by John Darer CLU ChFC MSSC CeFT RSP CLTC
Lower interest rates impact plaintiffs favorably in New York structured judgment projections
The 10 Year Treasury is at record lows. At the time of publishing the 10 year bond was at 1.59%. What this means is that the present value of elements of
damages in a 50A or 50B judgment is more than it was yesterday. Present value goes up when the discount rate used goes down. This impacts the value of future damages on a case that has gone to verdict and may have s an impact on settlement negotiations for those that understand it.
Let's take future pain & suffering damages $1,000,000 which, pursuant to Article 50B, must be crunched into a 10 year time frame.
- The first $250,000 is carved off and paid in cash
- The remaining $750,000 is divided by 10 representing a 10 year payout of $75,000 that must be reduced to present value.
- The statutory 4% growth rate built into the statute must be applied first, then the discount rate of 1.59% if the date liability was determined is today.
- Because the statutory growth rate exceeds the discount rate by 2.41%, the present value of the cash flow is higher than the number awarded by the jury. There is actually a net growth rate
- Then 9% interest is applied to the inflated number!
- Note that Article 50A (Medical, Dental and Podiatric Malpractice judgment cases) have a slightly different set of calculations for pain & suffering. One notable difference is that the greater of 35% or $500,000 is paid in cash with the remainder paid out over 8 years, not 10 years.
Update! August 15, 2019
30 year bond now 1.97%
10 Year Bond 1.51%