Archived Webinars

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Calculating Economic Damages

TASA ID: 10362

Program Description:

On April 24, 2018 at 2:00 p.m. (ET), The TASA Group, in conjunction with forensic economists Nora Ostrofe and Mark Falkenhagen, presented a free, one-hour interactive webinar presentation, Calculating Economic Damages, for all legal professionals. During this presentation, Ms. Ostrofe and Mr. Falkenhagen discussed:

Personal Injury

  • Types of damages
  • Possible outcomes to a personal injury
  • Example of how wage loss varies depending on outcome
  • Life care plans
  • Lost household services

Wrongful Death

  • Wrongful death or survivorship actions
  • Types of damages
  • Personal consumption | maintenance

Calculating Economic Damages from The TASA Group, Inc. on Vimeo.

About The Presenters:

Nora Ostrofe has served as a forensic economist for the past 19 years. She has a bachelor’s degree in economics from the University of California, Los Angeles (UCLA), an MBA from St. Mary’s College, and a certificate in accounting with distinction from the University of California, Berkeley.


Mark Falkenhagen has been a forensic economic for more than 25 years with HSNO in the Los Angeles office.  He has a bachelor’s degree in business administration with an emphasis in finance and accounting from the University of Southern California.



Rochelle: Good afternoon and welcome to today's presentation, "Calculating Economic Damages: Personal Injury and Wrongful Death Litigation Life Care Plan." Please note, the information presented by the expert is not to be used as legal advice and does not indicate a working relationship with the expert. All materials obtained from this presentation are merely for educational purposes and should not be used in a court of law, sans the expert's consent, i.e., a business relationship where she or he is hired for your particular case. In today's webinar, Nora and Mark will discuss types of damages, possible outcomes to a personal injury, example of how wage loss varies depending on outcome, life care plans, lost household services, wrongful death or survivorship actions, types of damages, personal consumption, and maintenance.

To give you a little background about our presenters, Nora Ostrofe has served as a forensic economist for the past 19 years. She has a bachelor's degree in economics from the University of California in Los Angeles, an MBA from St. Mary's College, and a certificate in accounting with distinction from the University of California, Berkeley. Mark Falkenhagen has been a forensic economist for over 25 years with HSNO in the Los Angeles office. He has a bachelor's degree in business administration with an emphasis in finance and accounting from the University of Southern California.

Attendees who require a passcode, the word for today is Damages. During the Q&A session, we ask that you enter this passcode into the Q&A widget for CLE reporting purposes. The Q&A is located to the left of your screen. Please note that if you are applying for CLE credit, you must log on to your computer as yourself and stay for the full 60 minutes. You are also required to complete the survey at the end of the program. Please note that CLE credit cannot be given to those watching together on a single computer. Tomorrow morning, we will send out an email with a link to the archived recording of the webinar. The slides can be downloaded from the resource list at the widget at the bottom of your screen. Thank you all for attending today. And, Nora and Mark, the presentation is now turned over to you.

Nora: Well, good afternoon and good morning. My name is Nora Ostrofe, and I'm a forensic economist and practices in the San Francisco Bay Area of California. And my associate, Mark Falkenhagen, is a forensic economist who practices in Los Angeles. Just to give you a brief overview, we're going to discuss general approaches of how forensic economists will calculate economic loss in personal injury and wrongful death cases. We're gonna talk about assumptions that economists make. We won't advocate any particular methodology or approach. The idea is to help you to understand what you may find in an economist report and how to work better with an economist if you retain one. We practice in California, so we're most familiar with California law as it applies to damages, but I've attempted to make the presentation general enough so that it will be relevant for every state, but I'm not going to be going into specifics about how damages are calculated within a particular state. For example, Texas deducts income taxes. I haven't addressed income tax in this presentation, but it still covers enough of how damages are calculated so that you can get a general idea of what economists do in any state.

I'm just gonna bypass this slide because it's already been presented by Rochelle. Mark, do you wanna address this section?

Mark: Yes. Good day, everyone. Thank you for attending. Again, my name is Mark Falkenhagen. I run the Los Angeles office for HSNO. And hopefully, we could shine some light on economic damages for everyone and educate you for these personal injury related damage calculations. So this slide, we're gonna bring up possible damages on personal injury and the various areas of damages. The three main areas, wage loss is the first component which everyone knows are straightforward with wages, fringe benefits, other related earnings for the specific job. Then we've got medical care costs related to life care plans that we're gonna go over, and life care plans, again, could relate to a particular portion of the injured individual's life or potentially their entire life that we look at certain Medicare costs that are applied to the life care plan. We've got household services as well, which some of you may or may not be familiar with. We're gonna go into more detail of those which relate to the efforts of one's household and what they put in with the family around their home, etc.

To the possible outcomes for personal injury, we've got a few different areas to go over here. The first outcome is when one has an injury and returns to work but to the previous occupation with no restrictions or accommodation. So, in this case, the outcome for the economic loss is we've got lost compensation during the period of recovery following the injury to when they return to work. So we've got the calculation would start from the date of the injury to when they return to work, because there's no restrictions on the job position they had from when they had previously before they were injured.

The next possible outcome is when the injured individual returns to the previous occupation with some restrictions or an employer accommodation. Restrictions meaning if their hours might have been modified or if their job responsibility has changed somewhat with that current occupation. So, in this case, the economic loss calculation is we've got the lost earnings rate and we've got the difference between what they're earning once they return to that work position. So, if the restrictions modified their pay or their job responsibility is modified, your calculation, the loss is gonna be the difference between the two.

The other possible outcome is they're unable to return to the previous occupation that they had prior to their injury, but they're able to find alternative work, and this could possibly be the result of some vocational training. In this instance, we've got an economic loss calculation where we've got the earnings rate of what they would have been earning less their alternate occupation, what they've gained since they were injured and, in addition, if there's any vocational training during that time period. So they come back into the workforce, but they need some sort of assistance and training to get that specific job and get back into the workforce. 

Now, also, during that time period of when they're training, the vocational training period, they might have lost earnings as well if they're not able to work during that time period. And also, we have to remember, when they do have alternate occupation once they come back to the workforce, they might earn more than they were earning before. And also, you have to remember that when they've got additional training and education during this time period, that might increase their work-life expectancy, because on average, the higher educated one is, the longer their work-life is projected and their life expectancy.

The other possible outcome is straightforward, it's when they're unable to return to work at all. So, in this case, if this individual is permanently disabled and they're not able to work at all, the economic loss calculation is purely lost earnings, fringe benefits, and other related earnings components involving pension and so forth, and that's it. We're not deducting any...there's no offset because they're not working at all. They're unable to work.

So, with these possible outcomes of wage loss, we also look at how the outcome is laid out and how a physician or voc. rehab expert's opinion is laid out, and mostly, the outcome is we rely on their information because they're experts in the field of either the medical field or the voc. rehab expert. Are there any questions at this time?

Nora: Rochelle?

Rochelle: Hi. So, someone just wanted to know, what does HNSO stand for?

Nora: That's our firm name, and it's Hagen, Streiff, Newton & Oshiro. And since that's kind of a mouthful, we just go by HSNO, but that's the firm that we're from. That looks, that's somebody who logged in as Melvin Dalay [SP]. So, hello, Melvin.

Mark: Yeah. And the firm HSNO or Hagen, Streiff, Newton & Oshiro, the website is www.hsno.com, and you could call through the website there and get some more information.

Rochelle: That was all for now. You can continue with the presentation.

Nora: Okay. All right. I'm gonna...this is Nora, again. And now, I'm gonna talk about valuing future medical expenses and life care plans. And basically, what an economist does, we don't write the life care plan because, generally, that has to be done by somebody who's either a vocational professional or a medical professional that has a certification in life care planning, but what an economist will do is they will calculate the present value of the life care plan, which is the number that is generally submitted to the finder of fact. So, what we will do is we will take the life care plan as put together by the life care planner, and what we start to do is we put those costs into Excel and then we project those costs forward and how they're going to increase with inflation over the length of a life care plan, which is frequently to the end of the plaintiff life expectancy. And then we take those costs and we deduce them to present value so that we get the number that, if the plaintiff is given a damage award for the life care plan, they could put that money into a risk-free instrument and have enough money to pay for their care cost for as long as the life care plan extends. So, that's the part, the component that the economist is gonna add to the life care plan.

Now, since the passage of the Affordable Care Act or, in California, we used to have HIPAA insurance coverage, which would mean that it would be insurance that a plaintiff could get without any denial because of a preexisting condition, the courts are beginning to accept offsets for insurance. So, in other words, the economist can look at all the costs in the life care plan and then look at an insurance plan and determine what portion of those costs would be covered by insurance so that the remainder is really the damages after the insurance payments have taken place. Now, what you also have to do is you have to look at the deductibles and cost those out and also the premiums on the insurance plan as well. And for ACA coverage, 2018 is going to be the last year that people are required to have health insurance without paying a penalty, and then going forward, there is no penalty if you don't have ACA coverage, but it is evidence that, in many states, the defendant can introduce in order to offset some of those costs.

Another trend that has been going on, particularly in California, where we have the Howell and Corenbaum decisions, is that the fee-for-service cost, that is the sort of list price of the service, may not be accepted as the cost of medical treatment. And instead, what can be presented is what is called the sort of I put in quotation marks, the "reasonable cost," and that is often determined by, now, we have reasonable cost experts which are generally people with a medical coding or medical costing background. They can also be certified as a medical cost coder, and they will do research. They can either pull local hospitals to see, you know, if, let's say it's a back fusion surgery, sort of where the plaintiff lives, where he's likely to get medical treatment, what the average cost is for that area, or they can also, sometimes they go to Veterans Administration databases or they look at the Medicare fee schedule to see what an appropriate cost is, that is, what does the medical provider most commonly accept as payment for that treatment, not the price that they charge.

Okay. So, here, we have a sample life care plan, and this is the life care plan that, for instance, the economist would get. And we have, over there, they're usually divided into categories of care. This has therapeutic modalities, so we've got a group therapy, a life skills coach, case management, and so forth. And so, what the economist is gonna do is they're going to look at these costs. So, for instance, case management is gonna go. This is a slightly older life care plan. It's gonna begin in the year 2015 and it's gonna extend out for the plaintiff's life expectancy. So, the economist is going to look at the sex and perhaps the race of the plaintiff, determine what the life expectancy is, project out annual costs, year by year, in this case, it would be $125 a month or $1,500 a year, and then they're going to put this all into a spreadsheet and determine what the total cost of all the medical procedures that the plaintiff is gonna undergo is going to be. Okay.

Sometimes, some economists do, some don't, but some economists will offset care cost by deducting an expense that the plaintiff would normally have anyway so that we're not double counting costs, and this frequently comes up. For instance, if the plaintiff needs to have a special van in order to drive or have, you know, access, be able to wheel in if they're in a wheelchair or special controls that they have to drive, they may offset the cost of an average family car, saying that, well, they would have had to have spent money for transportation anyway, so the only extra cost is the cost for whatever special modifications need to be made to a vehicle to accommodate them from the injury. So, sometimes, that gets done. Sometimes, if there's also a claim for lost housekeeping services, for lost household services and the care plan includes a housekeeper, then we wouldn't claim the time that they would have spent cleaning the house because the care plan has already provided them with housekeeping services or cooking or something like that. Sometimes, the care plan will provide for a cellphone, then we assume, "Well, they would have had a cellphone anyway." So, that is something that you wanna look out for that there may be some deductions for expenses that the plaintiff would have had even were they not injured.

The next that the economist has to do is they have to project out future growth rates for medical expenses over the lifetime of the plaintiff. So, sometimes, you know, we can be going out 20, 30, 40 years, and we want to know what the cost, you know. So, the physician visit is going to be in 2015. So, we have to figure out how costs are gonna increase on a year-by-year basis. Usually, there's three methods that we can use. We can either go back and look at what historical medical inflation rates have been, any number of years over a business cycle, or we can also project forward what medical inflation are gonna be by going to sources that will make projections of what future medical costs are expected to be, and some people use a hybrid of both historic and projected medical inflation rates. I'm not gonna advocate a particular method, but if you retain economists, they should know what method they're using and be able to explain why this is the most accurate method for projecting future costs. Okay.

So, the historical method is what you're gonna do is you're gonna go back and look at consumer price increases for medical indices that are recorded by the Bureau of Labor Statistics, and they have a very specific, it's just like the consumer price index, which most people are familiar with, but it is for certain categories of medical costs. So, for instance, they have medical services, they have physician services and then other medical providers, which might be a chiropractor or a physical therapist, or someone who's not a physician, prescription drugs and nonprescription drugs, medical equipment and supplies, medical commodities, hospital services. And economists will be very specific, they'll go down the life care plan item by item and attempt to figure out where each cost in the life care plan, what category it corresponds to, and then apply the appropriate inflation rate. Okay.

So here's an example. This is taken right out of the Bureau of Labor Statistics. You can download it in Excel, and this is what...and it goes way back a number of years. So you can look at this is over-the-counter drug and what the cost increase over there on the far right hand, where it says what the percentage change is. Then you'll notice, interestingly here, over-the-counter drugs have been going down. There's a negative increase. So, that's where you would find what past price increases have been. And what people will do is they'll take an average over a period of years of whatever they determine is appropriate. It could be 30 years, 20 years, 10 years into the past, and then find out what that average increase rate is and project it forward. Now, some of you might ask, "Will the next 30 years, in terms of medical cost, be like the past 30 years?" And that's a legitimate question to ask, because the historical rates don't necessarily anticipate changes that affect medical pricing such as technology, or research changes, or changes in the law, or in Medicare or other factors that can affect medical prices. Okay. Here's a CPI for dental services. Again, over there on the far right-hand column, how those costs have increased year by year. You'll notice, every year is different, so people will typically take an average over a lengthy period of time and say, you know, "On average, these costs have increased 2% or 3% a year." Okay.

The other way that you can project future care costs is the projection method, and there is one governmental body that does project out future medical costs. That's the Center for Medicaid Services, and obviously, they do that because they want to know, you know, how Medicare reimbursement fees should change from year to year in order to cover the cost of medical care. One of the problems with the projections is, while they are a governmental study, they aren't published. Okay. So, if you get them, you can get them from the CMS, but they aren't out there as a published study the way some other studies that economists rely on. The projections are only for the next 10 years. That's about as far out as they believe that they need to project. So, if you're projecting a 30- or 40-year life care plan, generally, what people do is they take the inflation rate for the 10th year and then project it forward for the next 20 years.

Okay. And these are the CMS projections. These are everything from 2006 to 2015 is what the actual change was, and then 2017 was the first year that they projected and then projecting out to 2026, and that's as far as they go. Now, you'll notice I've got 2 numbers in red, and they're dental services that's 2.9% and over-the-counter drugs that's -0.5%. That's because those projections are wrong. We know what those cost increases were in 2017, and CMS didn't get it right. So, I only point that out to say that projections can be frequently inaccurate. And so, you have to be able to explain that. Okay.

Then, the next thing that the economists do is after they've projected out what each cost is gonna be for each year of the life care plan, we have to take that and discount it back to present value. That means we're going to reduce that number, because the plaintiff is going to get an award today, and they're going to put that money away in some investment vehicle and earn a return on it. And we want them to have enough money over the rest of the life care plan, which could be as long as their life expectancy, to pay for all the costs that they have in the future. So, what we're trying also to determine is what rate of return is the plaintiff going to get over the next 10, 20, or 30 years. So, frequently, what we will do is we'll look at a U.S. government bond. Those are considered to be the most risk-free investment. In other words, the United States is not going to default on its debt, it's going to pay interests every year until the bond is due.

So, one thing that we can do is, again, if we're looking at the historical method, we're gonna say, "Okay," we're gonna say, "In the past, this is the rate of the return the government has paid," and we're going to assume that the government is going to continue to pay a rate of return about the same way going forward. Now, a caveat of that is there was an economist who said, "Okay, this life care plan goes forward 30 years, so I'm gonna go back 30 years and take an average of what the rate of return on a government bond has been for the past 30 years and project that forward." He was unable to explain why the past 30 years would be a good predictor of the next 30 years, and his opinion was thrown out of court, not necessarily because he had used the historic method, but because he couldn't explain it. So your economist needs to understand that they need to explain why whatever method they're using for projecting costs or discounting them is a good predictor of the future.

Okay. And here's bond yields and interest rates, and you can go back, it's in the economic report of the president. Bonds have different kinds of terms from 3 months to 9 months, to 3 years, to 10 years, and 30 years. And so we can find out just what a government bond is gonna pay over a particular time period. And an economist who is using the historic method would go back and take an average return on a particular vehicle and use that to project forward what the plaintiff could get if they invested their award in a government bond so that they would have enough money to invest their award and pay all their care costs for the remainder of the life care plan.

The other thing you can do is, instead of looking at the past as a predictor, you can use a forecast and you can look at what a bond is paying today. Okay. So, for instance, you can buy a government bond that will pay you off in 1 year, or 3 years, or 10 years, or 30 years, and put that money into it and then go ahead and collect it at the end with some interest. So, this is, as of March 14th, 2018, what various terms of governments were paying. And so we've got a range of discount rates from 2% to 3%, depending on how far you go out. So, if you had a life care plan that was going out over 30 years, you might use 
the 1-year discount rate for the 1st year of your life care plan, the 3-year discount rate for the 2nd year of your life care plan, the 10-year discount rate for the 10th year of your life care plan, the 30-year discount rate for the 30th year of your life care plan. Now, you notice, as we're going further out in time, discount rates are getting higher and higher, and that's because, generally, the longer you're investing your money, the more return you will get because the future is more uncertain. So, we pay you a little bit more because you're tying up your money for a longer period of time. So, you should expect that if somebody is using different instruments of different lengths that your discount rates are gonna get higher the further out you go.

Okay. So, again, whatever method you use when you're reducing your life care plans to present value, you have to be able to explain it and you want to estimate future growth medical expenses. Your estimates could be forward-looking, that is you're using a projection, you're making a guess about what's gonna be happening in the future, or you can be backward-looking, you can look at what has happened historically and say, "I think because this has happened over the past 30 years, next 30 years aren't gonna be that different." Neither approach is going to be foolproof, okay. We just went through a recession where interest rates are very low. Now, they're getting a bit higher. So, maybe going back the last 20 years wouldn't be a good projector of the future. But, again, your economist should be able to explain it.

Another method frequently used by defendants to reduce life care plans to present value is the use of an annuity, and that is generally gonna result in heavier discounting than a treasury bond, and there's two reasons for that. One thing is, very often, what they'll do is they're gonna say, "Okay, we're gonna cover all your future care costs to the end of your life," but because the plaintiff is injured, their life expectancy may have been reduced. So they're not gonna live as long as someone with a normal life expectancy. They might live 10 years less. An annuity company is gonna bet on the fact that that plaintiff may die sooner rather than later, and what they do is they often get a rated age. In other words, they'll submit the plaintiff's medical records to a physician on staff, that person reviews the medical records, assigns a rated age, which is how old, really in terms of life expectancy, this person is, and how many years we expect that payout to be, which may be less than the life expectancy the economist has determined. For instance, the economist determines, you know, looks up normal life expectancy, thinks the plaintiff is gonna live 30 years, and then the annuity company thinks they're gonna live 20 years, they can pay less money out. Okay. And so, that's gonna mean that they'll take on that risk, but the present value of the life care plan is less. Okay. They can also invest in stocks and other securities that aren't government securities and pay a higher return. So, annuity companies can often guarantee the payments to cover care costs for as long as the plaintiff will live, but they're going to return a present value that's quite a bit less than if you just costed it out using U.S. Treasury's inflation rates. So, be aware of that.

Okay. So, putting it all together, here's a life care plan, and we've got...this is physical medicine and rehabilitation. We've got, it's going out over here on the far left-hand side, each year of the plan. If you see under where it says Physical Medicine and Rehabilitation Pain Management, 3%, that's how much costs are going up each year. And then over here where it says the Discount Rate, that's how much we're reducing the cost each year of the life care plan. So, we have the 1st year, future value is $499 and the present value is $499. But as we go forward, we'll see the costs are going up, but the present value is a little bit less than the future value, and that's because we're applying an inflation rate and then we're discounting because we're expecting that the plaintiff is going to be earning a return on whatever award they got. And so, they're not going to have to be given as much money in order to cover that future cost. Okay, questions.

Rochelle: If all the attendees can enter in the passcode for today, which is Damages, and any question that you have for Nora and Mark. Our first question, what is the best way to calculate the loss of the deceased spouse's social security benefits for the surviving spouse?

Nora: What is the best way? I'm not sure what they mean by best. What is the best way to calculate the loss of social security benefits for the surviving spouse? Okay. Generally, the best way would be...I'm assuming that the decedent is maybe middle-aged and has an earning history, okay, and the Social Security Administration puts out a program called the NEP, and what you can do is you can enter in everything that the decedent earned up until the point of their death and then whatever you've projected they're going to earn until they retire. And once you put in all those earnings and when you think they're gonna retire, you hit calculate and it will tell you what their social security benefit is going to be, along with benefits to the surviving spouse as well. But generally, that's gonna be the loss. The surviving spouse will get a survivor benefit. And, again, the NEP program will give you estimates of any of those things or, you know, they can contact the Social Security Administration and ask them. Anyone who's been working is gonna have a record with Social Security of their earnings, and Social Security can tell you what they'll receive.

Rochelle: Next question, what if your economist testifies that the future medical costs will increase greater than inflation?

Nora: That's commonly the case. Inflation right now is running about 2%. And generally, a lot of the categories of care are in excess of inflation. Usually, about the only category of medical care that will increase at the pace of inflation is commodities, you know, like crutches or wheelchairs, and so forth like that. Anything that's a service, like a physician service or something like that, it's generally gonna be in excess of inflation because it's wage growth. So, you really have to look at the CPI, and you can do that, it's right there on the website on the Bureau of Labor Statistics website, for what particular care cost you're looking at to see what past increases have been or what projected increases are going to be.

Rochelle: Okay. Unfortunately, my computer just hung out. So, Mark, would you be able to ask the next question?

Mark: You know, I don't see it on my computer, Rochelle.

Rochelle: All right. We'll continue with the questions...

Nora: I've got questions right here.

Rochelle: Okay.

Nora: Okay. Here's one. How can you testify to a reasonable degree of economic certainty when you are basing the numbers on projections that we can see have not historically been accurate? Thank you. That's an excellent question. I'm going to be writing a paper looking at the historic method and the CMS projections to see what has historically been most accurate. There are studies in the "Forensic Economic Journals" that attempt to look, you know, at what projection method has been most accurate over time, but a reasonable degree of economic certainty is just that. You know, given all the information that's available to us right now, this is what we think. And, you know, I mean even the Fed didn't forecast the great recession. So, that's about the best we can do. Usually, you know, the numbers are within a certain range, you know. They aren't people with crazy projections, or if something is really different from the norm, it would stand out, you know, in terms of what economists around the country are testifying to. But that's what we do. Let's see.

How successful have you been in court using the ACA offset to reduce the cost of future life care plans? I have not had a case with an ACA offset gone to trial. I know that the courts have affirmed it because we have a list of forensic economics and they put out those decisions. So, it has been upheld in various jurisdictions, and I would refer you to whatever jurisdiction you're in to look that up and see which way the courts have gone. Okay.

Can you use the total offset method in calculating present value in California? There are economists who do. So, I would say yes. I would say, usually, inflation rates are...I mean, if you actually look at the data, wage increases and so forth are not exactly equal to the discount rate. I know a lot of people who go to trial like that, because when economists start to talk about present value, everybody's eyes glaze over, and they don't really understand it. I wouldn't recommend it as an economist because I just don't think that saying inflation is always equal to the rate of return on treasury bonds is the same, but there are people who will do that. Okay.

Is there a scientifically accepted approach to accounting for the cost savings that may be realized by medical technological developments, such as new surgeries, gene therapy, etc.? I don't think so because we would...first of all, we're not medical technology experts. A while ago, there was an economist on our list here who liked Theranos. That was that company that went bankrupt that was, they were gonna draw a vial of your blood and determine different things, and it was gonna be this very inexpensive way to diagnose illnesses and so forth, and then the technology didn't really work out. So, I would say no, I don't think that there is a scientifically accepted approach accounting for the cost savings. I think the forecast that may come closest to that are the CMS, which sort of attempt to account for that when they're making projections.

Okay. I think we need to keep going. Anyone else who has a question, again, we've provided you with our phone number and email addresses, give us a day or two, but we will thoroughly answer every question that comes our way. Okay. And now, we're going to household services. Mark?

Mark: Okay, household services. First of all, what are household services? Think about housework, food, cooking and cleaning up, taking care of your pets, taking care of your home and your cars, just, you know, household management in general and the efforts you put around your home. There's a value in that, and we compute a value in that loss of what the individual can't do anymore because of a specific injury or that they have died. So, really, it's our job to find out what the individual did before the date of loss and understand what they did around the house, and we'll get to that on our data needs list in our few more slides. But value in household services and how you go about it, you know, we'd look at the hours that an individual puts in on average for these different tasks, and there's a few different ways. There's the Dollar Value of the Day that we're gonna go onto here soon, which specifies an exact value per task per individual for their age and the sex of the individual and if they've got children or not and a specific task that we break it down to. Also, you could look at a service that would provide that special service that the individual is not able to do. So, if you think more about if a voc. expert could lay out how much an individual would, you know, charge to help clean up the house and do other services, that's also an approach. And then, also, we could look at the estimated hours per week that they've lost because of this at a minimum wage rate.

Nora: Okay. I'm gonna go into a little bit about the Dollar Value of a Day. It used to be, there were quite a few studies of household services, and now, Dollar Value of a Day has kind of taken over, such that most people who are valuing household services use Dollar Value of a Day unless there's, say, a vocational expert or somebody who's going to be doing a market study. In general, I would say that the Dollar Value of the Day kind of will provide a mid-range value of household services. People who are gonna estimate the hours spent doing household services and value that at minimum wage are gonna be less than the Dollar Value of the Day. People who are going to be going out and saying, you know, "Okay, this person, you know, dusted and vacuumed and so forth, how much is it gonna cost? How much is Merry Maids gonna charge to do that?" That's going to be more for a couple of reasons. Not only are you paying the maids, but also the agency who sends them out there. There's gonna be a cost for administration and marketing and then profit. So, usually, people who go out and get market wages are gonna be higher than the Dollar Value of a Day, and people who use minimum wages are gonna be lower.

Dollar Value of the Day gets their wage rates from what are employees who do particular services, like gardening or driving, you know, like a chauffeur, or cleaning house or cooking, what do those people get paid in order to approximate the value of the household service. And it's a very detailed volume. It breaks up household service values based on sex, marital status, employment status, age, whether residing with a spouse or whether there's minor children in the house. So, it's sliced and diced a really huge number of ways, okay. And what it does is it provides statistical averages of weekly hours spent in categories of household services. So, it's based on a study done by the government called the American Time Use Survey, which has people, I think it's for a period of two weeks, but they have to record every minute of the day. So, it's very precise data. However, it's not over a long period of time. That might be one particular flaw of the study, they don't have people keep a time diary for a year in order to get a sense of it. It's just for a short amount of time, and then they take an average, and that's what they use.

Household production categories that are typically used would be inside housework, which is like vacuuming and so forth, and laundry, food cooking and clean-up, washing dishes, pets, home & vehicles, which is vehicle maintenance, caring for pets, gardening, household management, which is like bill paying, shopping, obtaining services. They'll be going out on appointments and travel for household activities. Some people will include the caring and helping category, which is, you know, driving people places and also caring for household children and household adults. So, not only will they do household production, things people do about the house, but also the caring and helping services that people also perform

All right. It also has some detail, for instance, it will provide an estimate of personal consumption. If you have somebody who died, not every household service that the decedent performed was for everyone in the household, you know. They might have made themselves a sandwich, done their own laundry, made their own bed, and so forth. So, they do have a figure in there for deduction and for personal consumption of usually about 10%. So, 90% was done for the rest of the household and 10% was done for themselves. And it will also provide information of the average age, household size, and composition. So, for instance, in this particular study that I took this excerpt from, the average age of the respondent was 40, and the household size was 4 people, and number of adults in the household was about 2, number of children was about 2.

Okay. It also provides geographic adjustment figures. So, for instance, if you're living in Alaska, okay, you're gonna increase the value of those services by about 20% to account for the fact that services are more expensive in Alaska. The same thing with Hawaii, average premiums may be about 10% more than the national average. Mississippi is a little bit below the national average. So, there's also geographic adjustment figures to adjust the values of Dollar Value of a Day depending on where someone lived, and it's even kind of specific to the city. They do it by metropolitan statistical area. As you can see, there's Anchorage, Fairbanks, and then other areas of Alaska that aren't a major population center. Okay.

And here we are in wrongful death. Mark? Mark, are you there? Mark?

Mark: Yeah. So, on wrongful death...yeah, Nora?

Nora: Yeah, go ahead.

Mark: So, possible damages with wrongful death, you have to remember that a wrongful death lawsuit may be filed by the personal representative of the deceased's estates or by the decedent's surviving spouse, children, or other dependent family members. Now, as far as California, the courts have interpreted the wrongful death statute to mean that the family can ask for compensation due to loss of support, loss of services, funeral and burial expenses, loss of companionship, and sexual cohabitation. However, it's important to note that punitive damages are not recoverable under the wrongful death statute. And, Nora, correct me if I'm wrong, but I believe that California might be different than other states.

Nora: Yeah. Different states will have different things. For instance, in some states, there's advice and counsel, I think that's New Jersey, and also companionship. And those are pecuniary losses. In California, those would be general damages. And in other states, they might be pecuniary damages, and you could value them. So, you really have to look at what's recoverable under the wrongful death statute within the jurisdiction that you're in. Although, you know, across states, they tend to be the same, but they're not always exactly the same. One thing that I'm seeing more in California when we moved over here is survival actions, and a survival action is where the plaintiff in the suit is able to step into the role of the plaintiff in recovering damages. So, it's not like they're the survivor and they're suing for loss of support. That is what would be left over after necessarily the decedent's personal consumption where they had to be an economic dependent of the decedent. They can step in and recover damages even if they weren't economic decedents or they're recovering damages for the estate. Okay. So, that's another action. Sometimes, it's difficult, for instance, parents of a decedent, if they weren't getting support from the decedent, could file an action under here in order to recover pecuniary damages, whereas, under the wrongful death statute, they might not be able to do that. Okay.

In terms of the plaintiff in a wrongful death suit, these are most typically the surviving spouse and children who lived with the decedent and are his or her economic dependents. Sometimes, divorced or separated spouses, if the decedent was legally required to make payments of income to them, they can claim alimony payments. And often, the decedent's children, even if they didn't live with the decedent, can claim child support. Other common claims would be household services, whatever services, even if they didn't live in the same household, the decedent provided to them, gifts, vacations they took, if they promised to pay for their college education, anything they would have done for their children over their lifetime. Decedent's parents, if they were economic dependents, may claim a loss. 

Frequently, if they were in the household and sort of directly participating in household income, you may be asked to prove that the person is an economic dependent and at least the defense will certainly ask for proof of an income stream from the decedent to the plaintiff if they weren't necessarily in the same household. And the more evidence that you can put forward of economic dependence on the decedent, the better. Otherwise, you know, lots of times, we're asked, you know, they were making payments to someone in Mexico, where they only give them cash or something like that, and we can put together a claim, but we may not, if there's no documentation of the income that the decedent provided to the plaintiff, we have less evidence or less support for making such a claim. Okay.

Damages in wrongful death, we're going to have the loss of support, which is the decedent's income less the portion of decedent's household income she would have consumed. So, we'll have their wages and their fringe benefits, loss of household services, whatever services the decedent provided to the survivors. Lost income over lifetime, so that's gonna be wages or salary and fringe benefits for how long they would be expected to work. Then any income they would have received in retirement, for instance, social security or pension benefits. Often, you can claim active income. So, if they person actively managed an investment portfolio, you know, actively managed a 401(k), or had rental property but, you know, actively kept up a property and did maintenance and so forth, they may be able to claim that. Passive income is usually harder to claim. For instance, if they had investments, but the investments would pay the same, whether the decedent was managing them or not, or if they had a home, but they had a property manager, and so they weren't really doing anything to generate that income and they would expect the same amount of income whether the decedent was alive or dead. That's a harder claim to make. Okay.

Household services. The value in wrongful death cases, the rate of household service is going to change depending on whether they were working or not working, or had children in the household or not in the household, or whether they had a spouse or not. So, the value of the household services may change three or four times over the decedent's lifetime. As I said, other services, caring and helping, night-time protective services, some people like to say that the time the decedents had spent sleeping was time that they were protecting their household, and that should have a value, and counsel or advice. Okay.

Personal consumption. When we value the decedent's wages and income and household services in a wrongful death case, we also have to deduct that amount of money that would have been spent to support the decedent, because that's not a loss to the plaintiff on the case. The personal consumption is gonna be a way of estimating the portion of the income that the decedent generated that would have been spent on the decedent had he lived. In some jurisdictions, personal consumption is just limited to maintenance expenses, which is the minimum amounts necessary for food, shelter, and clothing. In other jurisdictions, it would commonly be expressed as just the percentage of the decedent's income that they would be expected to consume. Okay. As I've said before, personal consumption estimates are also available for household services. Generally, if you use the personal consumption deduction from the Dollar Value of the Day, it's about 10%. Some people will use 25% to represent the amount of services that the decedent would have performed for himself or herself. The decedent's income less his or her personal consumption or maintenance is going to be the net loss of survivors or loss of support.

Okay. And here's an example of a personal consumption table. Frequently, what economists will do is they're not going to look at the household expenses of the specific household of the decedent to estimate how much the decedent spent on himself or herself. We just use a study, okay, and the study is going to be based on the income level of the household and the size and the number of people in the household. So, for instance, here, we have a table. This is from the Pat and Nelson table. We have households with income ranging from $10,000 to $14,000, $15,000, and it goes up to $70,000 and doesn't go above that. So, here, for a 2-person household with average income of $12,000, the male consumption is 57.7%. So, that is 57.7% of household income would be spent on the male of the household and 58.4% on the female person. Okay.

Generally speaking, personal consumption is going to decrease with increases in the size of household and the income. So, if you got a 3-, 4-, or 5-person household, you'll notice that these personal consumption rates are going down from 40% for the $12,000 level of income, going down to 35%, going down to 26.6%. And very affluent households, usually, personal consumption is quite a bit less. For very impoverished households and smaller households, you're gonna be looking at, most of the people are going to be spending practically everything they earned or even more than they have earned, whereas very affluent households, you're gonna see a whole lot left over for support of the rest of the people in the household.

Mark: Okay. Hey, Nora, we're running a little short here. We're getting close on time. So, I think, if there are some data needs list information that we've got here that everyone will be able to go through, but, Nora, if we could skip through to the summary of economic loss, if you can just spend a couple minutes on these calculations at the end, and then we could close it out that way. We've only got another minute or so.

Nora: Got it, okay. Thanks so much. I told him to kick me under the table.

Mark: I was not.

Nora: All right, here we go. So, he can't because he's down in Los Angeles, but thanks for the kick. Okay. So, here's a wrongful death case. This was a decedent who was about a 50-year-old electrician. He was a union electrician, so he had a number of pensions and he had, I think it was a wife and two or three children. So, personal consumption wasn't that high, but at any rate, here's the summary table that the economist would put together in a wrongful death case, and this would have been the loss to the wife and the children for this particular decedent. Okay. So, here, we've got lost wages and benefits. So, the past loss was gonna be the loss upto the date of trial, it was about $183,000. The future loss was going to be, in this case, we were taking him out to work-life expectancy. We also took him out, I think, to age 67 or 70, which is as long as he expected to live. So, we had a second calculation, had he worked that long. So, the future loss, that would be from the date of trial until he retired, was about $420,000, and the total loss is about $600,000. Now, these numbers already have personal consumption included in them, so they're already reduced for that. Then he had lost Social Security. So, again, that's a case where I had to project what I thought he was gonna earn and then Social Security based on what I thought he was gonna earn. So, that was an estimate of the future Social Security loss of $235,000. He had two pensions, $8,000 and $66,000, and then that's his household services, took $324,000. So, here, the total loss, again because we haven't overlooked the pension and the benefits in household services, was about $1.3 million.

Okay. And here's just the lost wage analysis, again, wages, fringe benefits. This is the past loss, deduction for personal consumption, how we get to that number. Same thing here, this is household services, about $10,000 a year. We've deducted about 10% for personal consumption. And then this is lost Social Security, assuming he retired his work-life expectancy, how much he would have received in Social Security, take out personal consumption, all the way to the end of his life, and those numbers roll up. Okay. Questions.

Rochelle: Due to the time limit, we'll be sending all of the unanswered questions over to Nora and Mark after the presentation and they will contact you guys directly due to the time.

Nora: Okay. Please don't be shy about questions. Email us anything. We'll be happy to offer you a free consultation if you have a case that you have a specific question about. And no question is too obscure. I had a really good question about credit expectancy. In other words, if somebody has unpaid medical bills affecting their credit, wants to claim that as a loss, I guess that can be done.

Rochelle: In addition to being your best source for testifying and consulting experts for more than 60 years, TASA also offers free interactive webinars, expert-written articles, research reports on expert witnesses, including the Challenge History Report 2.0 and Expert Profile 360. Please remember that if you are applying for CLE credit, you must attend for the full 60 minutes of the presentation. You are also required to complete the survey at the end of the program. Please note, you will be receiving your certificates via email in 24 to 48 hours after the presentation. 

I wanna take this opportunity to thank everyone for attending, and most especially Nora Ostrofe and Mark Falkenhagen for their time and effort in creating this presentation. If you would like to speak with Nora and Mark, or if you would like to speak with a TASA representative regarding an expert witness for a case that you are working on, please contact TASA at 1-800-523-2319. One of my colleagues will be following up with you regarding your feedback on today's presentation. Thank you for attending. This concludes our program for today.

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