by G. Mark Morley
When a person is involved in a personal injury / wrongful death claim, it is important for them to keep in mind the fact that the goal of the settlement is to try and make whole what’s been damaged and/or removed from their lives (generally on a monetary level).
In the case of a personal injury, “but for” the accident, the injured party would have continued on their chosen occupation without the hindrance of the injury. It is the difference between what they will find themselves in versus what they would have found themselves in that the damages are calculated.
In the field of economics, there’s a common term of art referred to as the “but-for” world, which states that, “but for” the accident, a person most likely would have followed a certain economic path. Many “experts” do not take into consideration the proper parameters in determining how to properly arrive at this figure. There have been established empirical data to assist, but are many times ignored. A person’s age and occupation is first determined –their earnings are used as a base, along with their fringe benefits and household services and projected annually to retirement at unique inflationary paths. Then, taxes and personal consumption is removed (again, annually), leaving a economic path unique to the individual. Lastly, the present value of the future stream is determined, and THIS final figure represents the economic portion of the settlement.
This is a roundabout way of saying that, many times, this difference is greater than the defense finds and less than the plaintiff finds. Hence, the tool of negotiations plays a deciding role in determining what is “fair compensation”.
But once the case has settled and decisions need to be made regarding how best to use this award, one needs to remember – what was lost was NOT the “lump sum” being received, but rather the interrupted stream of future earnings. This award traditionally represents the “present value” of that lost stream. Subsequently, that lump sum should be considered for investing to replicate the lost future payments.
Many claimants have never received an amount of money this size, and are notorious for squandering it. It is sometimes difficult to look at a large amount and imagine it ever running out. That’s what some people are hoping the claimant thinks, as that’s where they make their money – off the poor planning of awards.
It is important to understand these points regarding personal injury claims, as it is often overlooked during the lengthy process.
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