Presenting a live 90-minute webinar with interactive Q&A Personal Injury Litigation: Proving or Disproving Economic Damages Navigating Methodologies and Factors Impacting Court Awards and Best Practices for Recruiting Financial Experts THURSDAY, SEPTEMBER 20, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Ronald T . Luke, President, Research & Planning Consultants , Austin, Texas Kacy L. Turner, Vocational Consultant, Research & Planning Consultants , Austin, Texas Please print and follow the PDF handout, "Reference Materials" and follow the sections on pages 20-61, 86-104 and 145-159 during this presentation. The handout is accessible under the "handouts" tab in the "Conference Materials" section on the left panel of your screen, and also at the following link: http://www.straffordpub.com/products/personal-injury-litigation-proving-or-disproving-economic- damages-2012-09-20 The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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5 Personal Injury Litigation: Proving or Disproving Economic Damages Navigating Methodologies and Factors Impacting Court Awards September 20, 2012
Overview 6 • General Concepts • Loss of Earning Capacity • Discounted Present Value • Vocational Evaluation of Residual Earning Capacity • Life Care Planning – Clinical • Life Care Planning – Economic
General Concepts I 7 • Economic damages analysis compares two scenarios that start at the time of the injury – Life with injury – Life had injury not occurred – Difference is damages • Past and future damage calculations involve estimates and projections of the two scenarios • Projections are reasonable, not accurate
General Concepts II 8 • There are factors affecting future earnings and future medical costs not related to the injury – Individual aging – Risk of death, disability, unemployment • Specific information about the injured party replaces general statistics when available – Work and earning history – Medical history DRAFT 091412
9 Loss of Earning Capacity See RPC Sample Loss of Earning Capacity Report References to Figures are to Attachment 4 of that report DRAFT 091412
Two Concepts of Earnings 10 • Projected Earnings : a projection of what a person will earn in the future – Projected annual earnings – Work life expectancy • Projected Earning Capacity : a projection of what the person can earn if he fully uses his earning capacity – Projected annual earnings – Adjustments for factors beyond person’s control DRAFT 091412
Earning Capacity as an Asset 11 • A financial asset is something that can produce income for the owner • Earning capacity is the most valuable financial asset most people own • Assets have the potential to produce income even if not doing so currently – Idle agricultural land – Lawyer raising children full-time – Person starting new business DRAFT 091412
Pre-injury Annual Earnings 12 • Person with work history – Employed persons – Self-employed persons – Problem of undocumented income • Person with limited or no relevant work history – Child or student – Homemaker – Below-market wages (military, Peace Corps, etc.) DRAFT 091412
Employed Person with Work History (Fig. 1) 13 • Earnings documentation • Social Security earnings history – Tax returns with W-2 and supporting schedules – Fringe benefits • Education, training and experience • Prospects for promotions • Plans and interests DRAFT 091412
Sample Earnings Record 14 DRAFT 091412
Earnings for the Self-Employed 15 • Salary and wages • Financial statements • Business tax returns (Schedule C or 1120) • Retirement accounts • Fringe benefits • Interest and dividends from business • Dual use expenditures • Profit/retained earnings/increase in book value • In some cases a formal business valuation may be needed DRAFT 091412
Undocumented Earnings 16 • Failure to report earnings to IRS does not prevent claiming loss of earning capacity • Possible evidence to estimate past earnings – Household expenditure records – Receipt books or other business records – Bank accounts • Question: how to handle future tax payment or non-payment DRAFT 091412
Persons with Limited or No Work History 17 • Education, training and experience of adults • Family education and occupational experience for children • Plans, interests and intentions • Bureau of Labor Statistics data on earnings by job and occupation over time • Bureau of Labor Statistics data on earnings by age and educational attainment • Local salary data from telephone surveys or sources like www.salary.com. DRAFT 091412
Sample BLS Earnings Data 18 DRAFT 091412
Sample Salary.com Data 19 DRAFT 091412
Fringe Benefits (Fig. 2) 20 • An increasing percentage of total compensation • Fringe benefits for a specific job – Employee handbooks – Interview human resources staff – Special issues with government jobs • Fringe benefit not for a specific job – People change employers over a career – BLS statistics on fringe benefit costs by occupational group, industry and geographic region DRAFT 091412
BLS Table Showing Benefits by Occupational Group 21
Increases in Annual Earnings (Fig. 3) 22 • Social Security Administration (SSA) projections for 75 Years in the most recent Annual Report to the Trustees – Projected CPI inflation – Projected real increases in average earnings • Past BLS data on nominal change in average earnings in specific jobs relative to all jobs • Assume the past relationship for a specific job and all jobs holds in the future DRAFT 091412
2012 Trustee Report Table V.B1 23 DRAFT 091412
Taxes 24 • Personal injury awards are not taxed, so damages should be computed after tax • Deduct Social Security and Medicare taxes (compute Social Security benefits separately) • Deduct state and federal income taxes – Consider past income tax average and marginal rates – Consider filing status – Use current tax tables for future years – Consider change in exemptions as children age DRAFT 091412
Adjustments to Earning Capacity for Factors Beyond the Person’s Control (Figs. 4 -6) 25 • Death Annual survival probabilities by age, gender and race/ethnicity from most recent life tables from National Center for Health Statistics. See Figure 4. • Disability unrelated to subject injury Annual probability of being unable to work due to physical or mental disability by age, gender and race ethnicity from National Health Interview Survey. See Figure 5. • Unemployment Annual probability of being unemployed by age, gender and race from BLS data and SSA projections. See Figure 6. DRAFT 091412
Summary of Calculation (Fig. 7) 26 1. Future annual wages x annual percentage increase = annual wages 2. Projected annual wages x fringe benefit percentage = fringe benefit value 3. Projected annual wages x tax rates = annual taxes 4. Annual wages + fringe benefit value – annual taxes = annual earnings 5. Annual earnings x probability alive x probability able x probability employed = expected annual earning capacity Continue to age of retirement with full SSA benefits DRAFT 091412
27 Social Security Benefits (Figs. 8-10) • Social Security benefits are related to earnings history through a complex formula • Reduced earnings will usually reduce SSA retirement benefits • Annual values for pre-injury and post-injury expected earnings, excluding fringe benefits and taxes are entered into the SSA’s benefit calculator http://www.socialsecurity.gov/OACT/anypia/anypia.html • Expected benefits = benefits x probability alive. Continue calculation to age 100 DRAFT 091412
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