Personal Injury and Wrongful Death Damages Calculations: Transatlantic Dialogue: Volume 91

Howard House, Wagon Lane, Bingley BD16 1WA, UK

This collection of original papers had its origin in a series of annual meetings of the National Association of Forensic Economics (NAFE) held in Great Britain, Ireland, Italy, and the United States from 2004 to 2008.¹ NAFE sponsored these meetings to explore common research areas in the calculation of damages in personal injury and death litigation in Western Europe and the United States. NAFE was founded in 1986 and is the largest association of economists and other damages experts specializing in the calculation of economic damages in litigation in the United States and Canada. The Journal of Forensic Economics (JFE) is the journal of NAFE and has been the primary outlet of peer-reviewed research in forensic economics over the past 22 years. The field of forensic economics has generated a substantial literature on methodologies and empirical research in the calculation of damages in personal injury, death, employment, and commercial litigation; and the use of that literature in the United States and Canadian courts by economists, Certified Public Accounts (CPAs), and actuaries has become commonplace in the past two decades (Thornton & Ward, 1999).²

In the common law of the United ¹Kingdom the objective of any award of damages in personal injuries litigation is to achieve as nearly as possible full compensation for the claimant in respect of the injury sustained.² To achieve that objective the court seeks to award such sum as is notionally required to be laid out in the purchase of an annuity which will provide an annual amount equivalent to the loss for the whole period of the loss.³ The basis of the calculation is an assumed annuity. The court makes an assumption about how the award will be invested.⁴ Lord Fraser of Tullybelton in Cookson v. Knowles ⁵ put it thus:The assumed annuity will be made up partly of income on the principal sum awarded, and partly of capital obtained by gradual encroachment of the principal. The income element will be at its largest at the beginning of the period and will tend to decline, while the capital element will tend to increase until the principal is exhausted.The court is not, in fact, concerned with how the award will be spent:How the Plaintiffs will in fact invest their damages is, of course, irrelevant. That is a question for them. It cannot affect the calculation.⁶

All of the above proposals are realities in Western Europe, and it is suggested that the adoption of such “reforms” would substantially reduce the transaction costs of providing compensation to deserving plaintiffs, improve the efficiency of the tort system, and provide manufacturers and service providers with greater predictability and “fairness” in potential tort damages in the United States.

It is a common feature of both the English and the US legal systems that any person injured through the fault of another can claim monetary compensation, in the form of damages, for the injuries sustained.¹ The objective and measure of such damages is also the same across the jurisdictions, namely to restore the individual, in financial terms and in as far as it is possible to do so, to their pre-injury position. However, the approaches adopted in the two countries towards determining the level of damages are very different. In the United States, courts make extensive use of economists (called forensic economists), economic data and econometric methods to quantify damages, particularly in the calculation of those which relate to future losses. The courts in Britain do not, favouring instead the routine application of a simplified formula which is populated by figures chosen by judges, albeit with increasing reference to published actuarial averages. There has been a long-standing antipathy on the part of the judiciary towards evidence from financial experts. This has been justified on the grounds that predicting the future is nothing more than crystal ball gazing for which a judge is as well suited as any other profession.²

The approach to the determination of damages for loss of future earnings in Britain is by means of a simple formula in which an annual loss (the multiplicand) is multiplied by a discounted work life expectancy (WLE – the multiplier) to produce a lump sum, the capitalised value of which is intended to provide an ‘assumed annuity’ equivalent to the annual loss. The discounted WLE is calculated with reference to actuarially determined figures which are published in the Ogden Tables. The Ogden Tables provide a set of statistical tables with explanatory notes for use in personal injury and fatal accident cases. These tables are collated by an inter-disciplinary working party comprising lawyers, accountants and actuaries, including the Government Actuary. Their purpose is to provide lawyers in England and Wales with the information that will enable them to undertake the calculation of a future pecuniary loss without recourse to evidence from financial experts. As such it is a requirement that the tables and procedures be readily comprehensible to lawyers.¹

Prior to 1982, work life tables in the United States could be viewed as the labor force counterpart of life tables. Most work in this area emanated from the US Bureau of Labor Statistics (BLS) and was based on the assumptions that men entered and left the labor force only once in their lives and women only entered and left the labor force as a result of a change in their marital or parental status. The work life model for men especially was demographic in nature since departure from the labor force was akin to death in a life table in the sense that labor force reentry was not possible, just as reentry into a life table cannot occur after death. We now refer to this type of construct as the conventional model of work life. Tables produced by Fullerton and Byrne (1976), using data from 1970, illustrate this approach to work life expectancy (WLE).

The traditional method of compensation for a future continuing loss in UK tort law has always been by means of a lump-sum payment.¹ The lump sum is calculated by means of a simple formula in which a net annual sum (the multiplicand) is multiplied by a factor (the multiplier) that takes into account early receipt by a rate of discount periodically set by the Lord Chancellor (at 2.5 percent since June 2001). The resulting sum provides a ‘rough and ready’ estimate of the capital sum that, if invested to achieve a real net rate of return of 2.5 percent, will fund the estimated annual loss over the expected period of that loss. The operation of this formula in the calculation of damages for loss of future earnings was demonstrated in previous chapters (4) and (5) of this volume.

This chapter examines the legal and scientific approaches taken in the United States for computing economic damages due to personal injury and wrongful death. The U.S. law of tort damages conforms to a general economic valuation of reduced or lost productivity due to injury under the goal of assigning tort damages optimally so that harm in the society is minimized. Today, “economic damages” are defined in every U.S. jurisdiction, and the field of forensic economics has produced a body of literature concerned with accurately measuring them.

Compensation for personal injury in Ireland is based on the principle that the wronged party should be restored to the position that he or she was in prior to the action of the other (restitution in integrum). Compensation must be in a single lump sum for both past and future loss, with no further redress even if losses subsequently arise that were unknown at the time of the trial.

The United States and European countries have for a long time affirmed non-pecuniary loss as a proper title of damages. On both sides of the Atlantic in the preceding decades, we have witnessed an escalation in the monetary amounts awarded for the non-pecuniary component of damages in cases of personal injury.¹ As a result of this escalation, the countries referred to have embarked on a shrill debate in trying to decipher a definition of their concrete notions of non-pecuniary damages² and on their awarding methods.³

In Chapter 10 in this volume, Comandé (2009) has proposed that American courts adapt “scheduling” for use by juries in awarding nonpecuniary damages in personal injury and wrongful death cases. Comandé suggests that American courts can develop schedules for awarding damages for nonpecuniary losses on the basis of the severity of the injury and the age of the injured party, based on data on prior awards by particular courts in specific jurisdictions. Comandé's proposal is shaped by the experiences of European jurisdictions that have developed scheduling for awarding nonpecuniary damages.

The use of “schedules of damages” to establish compensation amounts for injured parties appears to be more common in European personal injury or death compensation situations than in the similar legal situations in the United States. The major exception to this statement is the state-based system of workers’ compensation covering employer liability in personal injury and death claims in the United States. Other chapters in this book largely concentrate on comparisons between the uses of Ogden Table multipliers in awarding pecuniary damages in the United Kingdom compared to actuarial methods for calculating such damages in the United States. The two chapters dealing with non-pecuniary damages and scheduled awards deal with methods used to award such damages in the United States and in Europe in individual civil torts. This chapter provides an overview of a number of scheduled damages schemes in both the United States and Europe for the purpose of comparison. The schemes selected address both general and special damages.

Forensic economists are often asked to calculate economic damages in cases that are tried in the United States but involve the death or injury of a citizen or resident of a foreign country. Commonly called international cases, they can range from a single tourist who is killed or injured while visiting the United States to mass torts such as plane crashes or product liability claims. The single plaintiff cases are typically relegated to state courts, whereas the Federal District Courts are often deemed to have jurisdiction over the determination of liability and subsequent economic damages in mass torts. In these and other types of international cases, macroeconomic data compiled by various governmental or private sources within the United States are of very limited use to the forensic economist preparing economic loss estimates. The decedent or injured party's economic, demographic, and social environment will in all likelihood differ significantly from individuals living in the United States. Rather, they are impacted by the macroeconomic conditions of their country of domicile or residence.

Gary R. Albrecht, Ph.D., North Carolina is an economist at Albrecht Economics located in Winston-Salem. He specializes in economic forecasting and forensic economics. He has been an Assistant and Adjunct Associate Professor at Wake Forest University, and he was the Director of Econometric Modeling at the University of Kansas. He is a past vice president of the National Association of Forensic Economics. His research has been published in the Journal of Forensic Economics, Journal of Legal Economics, Trial Briefs, and The Earnings Analyst, in addition to his authoring various economic research reports and book chapters. He holds a Ph.D. degree in Economics from Indiana University.