In/0ryD

a( $+ Trial ($ R(ir&n(

!art Gears *ross ost Income !laintiff

Gear of the #rom ActualEnemploy

Cment #ringe -axHill

Actually

nding Age Gear 86';8'6554 arningsAdjustme

nt Denefits Adjustment arn

86';8'6585 ;2.32 8.55 5.95 ;8,947 8,658 5 3,69< 6


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Eval0a(i$n $+ F0(0r L$s( Earnin;s #y Yar i+ Plain(i++ R&ains in Sa& O%%0!a(i$n

!laintiff )umulative

!art Gears Hould Hould ost "et !resent "et !resent

Gear of the from /ave Actually "et @alue @aluending Age Gear 7'8'6554 arned arn Income of oss of oss

86';8'6585 ;2.32 8.55 5.95 ;2,9;< 6


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It is noted that plaintiffs future lost earnings $lost front pay% of 5=?,8=4 and or 5?:,38: area+(r (a' calculations. Pr-(a' lost future earnings can be calculated simply by comparing theF*ross !otential arnings and F*ross Actual arnings in the above charts. -his calculation,adjusted for unemployment, shows the following& 5@,9@? and or 898,95: respectively.

6a; Gr$*() Ovr Ti&

It may not seem plausible that >r. !ollack whose net earnings are 129,526 today would earn16;3,868 thirty years from now. /owever, thirty years ago, it also did not seem plausible that theaverage annual compensation for many professions would double or even triple over the same period of time. -he table below helps us understand the impact of time on wages. It showsextrapolations of wages from the Dureau of abor Statistics for different occupations in the stateof "ew 0ersey all of which have more than doubled or tripled over a ;5Cyear span in the past.

Ann0al Man 6a; Gr$*() +$r Sl%(iv O%%0!a(i$ns in N* Jrsy

Ovr a 94-yar Pri$"

S(a(

O%%0!a(i$n

C$" O%%0!a(i$nal Ti(l

Ann0al Man 6a;

=:@ =@@ =@ 344@

"0 69C8869/istory -eachers,!ostsecondary 167,473 135,379

19


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Pri% In+la(i$n $+ Sl%(" C$ns0&r I(&s in N* Jrsy

Ovr a 94-yar Pri$"

S(a(

C$0n(y

S0rvy I(&s in () aily

R%$r"

C$s( in M$rris C$0n(y N* Jrsy

=:4 =@4 =4 3444

"0 >orris >edian /ome @alues 16;,355 1orris Brange 0uice half gallon carton 5.;4 8.84 6.55

"0 >orris )offee 'lb 5.2< 3.55

"0 >orris "ewspaper 5.89 5.69 5.;9

"0 >orris "ew Automobiles ;,82inivan:UU 6555 Duick =egal

-he sale price of the median home in >orris )ounty "ew 0ersey was 16;,355 in 8425 and1825,755 thirty years later in the year 6555. ikewise the price of a pound of coffee increasedfrom 2< cents in 8425 to 13.55 a pound thirty years later in the year 6555. -his price inflationresulted into a wage increase from 167,473 in 8427 to 127,445 in 6557 for /istory -eachers andfrom 162,38< in 8427 to 1r. !ollack provided household services averaging 8.52 hours per day. It is further assumed that as a result of his August


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L$s( H$0s)$l" Srvi%s $+ () Plain(i++ a( $+ In/0ry ($ Trial

Gears >oneti?ed!art #rom @alue )umulative

Gear of the -rial /ours /ourly of Annual @aluending Gear


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86';8'656< 9;.32 8.55 8


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Unrirs" M"i%al E'!nss in Pri$r Yars

>r. !ollack incurred 3,58=.3? outCofCpocket medical expenses related to the treatment of hisinjury in prior years. /e had to cover coCpayments for prescription medications and for doctorsvisits. /e also had to pay tolls when he was going to his physical therapist three times a week.

-hese expenses are documented below.

Brthopedic Associates of ehigh +elaware =iver Dridge -oll !hillipsburg !harmacy

Dates +ate Amount Dates +ate Amount Dates +ate Amount

384 57'63'5< ;5 3;8 56'68'52 5.29 3;;88'86'5

< 87.9;

384 54'8;'5< ;5 3;8 56'6;'52 5.29 35<88'65'5

< 87.9;


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SBE=) B# )B"B>I)BSS

AMOUNT OF ECONOMIC LOSS EFORE TA

!=IB= GA=S

#E-E= GA=S -B-A

at Age

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Assessing Economic Losses in Personal Injury