Tag: economic damages

Preparing for Loss of Business Claims following COVID-19

The rise of COVID-19, followed by national stay-at-home orders, has caused many employers to temporarily close, furlough or completely lay off employees, and perhaps unfortunately, close their doors completely.  Businesses, no matter how small or large, are feeling the effects.  And so is their bottom line.  In the coming years, employment attorneys may see an increase in the number of businesses seeking claims for business interruption insurance.  When such cases arise, it is crucial to get the correct documents from the business in order to determine exactly how much revenue was lost.

As a general rule when valuing the lost profits of a business, it is important to get as much detailed information as possible for the past three to five years.  Tax records for the business will provide general information about the businesses success and overall projections for the future.  Profits and losses from past years of the business will allow economists to determine the trajectory of the business prior to the interruption.  If a business was declining in profits or had negative profits prior to the interruption, it is unlikely the business would have stayed afloat even if the interruption had not occurred.  On the other hand, a business could have been experiencing steady increases in profits or had plans to expand that were abruptly halted.  Understanding the overall state of the business is important to value potential losses.

In addition, weekly revenue and expense records will provide a much clearer picture of the state of the business pre- and post-disruption.  With a restaurant for example, it would be important to know each week what the typical sales were from food and alcohol separately, as well as the typical expenses associated with items like food purchasing, staff, and electricity prior to any disruption.  Detailed records prior to the disruption will then be able to be compared to current and future revenue and expenses to determine what the business has lost.  

Keep in mind, the type of information that will be available for each type of business will be different, as will the metrics of success.  However, this information above will give an economist the relevant background to assess any damages to the business. 

Beginning stages of expanding econometric model of worklife expectancy by Millimet, D. Nieswiadomy, M. & Slottje, D.

Worklife expectancy is one of the most significant variables employed by economists to calculate the monetary award in cases involving wrongful death or personal injury. We are in the progress of updating the econometric model of worklife expectancy of Millimet et al.

In the coming days and weeks we will be reporting on our progress and providing output tables as we produce them.

Some woklife expectancy references:

Flinn C.J. & Heckman J.J. (1982) “New Methods for Analyzing Structural Models of Labor Force Dynamics” Advances in Econometrics.

Millimet, D., Nieswiadomy, M., Ryu, H. & Slottje, D. (2003). “Estimating worklife expectancy: an econometric  approach.”  Journal of Econometrics.

Millimet, D. Nieswiadomy, M. & Slottje, D. (2010). “Detailed Estimation of Worklife Expectancy for the Measurement of Human Capital: Accounting for Marriage and Family.” Journal of Economic Surveys.

Nelson, D. (1983). “The use of worklife tables in estimates of lost earning capacity.” Monthly Labor Review.

Nieswiadomy, M., and Silberberg, E. (1988). “Calculating Changes in Worklife Expectancies and Lost Earnings in Personal Injury Cases.” The Journal of Risk and Insurance.  

Skoog, G. R. and Ciecka, J.E. (2001). “The Markov (Increment-Decrement) Model of Labor Force Activity: New Results beyond Work-Life Expectancies.” Journal of Legal Economics.

 

 

 

 

Recalculating a jury award in a California Med Mal case

The Medical Injury Compensation Reform Act (MICRA) of 1975 was a statute enacted by the California Legislature in August 1975.  One of the provisions of the statute was to allow doctors to make periodic payments of awards in Med Mal cases.
Accordingly, in California in those instances, the jury is required to award/come back with both un-discounted and present value discounted amounts. If the defendant chooses to make periodic payments, then the un-discounted award amounts come into play.
In a recent the jury came back with an award but only mentioned present value numbers and no future values.
The Court and the attorneys agreed that it was better to not send the jury back to give a future value award.  Instead they decided to have the economists figure out what the undiscounted future values are based on the present value numbers that the jury awarded.
So the following approach was offered.
Both economists used the ratio of the award to the present value numbers to future value numbers to back into the jury’s implicit undiscounted amount.  For example, if the award was about 25% more than what testified to, then the future value was increased by the same percentage.
So for example if  you two both used a 3% rate and calculated the present value of a loss over 10 years, the PV factor is 8.5302 (old school approach using tables!).  If you calculated a $50,000 loss and the opposing expert calculated a $75,000 loss that would give you present value amounts of $426,510 and $639,765 respectively.
If the jury came back with a present value number in between the two experts then this would be about $539,137,. The annual loss that the jury implicitly used to arrive at the $533,137 figure is about $62,500.  The annual loss number is right in the middle of the two experts.
Annual Loss PV factor PV of Award
Economist 1  $        50,000 8.5302  $        426,510
Economist 2  $        75,000 8.5302  $        639,765
Jury  $  533,137.50
Your 50% Guess (based on Jury award)  $    62,500.0 8.5302  $        533,138

Details on GM Compensation Plan for Death and Physical Recall Injury Claims

In a recent document and interview, GM has laid out its plan to compensate people injuried or those with familiy members who were killed due to product defects.  The full plan can be found here.  Some highlights are below.

Types of claims covered by plan:

1. Individual Death Claims
2. Category One Physical Injury Claims: claims involving quadriplegic injury,
paraplegic injury, double amputation, permanent brain damage requiring
continuous home medical assistance, or pervasive burns encompassing a
substantial part of the body.
3. Category Two Physical Injury Claims: claims, other than Category One
Physical Injury Claims, that, within 48 hours of the accident, require either
overnight hospitalization of one or more nights or, in extraordinary
circumstances as determined on a case by case basis by the Administrator,
outpatient medical treatment

METHODOLOGIES FOR CALCULATING COMPENSATION

1. Track A – Presumptive Compensation
The Track A presumed methodology relies upon a combination of the decedent’s
historical earnings and personal details with assumptions of likely future events based
upon multiple sources of publicly available national data including the Bureau of Labor
Statistics and the Internal Revenue Service. Eligible Claimants need not present detailed
computations or analyses

This Track A presumed methodology ensures consistent economic loss calculations for
similarly situated victims (i.e., same age, number of dependents and income level)

2. Track B – Complete Economic Analysis

Track B entails a complete, comprehensive economic loss analysis of the decedent’s past,
present and assumed future income. The Facility will consider the financial history of the
decedent through incorporation of submitted individual income data, including past,
present and future earnings, wage growth, work life expectancy, etc., as well as other
case-specific information and circumstances of the decedent that the claimant believes
the Facility should consider in determining the total value of the claim. I

Non-economic losses will also be determined as follows.

• $1,000,000 for the death of the decedent, and
• $ 300,000 for the surviving spouse, and
• $ 300,000 for each surviving dependent of the decedent.

In addition, life care plans to cover future medicals will also funded for injured individuals needing future care.

Details on GM Compensation Plan for Death and Physical Recall Injury Claims

In a recent document and interview, GM has laid out its plan to compensate people injuried or those with familiy members who were killed due to product defects.  The full plan can be found here.  Some highlights are below.

Types of claims covered by plan:

1. Individual Death Claims
2. Category One Physical Injury Claims: claims involving quadriplegic injury,
paraplegic injury, double amputation, permanent brain damage requiring
continuous home medical assistance, or pervasive burns encompassing a
substantial part of the body.
3. Category Two Physical Injury Claims: claims, other than Category One
Physical Injury Claims, that, within 48 hours of the accident, require either
overnight hospitalization of one or more nights or, in extraordinary
circumstances as determined on a case by case basis by the Administrator,
outpatient medical treatment

METHODOLOGIES FOR CALCULATING COMPENSATION

1. Track A – Presumptive Compensation
The Track A presumed methodology relies upon a combination of the decedent’s
historical earnings and personal details with assumptions of likely future events based
upon multiple sources of publicly available national data including the Bureau of Labor
Statistics and the Internal Revenue Service. Eligible Claimants need not present detailed
computations or analyses

This Track A presumed methodology ensures consistent economic loss calculations for
similarly situated victims (i.e., same age, number of dependents and income level)

2. Track B – Complete Economic Analysis

Track B entails a complete, comprehensive economic loss analysis of the decedent’s past,
present and assumed future income. The Facility will consider the financial history of the
decedent through incorporation of submitted individual income data, including past,
present and future earnings, wage growth, work life expectancy, etc., as well as other
case-specific information and circumstances of the decedent that the claimant believes
the Facility should consider in determining the total value of the claim. I

Non-economic losses will also be determined as follows.

• $1,000,000 for the death of the decedent, and
• $ 300,000 for the surviving spouse, and
• $ 300,000 for each surviving dependent of the decedent.

In addition, life care plans to cover future medicals will also funded for injured individuals needing future care.

Accounting for kids and marriage in the calculation of a person’s worklife expectancy

Abstract (From Millimet et. al)

Measuring an individual’s human capital at a point in time as the present actuarial value of expected net lifetime earnings has a lengthy history. Calculating such measures requires accurate estimates of worklife expectancy. Here, worklife estimates for men and women in the USA categorized by educational attainment, race, marital status, parental status and current labour force status are presented. Race has a much larger impact on the worklife expectancy of men than women. Education is associated with larger worklife differentials for women. The association between marriage and worklife expectancy is significant, but of opposite sign, for men and women: married women (men) have a lower (higher) worklife expectancy than single women (men). Parenthood is associated with a reduction in the worklife expectancy of women; the association is smaller and varies from positive for some education/marital status groups to negative for others for men.

From:

DETAILED ESTIMATION OF WORKLIFE EXPECTANCY FOR THE MEASUREMENT OF HUMAN CAPITAL: ACCOUNTING FOR MARRIAGE AND CHILDREN
Daniel L. Millimet
Southern Methodist University
Michael Nieswiadomy
University of North Texas
Daniel Slottje
Southern Methodist University:

 

Age-earnings profiles for MBAs

A person’s earnings will tend to increase as they age…to a certain point.  After that point, which is around age 46 or so depending on the person’s education level and occupation, the person’s earnings will tend to decrease as the age.

The age-earnings profile captures this phenomenon. The age-earnings profile is calculated from data sources like the Current Population Survey from the U.S. BLS

Here is a question that we recently addressed:

Q: Any idea on how to create an age-earnings profile for someone specifically with an MBA?  Are there data somewhere that have created such a profile?  I can see using the ACS (American Community Survey) to look at people by age who have a master’s degree and are employed in management occupations.  Anything more specific? 

A: The ACS would be a good start and would allow you to estimate an age-earnings profile more specific to the facts in your case.  In our cases we generally estimate the age earnings profiling using a regression model.  In our cases, there are generally not enough observations to filter for all the specific facts that we want to account for so a regression approach has been useful for us.

Standard age earnings profile regressions from labor economics models, see for example papers by  Mincer et al., Lazear et al, ,  Welch et al. and many more,  regress earnings on experience, experience squared, occupation variables, geographical variables, and education variables. 

 

Evaluating economic damage allegations related to damaged credit

badcreidtdownloadAllegations of economic loss arising from damaged credit history appear in cases involving business damages as well as personal injury torts.

In these cases, the loss allegations generally revolve around a specific economic damage such as a mortgage loan denial or a higher interest rate.

The economic damage calculation and/or rebuttal analysis general involves comparing the plaintiff’s current economic and credit situation to the economic and credit situation that could have been reasonably expected to occur had the incident in question not occurred.

The credit situation that could have been reasonably expected to occur had the incident in question not occurred is typically referred to as the ‘but-for’ scenario.

 

BLS reclassifies education in Consumer Expenditure Survey to better reflect income and spending patterns.

According to the BLS, its most recent re-classification of education in the Consumer Expenditure (CE) survey better reflects income and spending patterns in the US. The BLS reports this in Beyond the Numbers: Prices & Spending, vol. 3, no. 1 (U.S. Bureau of Labor Statistics, January 2014.

Starting with the release of calendar year 2012 CE data, classification of household expenditures by the education of the reference person was changed.  In the latest release, and into the future, education will be replaced by classification by the highest level of education attained by any consumer unit (CU) member.  So for example, if the Husband is the reference person and has a Bachelor’s degree and the wife has a Post-graduate degree, the household’s education in the post 2012 data will be classified as Post-Graduate instead of Bachelors/College Graduate.

Ann Foster, the author of article, states that the rationale for the change was that the highest level of education attained by any household member more accurately reflects income and spending patterns than does the education level of the reference person only.

Source:

Ann C. Foster, “New education classification better reflects income and spending patterns in the Consumer Expenditure Survey ,” Beyond the Numbers: Prices & Spending, vol. 3, no. 1 (U.S. Bureau of Labor Statistics, January 2014), http://www.bls.gov/opub/btn/volume-3/education-classification-and-income-and-spending-patterns.htm

Week in Energy

  1. SolarWorld looks to close alleged loopholes in tariffs against Chinese solar manufacturers
  2. Zuckerman’s Frackers presents a balanced, informative and detailed insights into the industry.
  3. Sweetwater, Texas gets ready for drillers
  4. City of Fort Worth sues driller over natural gas royalties

SolarWorld looks to close alleged loopholes in tariffs against Chinese solar manufacturers

The New York Times reports that SolarWorld, a major maker of solar panels, is asking the Commerce Department to impose new duties on imported modules made of certain components from China or Taiwan.

SolarWorld v. China Solar Panel Imports

Learn more about the complaint and the US agency responsible for pursuing it (USIT.gov): (Google Search)

Zuckerman’s Frackers presents a balanced, informative and detailed insights into the industry.

Frackers is a lively but informative book about the recent development of the hydro fracturing industry.   The stories focus mainly on developments from 1990 to 2013.  Zuckerman provides the necessary detail to get the reader to be able to understand the technology without boring them to death. The fast moving biographical sketches of some of the key figures, such as George Mitchell, makes the tale interesting on a personal level.  Zuckerman does all this without editorializing (until the end of the book which is an optional read).  Great book for anyone interested in learning about the fracking industry.

Sweetwater, Texas gets ready for drillers

Austin American Statesman: http://www.mystatesman.com/news/news/opinion/as-shale-oil-drilling-draws-closer-sweetwater-lead/ncPNX

Sweetwater Economic Development:  http://www.sweetwatertexas.net/cline-shale-oil-play

City of Fort Worth sues driller over natural gas royalties

City of Fort Worth hires the well know Fort Worth law firm of Cantey Hanger to pursue royalty lawsuit.

Read: Complaint and Story