Personal Injury Present Value Calculation

Injury Value Calculation

“Present value” is the cost today to fund an amount to be paid in the future. That amount is called the “future value.” Any time damages will be incurred in the future, an issue arises about how to value those damages. For example, if the plaintiff cannot return to prior employment, future lost earnings must be calculated. Typically, loss of earnings is projected from the present to normal retirement age. There may also be a calculation of lost retirement benefits due to plaintiff’s inability to accrue further retirement benefits. Ongoing medical expense may be the most common element of future damage.

Thing is, a dollar to be paid in the future doesn’t cost a dollar today. Money can be invested to earn interest over the years, so the future benefit can be funded today with a smaller amount, the present value. Two kinds of professionals can help calculate the present value of a future benefit: economists and structured settlement brokers.

Forensic Economists

Forensic economists specialize in testifying about issues such as inflation rates, investment returns, and other factors impacting present value. Once the court accepts the economist as an expert, the economist can provide an opinion of how much money is required today to fund a stream of payments over a period of time or a single payment in the future. If your case is large enough to warrant the cost of retaining an expert economist, the defense will almost certainly retain one as well. The defense economist will probably testify that the plaintiff’s economist is using incorrect assumptions or methodology, and the value of the disputed future benefit stream is much less. Likewise, the plaintiff’s economist will say the defense’s assumptions are wrong. Who’s right? Or is the answer somewhere in between? That’s what juries decide.

Structured Settlement Brokers

Another choice is to get present value calculation from structured settlement companies or brokers. Structured settlement brokers sell structured settlement annuities, a special kind of settlement tool used to make investment income earned on settlement proceeds tax-free. Personal injury settlements received at time of settlement are tax-free, but not the investment income later earned on those proceeds. Structured settlement payments comprised of principal and investment income are made over time to the plaintiff according to a schedule of the plaintiff’s choosing.

The broker gathers data about the plaintiff‘s age, gender, and life expectancy and about the amount and timing of the payments. This information is input into software programs provided by major U.S. life insurance companies who issue structured settlement annuities. The programs’ algorithms are based on the life company’s underwriters’ opinions and projections about future interest rates. The result is the cost, or present value, of how much it costs to purchase an annuity which will provide the desired benefit. Just as with the economist, the structured settlement broker can adjust the start date, end date (including lifetime annuities) and even an assumed inflation factor.

Structured settlement brokers do not charge for their services. They are paid a commission by the life insurance company when the annuity policy is issued. Therefore, this is an inexpensive way to obtain present value information without incurring the expense of hiring a forensic economist. If the case looks likely to settle or is too small to warrant the expense of an economist, using the broker is a smart way to obtain this information.

Structured settlement brokers can testify as expert witnesses in some states. But if the defense has retained a forensic economist, you will probably want your own for testimony. You can use the broker early in the case and retain an economist later; it’s not an either/or situation. Keep in mind that statute may require you to identify your expert witnesses before a deadline of so many days before trial so the other side has time to take the expert’s deposition.

Some economists will argue the cost of an annuity is not the same as present value. For your purposes, however, it will work. The benefit of the annuity cost calculation is that it is a real number. You can buy that benefit for the specified price. The economist, on the other hand, is giving an opinion. If the economist’s assumption about future interest rates turns out to be wrong, the present value calculation would be incorrect. However, once purchased, the annuity benefit cannot change.

Lifetime benefits

A key component of your settlement may include replacement of a lifetime benefit stream. Common examples include medical treatment and lost retirement benefits. To calculate a lifetime benefit, the economist or structured settlement broker must figure in your expected lifetime. The federal government and private organizations publish mortality tables which provide statistics on life expectancy categorized by race and gender. The tables state the average life expectancy of someone who has “normal life expectancy.” But that may not be you. Maybe the injury which is the subject of the lawsuit has diminished your life expectancy, or you may have other medical conditions which shorten life expectancy.

An economist will use the life expectancy projections in medical reports from treating and non-treating doctors. The defense’s expert doctor is likely to project a shorter life expectancy than your treating physician or your medical expert. Doing so reduces the present value of the benefit stream because there are fewer payments to be made.

A structured settlement broker will use a “rated age.” This is like the “biological age” quizzes you can find on the internet. The difference is that the rated age is used in a life expectancy calculation only to shorten the projection, never to lengthen it. Each life insurance company has an underwriting committee which will review medical records and advise the broker what age to use in calculating benefits. If a person has a condition impacting life expectancy, the present value (cost) of that lifetime benefit stream will decrease. This can be a good thing if you are dealing with a fixed sum and want to make it go farther. If you are in good health or have longevity in your heredity, you are likely to beat the odds and get a fantastic rate of return over your lifetime.

The Calculation

Present value can be calculated using a compound interest or discount rate formula. You are probably familiar with compound interest; that’s how banks pay interest on their deposits. Discount rate works in the other direction. Starting with a future value, a discount is applied for each year back to the present.

Economists and structured settlement underwriters make certain assumptions about the future of interest rates. They assume an applicable interest rate to calculate the present value. Parties often challenge those assumptions during negotiation.

Present value calculations are based on a formula:

PV stands for Present Value. FV is Future Value. “i” is the assumed annual interest rate. “n” is the number of years.

An expert could use this formula or a table. But in fact, pretty much everyone uses a computer. You can easily run your own present value calculations. Search the internet for “present value calculator.”

The biggest question is what interest rate to use. Since the recession of 2008, interest rates have been at a historic low. One might assume today that interest rates will significantly rise over the plaintiff’s lifetime. At the end of 2015 the highest yielding one-year bank certificates of deposit earned interest at an annual rate of about 1¼%. A defense expert might opine that over the next fifteen years, the average investment interest rate will be 4%. But an assumption about whether a given amount of money today will produce the amount necessary to pay for future needs may never be realized.

Even if that assumption comes to fruition, that doesn’t guarantee you will be able to earn that amount. Investment risk reduces the return most investors realize. If you earn low interest in the first years after settlement, there will be a small principal amount to invest in later years when interest rates might be higher. Therefore the average rate over an extended period may not be the appropriate measure.

The likelihood that today’s present value will be adequate years in the future is further threatened by inflation risk. Inflation decreases the buying power of your dollars. If you earn an interest rate that just equals the rate of inflation, you will need the same dollar amount today as in the future, not a smaller one. Overall inflation has been low since 2008. But the inflation rate for medical expenses has increased faster than for most other sectors of the economy.

Jury instructions

Part of the evaluation process is a consideration of what will happen if the case goes to trial. One of the jury’s jobs is to consider present value in calculating the verdict.

Any time a plaintiff presents evidence that the money to be awarded in the verdict will come due in the future, the court will instruct the jury how to calculate the present value. Here is a sample jury instruction:

To recover for future harm, Plaintiff must prove that the harm is reasonably certain to occur and must prove the amount of those future damages. The amount of damages for future harm must be reduced to present cash value. This is necessary because money received now will, through investment, grow to a larger amount in the future. Defendant must prove the amount by which future damages should be reduced to present value.

To find present cash value, you must determine the amount of money that, if reasonably invested today, will provide Plaintiff with the amount of Plaintiff’s future damages.

You may consider expert testimony in determining the present cash value of future damages. You must use any interest rate and other information agreed to by the parties in determining the present cash value of future damages.

Put yourself in the jurors’ shoes. How would this instruction change your view of the value of the case? How can you best present the different factors which could impact present value?…

Databases and Jury Verdict Research of Personal Injury Cases

Personal Injury Court Hearing

Numerous services compile case data. The question is how can you mine that data to help evaluate your case?

Claims Data

Insurance companies assemble data on thousands of cases. This allows them to extract historic data on what they paid on cases with specified characteristics. Several commercial software companies sell vehicle collision claim data processing to insurers. These include Colossus, Claim Consultant and Claims IQ. Claims Outcome Advisor crunches data from vehicle claims and slip-and-fall cases.

Here’s how they work. The program takes the adjuster through a questionnaire asking questions about issues such as plaintiff age and gender, treatment history and cost, medical diagnoses and prognoses, and extent of damage to the vehicle. The program then produces a range of settlement valuation. The next step is supposed to be human intervention to review what the program has produced.

Lawyers’ and Public Research Services

Lawyers typically subscribe to electronic legal research services. The biggest are LexisNexis and Westlaw. Each service also includes searchable data on verdicts and settlements. While these services are marketed to and priced for lawyers, anyone can buy short term access for a day or week.

An internet search for “verdict search” brings up multiple databases which compile this information. The generic term for case result research is “verdicts and settlements.”

Searching Legal Databases

Verdicts and settlements research is an art not a science. For all the reasons stated in Chapter 1, the same case will have a different settlement value than it may produce at judgment. In researching jury verdicts, the goal is to find cases with profiles as close as possible to yours. For your research results to be persuasive, you want to make apples-to-apples comparisons, even if your case is a Gala and the closest fact pattern you can find is a Macintosh. Factors include:

Demographic profile

Look for plaintiffs of the same gender and as close in age as possible. You can search by decade; for example, for people in their 40s and 50s, a Boolean search would look for 4* and 5* year olds. Race information is not usually available, but is helpful.


Ideally, you would like to see reports of cases tried in your own county since that is the jury pool from which your own jurors will come. But you may not find a good match from such a limited search. Researchers seldom look at cases outside the state where the case is pending as that is the applicable law. Unusual fact situations my require searching in other states. Within the state, look for similar communities if possible. If you are in a metropolis, you will probably be judged by jurors from a more diverse population than in a rural area. If you are in a big city, try to look at cases from other large cities and vice versa. You probably have a good idea of the political leanings of the majority in your area. Communities with similar politics tend to produce similar verdicts. Lawyers will refer to certain courthouses as drawing a “conservative” (low verdict) or “liberal” (high verdict) jury pool. Defense lawyers and insurance companies dub some communities such as Madison County, Illinois and New York City, as “judicial hellholes” for their extremely high verdicts. While this information can be helpful, it can also mislead litigants. Jurors might be generous once convinced by the facts, but that may not mean they will excuse an absence of proof. Just because a community is known for producing high or low verdicts does not mean your case will go that way.


Search for similar injuries using every applicable term. For example, don’t stop with “fracture.” Look for “fracture or ‘Open Reduction and Internal Fixation’ or ORIF”. Include the body part: “leg or lower extremity.”


The easiest comparison is between cases where the defendant is 100% liable. Don’t make the mistake of comparing verdicts where the defendant is fully responsible with those where the defendant is partially responsible. Depending on the rules of the jurisdiction and the nature of the damages, trials involving the same injury can produce wildly different results. For example, a California defendant who is only 1% liable will be judged 100% responsible for a plaintiff’s special damages. A different jurisdiction’s rule could result in a verdict one-one hundredth (1/100) the size of a California case with the same facts.

Use Caution in Assessing the Results

Verdicts are a public record. Settlements are not. Many verdict databases and all settlement databases get their data from the attorneys who tried the case.

Verdict databases will cover the range of all cases that were tried. But most cases are settled, not tried. Those that go to trial do so because at least one side made a mistake in their evaluation. Verdicts are the results from outlier cases, cases so extreme or unusual that experienced people were unable to come close enough in their evaluations to lead to settlement. Therefore, verdicts may not be the best guideposts in evaluating your case. Settlements would be, but the best research cannot discover all settlements.

While some settlements may be reported in public media, most are not of sufficient public interest to warrant the attention. Some settlements, particularly seven-and eight-figure settlements, are confidential. Many settlement agreements include confidentiality provisions which forbid participants from disclosing information about the terms. Usually these are blanket prohibitions, though sometimes the restriction is limited to information which would identify the parties.

Savvy attorneys race to submit non-confidential case result reports in a way that shows them in the best light. Because there is no third party oversight, the report of the facts or the pivotal legal issue may not be accurate. Attorneys may slant information so it looks like a bad result was really a win in view of the situation or the opponent’s good result wasn’t as good as it could have been. Many law firm websites report the results of the firm’s own settlements. These reports are skewed to show the most successful results.

When trying to use verdict research for persuasion, negotiators usually offer records of a range of verdicts. Sometimes in negotiation the highest and lowest results are thrown out, especially if they are much different from the locus of verdict results. Parties will argue about how comparable the verdicts are to the case at hand.

The challenge of finding and using verdicts and settlement research does not mean you should ignore this information source. Being aware of the limitations helps you evaluate what you find and what may be presented to you in negotiation.…