Common litigation damages Featured

7:00pm EDT December 31, 2006

In today’s litigious society, the need to quantify a potential or actual claim’s economic value is common. Claims stemming from some causes of action, however, are more readily determinable than others. Determining business, damaged property or real estate value losses may be relatively straightforward. Determining other types of damages, such as “pain and suffering” in personal injury cases, can be much more ambiguous.

“As CPAs and financial experts, we focus on compensatory and economic damages,” says Bruce G. Knapp, CPA, ABV, CVA and director of Doeren Mayhew’s Litigation Support and Forensic Services Group.

Smart Business talked to Knapp about the different type of damages as well as the factors that valuators consider in determining damage amounts.

What are the different types of damages a plaintiff can sue for?

The plaintiff bears the burden of proof for determining the types and amounts of damages suffered. In addition, winning the case often calls for outside financial expert witness testimony. Typically, damages fall under one of five categories.

Compensatory damages are intended, as much as possible, to compensate plaintiffs and restore them to the position they were in before suffering from the defendant’s wrongful conduct.

Economic damages, also called pecuniary damages, consist of actual ‘out-of-pocket’ losses the injured party suffered. Noneconomic damages or ‘nonpecuniary damages’ are expenses above and beyond out-of-pocket losses and may include ‘pain and suffering,’ ‘loss of enjoyment of life’ or ‘loss of consortium.’

Punitive damages, also called exemplary damages, are intended to punish wrongful conduct. Determining applicability of the damage claim is complex and largely depends on state law.

Nominal damages consist of an award of a small sum of money (often $1) to a person who has proved an injury but hasn’t been able to demonstrate any appreciable compensable losses.

Courts won’t compensate plaintiffs for damages they find speculative or unsupported by admissible evidence. But a plaintiff may be able to sufficiently show evidence of damages that are not yet fixed — such as future damages — based on reasonable projections. Expert opinions are key to ensuring that these projections are reasonable and reliable.

Can a plaintiff sue for loss of earning ability?

In an employment law case, a plaintiff may seek economic damages for back pay (wages lost between the time of wrongful termination and the verdict) and front pay (wages likely to be lost in the future, because of the job loss and possible career hindrance). Similarly, a person who suffers a physical injury may not be able to return to work and may be entitled to damages for lost wages.

When determining the damages award, a valuation professional examines the plaintiff’s earning capacity before the defendant’s wrongful conduct as well as afterward. In determining earning capacity, the valuator also looks at factors that will affect future employability, including the defendant’s age, physical health, mental health, educational background, job skills, aptitudes and labor market conditions in areas where the plaintiff may be eligible for work.

Expert testimony can help establish these factors on the plaintiff’s behalf. More specifically, a valuation professional can produce an opinion projecting how the defendant’s wrongful conduct affected the plaintiff’s past and future earnings.

In some cases, medical, vocational or psychological testimony may be needed to establish the loss of physical or mental capacity to perform the type of employment the plaintiff previously held, or to explain or challenge any asserted limits relating to the plaintiff’s ability to return to work. Often, both plaintiff and defendant present expert witnesses with competing damages projections.

What about pain and suffering?

When a person suffers a physical injury, that person frequently claims damages from ‘pain and suffering.’ There is no clear method for determining the value of pain or the ability to lead a normal, pain-free life. This is an area where an attorney’s advocacy can profoundly affect the size of a damages award.

In light of equivalent facts and injuries, the manner in which an attorney demonstrates the effect of an injury or disability to a jury and the manner in which he or she requests damages can significantly raise or lower a damages award.

How important is good legal counsel?

Many people believe that effective damages advocacy is more an art than a science. Of course, the extent to which this is true depends both on a case’s facts and the injury’s type and nature. This is an area where good legal counsel — and, as necessary, the testimony of a good financial, valuation or other appropriately qualified expert — can potentially make an enormous difference in the case’s outcome.

BRUCE G. KNAPP is a CPA, ABV, CVA and director of Doeren Mayhew, a regional accounting firm in Troy. Doeren Mayhew provides a wide range of professional services to middle-market companies. Contact Knapp at knapp@doeren.com or (248) 244-3218.