by John Darer CLU ChFC CSSC RSP
As the old adage goes, the higher the discount rate, the lower the present value. The corrollary of course is, that the lower the discount rate, the higher the present value.
Present value is an important measure for plaintiffs, defendants and insurers of defendants litigating personal injury cases in jurisdictions throughout New York State.
When it comes to structured judgments, the present value of elements of future damages in excess of $250,000 is the basis for attorney fees on future damages and the basis on which interest is charged on those future damages. In general, with a personal injury case, the discount rate is determined based on the date of liability determination. Some "tweaks" may apply (e.g. where there is a bifurcated trial).
Present value calculations under New York CPLR 50B must also take into account a 4% growth rate on future damages while reducing to present value using the applicable discount rate. So what happens if the growth rate exceeds the discount rate (the scenario we have today)?
The current state of affairs with applicable discount rates, means that the present value (and ultimately the cost) of a judgment will exceed the amount that the jury awards for EVERY element of damages the minute the jury makes its award! Then a 9% interest rate is piled on for pre-judgment and post judgment interest (where applicable).
The "culprit" is the net growth rate. And the situation is worse than it was last year at this time. As of May 29, 2012, the 10 year treasury is 2.26% less than the statutory growth rate. This phenomenon will continue until discount rates return to levels in excess of the statutory growth rates or there is a change in the law.
1 Year Treasury 0.20% 0.18%
5 Year Treasury 0.75% 1.68%
10 Y T-Bond 1.74% 3.05%
30 Y T-Bond 2.85% 4.22% Source H15 Historical Treasury Rates 5/29/2012
There are advantages to plaintiffs, defendants and insurers and settlement negotiations if the New York litigants know the CPLR 50B exposure. Be prepared. we can help!
Structured settlement expert John D. Darer can perform a CPLR 50B analysis and projections for you (CPLR 50A as well). John has the capability and knowledge to run these on the fly at mediations and articulate the issues to the mediator as part of your team. For more information contact John Darer at 888-325-864
Postscript: 10 year Treasury Yields have dropped to 1.59% (5/31/2012)