Ep 72: Calculating a Comprehensive Valuation In Personal Injury Cases (Part 2 with Dr. Craig Galbraith)

Welcome to the Personal Injury Lawyer Podcast. I'm Clark speaks. This is the anatomy of a personal injury case. So maybe as a plumber, they might have made 60 $100,000 a year, or whatever, depending on their skill level and their experience. And then now with the injury, they can't work as a plumber, but maybe they could work, you know, you know, behind a desk or or in some other sort of sedimentary sort of job where they wouldn't, you be able to use those skills, but maybe they couldn't make that much, but they could make 30 or 40. Is that the idea?

Yeah, that's the idea of mitigation. And mitigation is probably one of the most difficult. There's probably very, three very difficult things, as a forensic economist, that's one of them, is try to calculate the mitigation in a catastrophic situation where somebody, perhaps is paraplegic, you don't expect any mitigation. They're just simply not going to be able to earn in the future. From an economic point of view, then you don't have to kind of struggle with the idea, well, what could you do with this particular injury that becomes a much more difficult process. And there's about two or three different ways that that one can do this. I I tend to favor one method, which I think is well supported in the published literature. But, you know, there are certain ways of trying to figure that out, but that's one of the most difficult things you have to do as a forensic economist, let's figure out an example of what you're talking about. Sure. Sure. There's, for example, I use a survey called the workability index, where it's about seven questions, and if somebody's been injured, you'll ask questions about the ability to work. And it's well established, it's well researched. It's well established, and there's a fair amount of research. I've actually published a couple articles myself on this, which shows that that is a good predictor at what you can make in the future with a particular injury. So let's say you fill this out, I run it through my mathematical analysis, and you come up with something that, well, there's going to be on the average of 60% loss if that person was, let's say make an 80,000 let's take $100,000 per year. And my calculations say, in the future, because of the injury they could, they're gonna have a 60% loss. That means they're only going to be able to earn 40% then I would say the loss would be $60,000 it'd be 100,000 minus the that 60,000 so they would earn $40,000 versus what the $100,000 would would be. That's one method. Another method is to, you know, go out to evoke vocational rehab person. That person will then analyze the skills, the level that person then try to predict and give an estimate as to what that plumber could do, perhaps with that particular injury, and come up with an estimate like that. I could use that particular method too.

So we have a Voc Rehab friend of mine who's coming on next week. Okay, Anthony Enoch, and we're excited to have him. Let me ask you this, when you describe, you know, a person would have been making 100 but now they can only make 40. The Delta is $60,000 what do you do with that in order to be able to quantify the Lost future income?

Well, that's coming back to the idea of your present value or your discounting, because if they're losing $60,000 and let's say that again, you can look up on a table, and again, this is one of the things that you know it is more sophisticated now, because when I first started this, you didn't have tables like this, but people have done research and shown that. Let's say the average work life of somebody who is, let's say 40 years old. Let's say our plumber is 40 years old. That plumber, you would figure 40 years for the next 20 years. Let's say the work life would be in 20 years that they have a loss of $60,000 and then you'd have to discount that to the present time to figure out what the lump sum today of that loss is. So they could essentially take that money, they they could take that money and invest it and actually recreate that loss of $60,000 so

then the value of the lump sum today would be equal to the value of the payments had they kept working. That's

that's exactly what we try to do. Okay, so, so

that makes sense, how you would calculate that. Now you mentioned you might have to go back in time and calculate the lost wages to date. And just to put that in context, usually when somebody like me, when a personal injury lawyer contacts you to help determine the economic impact of a catastrophic injury, a person has worked and learned skills and built their career or whatever, then there's an event and they have injured. Takes a little while to get the medical treatment and hire the attorney and create that relationship and and then while that person is getting the emergent medical and the immediate medical treatment that they need, we're putting to. Other the file, and investigating the claim and putting together legal fit theories and securing witnesses and and collecting records and documents. At some point after that, then we go to say, Okay, we're we're getting the person is at a medical plateau there. That may not be perfect, but at least there, we know more about what their condition and their future will look like. And so then we may go back and we may say, Okay, well, let's start to quantify the economic impact of that. So there's a period of time between the incident and the time that we contact you. And so one of the things that you would have to do then is to calculate the loss from the time that we you generate your report until going backwards to the date of the end, that's

correct, and that's where you would look with the look into actually how much money they made during that particular time. Because some people can be injured, and they will continue to try to work, okay, other people simply can't work. And so you go backwards. You look at the the documents, I mean, that is fairly identifiable. You've got your pace pay stubs. How much did they make during this period from the injury up to when you contact me, versus what they should have made if they weren't injured? Well,

let me ask you, so if $1 today is worth more than dollar 20 years from now, is $1 today worth less than $1.02 years from

now? Yeah, that's that's a good point. You could certainly discount that also, because if you're gonna say that it's worth more in the future, it's probably worth less. But again, when you think about that, I tend not to do that. And the reason for that is, if they had that money in the past, they could have invested it and earn interest on that. So rather than saying it's, it's, you know, you know, if they lost $40,000 let's say in the past that $40,000 if they would have invested it, they would have gotten 5% interest. So you actually could put an interest on that generally. However, the past loss is a relatively insignificant part compared to the future lost. When it comes to income, when you think about it, you might have an injury in 2021 I'm contacted in 2023 the the person stable. And we can look back and you might have two years of loss. But if that person's 25 years old or 30 years old, you know, they still have another 20 or 30 years in front of them of loss, and that tends to be a much, much more significant loss many times. Now, again, that might be different if you have somebody who's 65 years old, let's say, and they're injured, and they really don't have much of a, you know, you know, a future. And the other thing to point out too is there's some other economic components to that. It's not just your salary, but also if the employer pays benefits. So if the employer contributes to your insurance, the employer contributes to your pension, that's a loss too, because if you're not working, or if you're earning less money, then you're not going to get the same amount of benefit. So as a forensic economist, you not only look at the loss of the salary or the income, but you also have to look at employer paid benefits.

So so what we have have determined over the years is when we're trying to build case value and show and justify asking for big numbers in injury, especially catastrophic cases. It's it's really showing our work and getting really granule, and identifying every way in which somebody was negatively impacted by an injury becomes very, very important. And so you mentioned, okay, one of the things that you mentioned was calculating how much money a person has lost from not being able to work, from now going back to the injury, right? The next thing you mentioned was how much money they would have lost if they had continued to work. Right now, does your work account for the fact that people will, generally, over time, if they're doing a good job, make it raises and bumps in their promotions and and, and maybe their benefit package might expand over time.

You have to look at every case separately. I mean, each each person is unique. So you might have two plumbers, but they might be in a different type of situation. You know, one may work for somebody else, and they may get benefits and and possible promotions and that sort of thing. You might have another plumber that works for himself, that that, and it represents a business. And it's not only the value of his time as a plumber and his training going out, but he's also making a profit associated with that particular business. So it's very important that you look at every person, every case, as an individual case. You know, obviously, as an economist, you have to use averages on these tables that have been published, like work life and things like that. But I think. Very important that you look at every single person. For example, I just worked with an injured military officer. Well, there you have very, very specific expectations about promotions. You're there for two years, your salary goes up. It's published by the federal government. If you're a captain, you're expected to become a major in a case like that, yes, I would certainly build in the idea of promotions and expansion of salary into the future. But for that particular injury, if you have somebody that, let's say, has not shown a history of promotions or works maybe for a small company that tends not to give promotions, or, let's say, works as a truck driver or something like that, where it's really the market that determines, you know, rather than the employer deciding, well, you've been driving for a long time, you're going to get more money. Then you may not have quite the same type of promotion. You'll still have inflation, but you're not going to have that extra promotion up. So, you know, the key thing is to look at every every situation. Some employers pay substantially to people's medical care, health health insurance and pensions and other employers don't you know. So it you really do have to look at every, every single situation. One thing that we haven't talked about either that impacts is the idea of household services that and that's something that a lot of people forget about, that we all work around the house, and, you know, we we clean our house, we cook, we garden, we take care of our lawn, we do these sort of things, and an injury can impact that dramatically. Now, if you're not able to do that, there's really three things that could happen. You could pay somebody else to do it, your friends and family can kind of cover that, or simply doesn't get done. And so the, you know, the yard gets, you know, untended, and that sort of thing. So very important part of looking at the economic value and trying to make the person Whole Again, from an economic perspective, is not just the salary and the employer paid benefits, but also the inability and the loss of future and past household services.

So, so one of the things we talk about this on a regular basis in our in our exceptional case meetings, because we are, we sort of meet on a regular basis to look at these catastrophic cases and try to and try to think through, okay? This is what's going on in this person's life. This is what their obligations are. Because the reality, this is what this is, this is, this is the truth. The reality is, what, if you're injured and you're injured catastrophically or seriously or whatever, then for a period of time, people will call, people will come visit, people will send cards, and they will offer their condolences and sympathies and hugs and support. And then at some point, you know they stop. You know not they your family will always support you, but the world stops caring about your challenges. And instead, rent is due and car payments are due, and Lily dues are due, and school lunches are due, and these bills continue to pile up, and and to do these things. So this becomes a very important part of a person's concern and occupies a significant space in their minds as they're trying to figure out what to do now and so. So what I wanted to ask you about is when we're when we're looking at those types of things, and you and you mentioned, you mentioned several places that you know, household services and that, and that kind of thing. What occurs to me in that situation is, what always comes to my mind is, in addition to all that, what about my mom? And the reason I say that is because my mom's 86 years old. She lives with us and and she there's not much that she can do. She's has Alzheimer's. She has very difficult time remembering almost anything. But, you know, I wonder, what if she'd had a physical injury when she was 40? You know, what if she had a a debilitating injury when she was 35 you know, does that impact her more now that she's 8082, 85 and would that require even more? You know, so right now, she has people that come in and take to take up, take care of her while we're at work, but in a context where somebody has a catastrophic injury, and then the normal things in life, dementia and just age and just the way that human beings deteriorate to some extent over time. You know, how do you quantify those types of things when it comes to household loss of household services?

Sure, there's actually two components. There is, I'll talk about each one. One is the household services and. That's what we call it. It's actually called by the government household production services, because it is an economic activity. People make a choice, for example, to not perhaps, go out and work and they stay home and they and they take care of the house, you know. So it is an economic choice. And there's actually a debate in the government right now, and I would support this particular debate and position that a person's work around the house should be part of our gross national product. When you figure it out, the gross national product that we talk about for the country, we tend to only look at people getting paid, but the activities that people do in the house, the cooking, the cleaning, the taking care of kids and that sort of thing is an economic activity, and the inability to do it, as I mentioned, has a loss that, and that loss doesn't mean that. Well, I have the money to go hire somebody to come in and do all that stuff, because many people don't have the money, but it still represents a loss. In particular, it becomes very, very important if somebody's injured and they don't work. You know, we spend a lot of time talking about loss of income and but there are some people that you know, by choice stay at home. They take care of the kids, and, let's say they're injured. They don't have necessarily a salary loss, because they haven't now, if they did, plan on working again. This is where you know, this idea of forensic economics can become very complicated. Somebody can be staying home right now, but they're educated and they plan on getting a job, let's say two years from now, and they're injured and they no longer can do that. Yes, there is an economic loss associated with the loss of potential salary in the future, but let's say they're not they're let's say they're retired and they're injured, they're still contributing to the household. They're still taking care of people. They may be taking care of grandchildren, they may be taking care of other people. And so you have to look at this loss of household services now. It does change over time, and this is one of the things that has been published in the last maybe 10 years or so. People have looked at how that how people change their household services over time as we go through a family life cycle, a mother, for example, a married wife that is has a working spouse, let's say, and is raising three kids, is going to do more in the household than if they're single and they don't have children, well, we can look that up on tables now. And what that's what I do, is I create when I look at the loss of household services in the future, I look at these life cycle changes that fortunately, the government has collected this. It's called the American Time Use Survey, and they collect it every single year, and they publish a big database, and you can actually track, and again, this is published, and some people do this, and I use these resources, you can see how people's household services change over time, depending on their personal situation, as they age and go into different periods of their life and so forth.

Thank you for joining us, and we'll see you next time.

Welcome to the Personal Injury Lawyer Podcast. I'm Clark speaks. This is the anatomy of a personal injury case. So maybe as a plumber, they might have made 60 $100,000 a year, or whatever, depending on their skill level and their experience. And then now with the injury, they can't work as a plumber, but maybe they could work, you know, you know, behind a desk or or in some other sort of sedimentary sort of job where they wouldn't, you be able to use those skills, but maybe they couldn't make that much, but they could make 30 or 40. Is that the idea?

Yeah, that's the idea of mitigation. And mitigation is probably one of the most difficult. There's probably very, three very difficult things, as a forensic economist, that's one of them, is try to calculate the mitigation in a catastrophic situation where somebody, perhaps is paraplegic, you don't expect any mitigation. They're just simply not going to be able to earn in the future. From an economic point of view, then you don't have to kind of struggle with the idea, well, what could you do with this particular injury that becomes a much more difficult process. And there's about two or three different ways that that one can do this. I I tend to favor one method, which I think is well supported in the published literature. But, you know, there are certain ways of trying to figure that out, but that's one of the most difficult things you have to do as a forensic economist, let's figure out an example of what you're talking about. Sure. Sure. There's, for example, I use a survey called the workability index, where it's about seven questions, and if somebody's been injured, you'll ask questions about the ability to work. And it's well established, it's well researched. It's well established, and there's a fair amount of research. I've actually published a couple articles myself on this, which shows that that is a good predictor at what you can make in the future with a particular injury. So let's say you fill this out, I run it through my mathematical analysis, and you come up with something that, well, there's going to be on the average of 60% loss if that person was, let's say make an 80,000 let's take $100,000 per year. And my calculations say, in the future, because of the injury they could, they're gonna have a 60% loss. That means they're only going to be able to earn 40% then I would say the loss would be $60,000 it'd be 100,000 minus the that 60,000 so they would earn $40,000 versus what the $100,000 would would be. That's one method. Another method is to, you know, go out to evoke vocational rehab person. That person will then analyze the skills, the level that person then try to predict and give an estimate as to what that plumber could do, perhaps with that particular injury, and come up with an estimate like that. I could use that particular method too.

So we have a Voc Rehab friend of mine who's coming on next week. Okay, Anthony Enoch, and we're excited to have him. Let me ask you this, when you describe, you know, a person would have been making 100 but now they can only make 40. The Delta is $60,000 what do you do with that in order to be able to quantify the Lost future income?

Well, that's coming back to the idea of your present value or your discounting, because if they're losing $60,000 and let's say that again, you can look up on a table, and again, this is one of the things that you know it is more sophisticated now, because when I first started this, you didn't have tables like this, but people have done research and shown that. Let's say the average work life of somebody who is, let's say 40 years old. Let's say our plumber is 40 years old. That plumber, you would figure 40 years for the next 20 years. Let's say the work life would be in 20 years that they have a loss of $60,000 and then you'd have to discount that to the present time to figure out what the lump sum today of that loss is. So they could essentially take that money, they they could take that money and invest it and actually recreate that loss of $60,000 so

then the value of the lump sum today would be equal to the value of the payments had they kept working. That's

that's exactly what we try to do. Okay, so, so

that makes sense, how you would calculate that. Now you mentioned you might have to go back in time and calculate the lost wages to date. And just to put that in context, usually when somebody like me, when a personal injury lawyer contacts you to help determine the economic impact of a catastrophic injury, a person has worked and learned skills and built their career or whatever, then there's an event and they have injured. Takes a little while to get the medical treatment and hire the attorney and create that relationship and and then while that person is getting the emergent medical and the immediate medical treatment that they need, we're putting to. Other the file, and investigating the claim and putting together legal fit theories and securing witnesses and and collecting records and documents. At some point after that, then we go to say, Okay, we're we're getting the person is at a medical plateau there. That may not be perfect, but at least there, we know more about what their condition and their future will look like. And so then we may go back and we may say, Okay, well, let's start to quantify the economic impact of that. So there's a period of time between the incident and the time that we contact you. And so one of the things that you would have to do then is to calculate the loss from the time that we you generate your report until going backwards to the date of the end, that's

correct, and that's where you would look with the look into actually how much money they made during that particular time. Because some people can be injured, and they will continue to try to work, okay, other people simply can't work. And so you go backwards. You look at the the documents, I mean, that is fairly identifiable. You've got your pace pay stubs. How much did they make during this period from the injury up to when you contact me, versus what they should have made if they weren't injured? Well,

let me ask you, so if $1 today is worth more than dollar 20 years from now, is $1 today worth less than $1.02 years from

now? Yeah, that's that's a good point. You could certainly discount that also, because if you're gonna say that it's worth more in the future, it's probably worth less. But again, when you think about that, I tend not to do that. And the reason for that is, if they had that money in the past, they could have invested it and earn interest on that. So rather than saying it's, it's, you know, you know, if they lost $40,000 let's say in the past that $40,000 if they would have invested it, they would have gotten 5% interest. So you actually could put an interest on that generally. However, the past loss is a relatively insignificant part compared to the future lost. When it comes to income, when you think about it, you might have an injury in 2021 I'm contacted in 2023 the the person stable. And we can look back and you might have two years of loss. But if that person's 25 years old or 30 years old, you know, they still have another 20 or 30 years in front of them of loss, and that tends to be a much, much more significant loss many times. Now, again, that might be different if you have somebody who's 65 years old, let's say, and they're injured, and they really don't have much of a, you know, you know, a future. And the other thing to point out too is there's some other economic components to that. It's not just your salary, but also if the employer pays benefits. So if the employer contributes to your insurance, the employer contributes to your pension, that's a loss too, because if you're not working, or if you're earning less money, then you're not going to get the same amount of benefit. So as a forensic economist, you not only look at the loss of the salary or the income, but you also have to look at employer paid benefits.

So so what we have have determined over the years is when we're trying to build case value and show and justify asking for big numbers in injury, especially catastrophic cases. It's it's really showing our work and getting really granule, and identifying every way in which somebody was negatively impacted by an injury becomes very, very important. And so you mentioned, okay, one of the things that you mentioned was calculating how much money a person has lost from not being able to work, from now going back to the injury, right? The next thing you mentioned was how much money they would have lost if they had continued to work. Right now, does your work account for the fact that people will, generally, over time, if they're doing a good job, make it raises and bumps in their promotions and and, and maybe their benefit package might expand over time.

You have to look at every case separately. I mean, each each person is unique. So you might have two plumbers, but they might be in a different type of situation. You know, one may work for somebody else, and they may get benefits and and possible promotions and that sort of thing. You might have another plumber that works for himself, that that, and it represents a business. And it's not only the value of his time as a plumber and his training going out, but he's also making a profit associated with that particular business. So it's very important that you look at every person, every case, as an individual case. You know, obviously, as an economist, you have to use averages on these tables that have been published, like work life and things like that. But I think. Very important that you look at every single person. For example, I just worked with an injured military officer. Well, there you have very, very specific expectations about promotions. You're there for two years, your salary goes up. It's published by the federal government. If you're a captain, you're expected to become a major in a case like that, yes, I would certainly build in the idea of promotions and expansion of salary into the future. But for that particular injury, if you have somebody that, let's say, has not shown a history of promotions or works maybe for a small company that tends not to give promotions, or, let's say, works as a truck driver or something like that, where it's really the market that determines, you know, rather than the employer deciding, well, you've been driving for a long time, you're going to get more money. Then you may not have quite the same type of promotion. You'll still have inflation, but you're not going to have that extra promotion up. So, you know, the key thing is to look at every every situation. Some employers pay substantially to people's medical care, health health insurance and pensions and other employers don't you know. So it you really do have to look at every, every single situation. One thing that we haven't talked about either that impacts is the idea of household services that and that's something that a lot of people forget about, that we all work around the house, and, you know, we we clean our house, we cook, we garden, we take care of our lawn, we do these sort of things, and an injury can impact that dramatically. Now, if you're not able to do that, there's really three things that could happen. You could pay somebody else to do it, your friends and family can kind of cover that, or simply doesn't get done. And so the, you know, the yard gets, you know, untended, and that sort of thing. So very important part of looking at the economic value and trying to make the person Whole Again, from an economic perspective, is not just the salary and the employer paid benefits, but also the inability and the loss of future and past household services.

So, so one of the things we talk about this on a regular basis in our in our exceptional case meetings, because we are, we sort of meet on a regular basis to look at these catastrophic cases and try to and try to think through, okay? This is what's going on in this person's life. This is what their obligations are. Because the reality, this is what this is, this is, this is the truth. The reality is, what, if you're injured and you're injured catastrophically or seriously or whatever, then for a period of time, people will call, people will come visit, people will send cards, and they will offer their condolences and sympathies and hugs and support. And then at some point, you know they stop. You know not they your family will always support you, but the world stops caring about your challenges. And instead, rent is due and car payments are due, and Lily dues are due, and school lunches are due, and these bills continue to pile up, and and to do these things. So this becomes a very important part of a person's concern and occupies a significant space in their minds as they're trying to figure out what to do now and so. So what I wanted to ask you about is when we're when we're looking at those types of things, and you and you mentioned, you mentioned several places that you know, household services and that, and that kind of thing. What occurs to me in that situation is, what always comes to my mind is, in addition to all that, what about my mom? And the reason I say that is because my mom's 86 years old. She lives with us and and she there's not much that she can do. She's has Alzheimer's. She has very difficult time remembering almost anything. But, you know, I wonder, what if she'd had a physical injury when she was 40? You know, what if she had a a debilitating injury when she was 35 you know, does that impact her more now that she's 8082, 85 and would that require even more? You know, so right now, she has people that come in and take to take up, take care of her while we're at work, but in a context where somebody has a catastrophic injury, and then the normal things in life, dementia and just age and just the way that human beings deteriorate to some extent over time. You know, how do you quantify those types of things when it comes to household loss of household services?

Sure, there's actually two components. There is, I'll talk about each one. One is the household services and. That's what we call it. It's actually called by the government household production services, because it is an economic activity. People make a choice, for example, to not perhaps, go out and work and they stay home and they and they take care of the house, you know. So it is an economic choice. And there's actually a debate in the government right now, and I would support this particular debate and position that a person's work around the house should be part of our gross national product. When you figure it out, the gross national product that we talk about for the country, we tend to only look at people getting paid, but the activities that people do in the house, the cooking, the cleaning, the taking care of kids and that sort of thing is an economic activity, and the inability to do it, as I mentioned, has a loss that, and that loss doesn't mean that. Well, I have the money to go hire somebody to come in and do all that stuff, because many people don't have the money, but it still represents a loss. In particular, it becomes very, very important if somebody's injured and they don't work. You know, we spend a lot of time talking about loss of income and but there are some people that you know, by choice stay at home. They take care of the kids, and, let's say they're injured. They don't have necessarily a salary loss, because they haven't now, if they did, plan on working again. This is where you know, this idea of forensic economics can become very complicated. Somebody can be staying home right now, but they're educated and they plan on getting a job, let's say two years from now, and they're injured and they no longer can do that. Yes, there is an economic loss associated with the loss of potential salary in the future, but let's say they're not they're let's say they're retired and they're injured, they're still contributing to the household. They're still taking care of people. They may be taking care of grandchildren, they may be taking care of other people. And so you have to look at this loss of household services now. It does change over time, and this is one of the things that has been published in the last maybe 10 years or so. People have looked at how that how people change their household services over time as we go through a family life cycle, a mother, for example, a married wife that is has a working spouse, let's say, and is raising three kids, is going to do more in the household than if they're single and they don't have children, well, we can look that up on tables now. And what that's what I do, is I create when I look at the loss of household services in the future, I look at these life cycle changes that fortunately, the government has collected this. It's called the American Time Use Survey, and they collect it every single year, and they publish a big database, and you can actually track, and again, this is published, and some people do this, and I use these resources, you can see how people's household services change over time, depending on their personal situation, as they age and go into different periods of their life and so forth.

Thank you for joining us, and we'll see you next time.