Insights

Working With an Accounting Expert in Personal Injury Cases

Working With an Accounting Expert in Personal Injury Cases

Jul 20, 2016

Attorneys practicing in the area of personal injury understand such cases can be fairly complex. They often involve hiring multiple experts, depending on the type and severity of the injury. Using an accounting expert, also referred to as a forensic accountant, can aid in quantifying the amount of economic loss, in dollar terms, associated with a personal injury.

To ensure their clients receive the best representation, attorneys should explore several considerations when seeking accounting expertise. (And if you are thinking, “Isn’t the term ‘accounting expert’ an oxymoron?” please read on.)

The accounting expert can play at least three different roles in personal injury litigation:

  • An expert witness typically hired by the plaintiff attorney to render an opinion on the amount of damages associated with the injury. This role often includes court testimony.
  • A rebuttal expert witness hired by the defendant’s attorney to review the plaintiff’s expert report. This expert may provide a rebuttal report, rebuttal testimony, or both.
  • A litigation consultant generally hired by defense counsel to provide consulting related to managing the litigation as it relates to defining monetary amounts associated with the case. The litigation consultant role does not involve testimony.

It is the attorney’s job to persuade the trier of fact that the economic loss was attributable to the injury. Assuming causation is established, the economic loss, as differentiated from general damages such as pain and suffering, usually takes the form of lost earnings and benefits, past and future medical expenses, lost property, and lost personal services. This article addresses lost earnings; future articles will address medical expenses, life care plans, and lost personal services.

Loss of Earnings, Pre-Trial and Future Amounts

In most states the injured party is entitled to recover the difference between what he or she would have earned “but for” the injury, less the actual earnings received. Sometimes this difference is referred to as the “but for” amount, and for pre-trial earnings it represents the lost earnings from the injury date to the trial date. Consideration should be given to both the earnings base present at injury date and the loss of additional earnings capacity (i.e., future promotions and pay raises). For these purposes, earnings include wages, salary, commissions, and also lost business profits.

Some cases involve a situation in which the injured party was unemployed at the time of the injury. Compensation is still due the injured party if it can be determined she or he was deprived of earnings opportunities because of the injury. Pay scales related to positions that were available to the injured party based on past experience, ability, and education can be used as a benchmark in determining the loss of earnings.

As mentioned, self-employed individuals who are injured are also entitled to recover a similar economic loss, often referred to as a loss of profits. A detailed discussion on the calculation of lost profits is beyond the scope of this article, but generally it involves identifying how much revenue stream was lost and what impact the loss had on variable expenses inside the business.

The loss of future earnings adds an additional amount to the overall loss of earnings. The same parameters generally apply; however, additional factors should be considered:

  • The length of time the injury will likely impair the plaintiff’s ability to earn wages.
  • Whether it is a temporary or a permanent impairment.
  • If the impairment is permanent, work-life expectancy must be considered.

Work-life expectancy becomes an issue for the attorney and the accountant to agree on based on the likelihood of a shortened worklife because of the injury. Future earning capacity needs to be considered in light of the injury. This is an area where other experts such as employment experts may be needed to assess the employability and work-life of the injured party.

An earnings history of the plaintiff is very helpful in determining the future lost earnings; however, it is not absolutely necessary. Use of actuarial tables related to earnings of groups of people based on age, education, location, etc. can be used to determine a reasonable future earnings amount. See Exhibit A for an example calculation of loss of earnings.

Benefits Associated With Earnings

Another important and often significant component of the lost earnings calculation involves the benefits associated with the earnings amount. These benefits can include retirement plans, health and disability insurance, life insurance, social security, vacation, car allowances, and other similar benefits. The same concept discussed above for earnings relates to the benefits lost because of the injury.

The accountant will need to determine exactly what benefits were provided pre-injury and whether any benefits are available post-injury and calculate the lost amount. The accounting expert will most likely look to the attorney to help ascertain this information. If necessary, the expert can research employment and industry information and determine the types and average amounts of benefits paid for use in the loss calculation. Once determined, the lost benefits amount is added to the lost earnings amount.

Net Present Value

The accounting expert should include a present value calculation of the past and future loss of earnings amounts to bring the loss to present value at the trial date. And while the attorney does not necessarily need to understand every detail of the present value calculation, the attorney should expect to see the calculation in the expert’s report.

Great Expert Expectations

When a case calls for an accounting expert, here’s what attorneys should expect from the professionals they hire:

  • A well-written engagement letter.
  • A request to read the complaint.
  • An opportunity to meet with the attorney and the attorney’s client.
  • A request to review appropriate documents.
  • As needed, the expert can prepare deposition questions for the attorney.
  • A request to read other depositions and interrogatories.
  • A report draft to review with the attorney for completeness and accuracy.
  • A well-written report in accordance with Federal Rules of Procedure 26(a)2(B), clearly stating the expert’s opinion on the loss of earnings amount.
  • Assistance with preparation for trial.

An attorney should also expect an accounting expert to clearly and calmly explain his/her report and calculation to a judge and jury and, as clearly and calmly, answer opposing counsel’s prodding cross-examination questions. In cases of personal injury, this extends to the expert’s ability to briefly but clearly explain the concept of present value.

In the next article, life care plans and medical costs associated with personal injury will be explored.

Author(s)

Thomas Copley
Thomas E. Copley, CPA, CVA
Partner
View Profile