Frank C. Kilcoyne, CSSC

Future Damages in the Settlement Context

Most serious tort cases contain a dollar demand for future damages. Whether comprised of future economic loss, the cost of future medical care, or future pain and suffering, cases lacking one of these damage claims are few and far between in my experience. As legitimate as the claimed numbers may - or may not - be in a given case, both parties usually have to bring these future numbers back to some kind of present value for negotiating purposes. How you go about discounting such damages thus becomes extremely important to the process.

Entire fields of study are dedicated to the projection of future damages of one kind or another. We are all aware of the many experts available to make the case for some element of future damage. Yet this month, we are going to talk about how to best use that information in developing settlement plans that actually mean something to a claimant wrestling with the settlement decision. Crafting settlement plans which align with the individual needs of that claimant can help bring the case to an earlier and more satisfactory resolution.

Future economic losses are normally quantified by a credentialed economist. We do not attempt to duplicate the services of such esteemed experts. Instead, we take their report—no matter which side hired them - and break their findings down into a simple and concise periodic payment plan.

For example: in a recent case we were presented with a 29-year-old claimant who fell 35 feet from a ladder and landed on a pickup truck, severely injuring his pelvis, back, and shoulder. Experts were prepared to testify that this claimant would not be able to work again in his chosen field of employment, but all further agreed that he would be able to take a job in a more sedentary field. Future economic damages were the most relevant portion of his claim.

The economist’s report on this case was prepared by a Ph.D. in economics and ran to 28 pages. This expert was thorough and we were not retained to dispute his expert findings. Our job was take those findings and put them into a simple, easy-to-follow spreadsheet which delineated the claimant’s annual net income loss. We took the claimant’s annual income (as per the report), deducted federal income taxes and F.I.C.A, and then added back the amount designated for lost household services. The net loss in each given year was then met with a guaranteed, non-taxable settlement annuity payment, thus creating a periodic payment plan which matched the expert’s specific estimated losses.

This is economic theory brought to real life: in just three steps, we have converted a 28-page expert’s report into a two-page spreadsheet and settlement plan. The plan tells us what it would actually cost to provide the lost future income by this economist, if accepted as submitted.

We do the same thing with future medical expenses and care. These, too, are projected by a qualified expert, and submitted most often in the form of a “life care plan.” In these reports, the expert lists, category by category, exactly what care he feels the claimant will need and when he will need it. The report addresses frequency and duration of treatment as well. The expert will include estimated costs for the projected care and good ones will check with local care providers to ascertain the cost of such services where the claimant actually lives. The purpose of the report is to quantify the cost of future medical care for a specific claimant. When done, these reports too can run 30 or 40 pages.

Just as we are not economists, neither are we certified life care planners. Our job is not to challenge the contents of these reports, but to condense and reformat the information into more usable form for settlement purposes. We take the detailed data in the plan and create a matrix listing the various components of care against their associated costs to determine the specific stream of payments required to meet the claimant’s medical and therapeutic needs as asserted by the life care expert.

The key here is that we don’t just start with some assumed number and run it out into the future using presumptively simple compounding factors. Proper medical treatment is usually delivered in deliberate sequences, not always increasing, and not always for life. It’s important to identify the specific expenses detailed in the expert’s report, time them in accordance with the forecast, and then factor them into the settlement plan. Funds come due at the times called for in the life care plan, thereby insuring the claimant has resources when needed while preventing costs from being artificially inflated by imprecise methodology.

This method of properly quantifying future damages has repeatedly helped our clients stay focused on the specific elements of claimed future damages, thus keeping negotiations on a meaningful track.

Future pain and suffering eludes precise calculation but, whatever the sum deemed acceptable, it simply makes economic sense for the claimant to channel this element of their recovery through the IRC Section 104 lifetime income tax exclusion as well: non-taxable income delivers more buying power than taxable income.

When attempting to settle complex cases, remember that arguments about theoretical valuations made by experts are far less important than focusing on what the injured person will actually need. If aligning future cash flows to identified needs makes sense to you, remember this approach. Or just call me, Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.