Plaintiffs bring personal injury cases to sue for all types of life-and-limb accidents. From mishaps to calamities, the lengthy list of personal injuries includes those from road traffic incidents, work and occupational hazards, trip and fall liability, product liability such as defects, medical or dental negligence, and industrial diseases such as asbestosis and mesothelioma. It is not entirely surprising that by far the most common of all these woes are auto crashes.

By another token, business losses can also result in adverse consequences, impacting operations or property, cash flow and earnings. Those damages will also need to be assessed before the injured party can be reasonably compensated.

Adding up the damages

Enter the CPA. While the lawyers are framing the basis for legal action, accountants will be organizing demands for compensation into two basic categories: economic and noneconomic damages. The former, in which the CPA plays a more direct role, encompasses the specific costs incurred as the result of an injury, such as medical bills or repairs to property. The latter covers pain and suffering, which references more conceptual harms such as emotional distress.

Plaintiffs may try to recoup some of these economic costs for personal injuries:

  • Compensation for past and future earnings.
  • Medical expenses.
  • Rehabilitation.
  • Paying others to perform household work.
  • Social security contributions made by employer.
  • Retirement plan benefits.
  • Paid time off.
  • Insurance.

A CPA will sometimes start by figuring out the victim’s work-life expectancy. That calculation will be predicated on numerous guiding factors such as age, ethnicity, gender and the level of education attained. Next, an accountant may determine an estimate for the unimpaired earnings that the plaintiff might have received if the accident had never occurred. But what if the claimant is in fact dead or utterly unable to return to work? In those cases, the CPA may look at the claimant’s past earnings record or how much others in the same industry can command. The accountant must also take into consideration the impaired earnings that a victim might be paid if able to work in a limited capacity.

As a rule, future economic impacts must be reasonable. To arrive at an acceptable figure, CPAs will incorporate inflation, any union status, partial year payments and other fringe benefits into the final tally when they compute a suitable lump sum to be demanded. Meanwhile, accountants will subtract from the bill money that is actually saved, such as commuting expenses. Also note that courts will expect injured parties to mitigate when possible.

A victim may have also suffered from one or more of these forms of noneconomic harm:

  • Pain.
  • Loss of companionship.
  • Disfigurement.
  • Mental impairment.
  • Loss of reputation.

There is no hard-and-fast rule to quantify these types of suffering, but attorneys or insurance companies sometimes use a multiplier method, multiplying the actual damage by a given number. Or they might use a per diem basis, attributing a certain amount to each day from the injury through full recovery.

Estimating economic losses can be a challenging and complicated exercise. Attorneys should consider working with an experienced CPA to refine their calculations in order to present a reasonable and convincing valuation for a court or settlement.

Have Questions? Contact us at 703-218-3600 or click here. To review our business planning articles, click here. To review our personal financial planning articles, click hereTo learn more about MCB’s tax practice and our tax experts, click here. 

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