Calculation of Future Damages in a Wrongful Death Lawsuit
UPDATED: March 23, 2014
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Damages in wrongful death cases are designed to compensate for losses resulting from the death of a family member. These losses come in several different varieties. For example, direct expenses such as medical bills and funeral expenses are recoverable. Direct expenses are easily calculated because funeral homes, hospitals and doctor’s offices keep records. However, there are other damages that fall under the general category of future damages that may be harder to calculate.
Future Damages and Present Value
Future damages usually include loss of pension or retirement benefits and loss of future wages. Calculating future benefits can be tricky. Since prevailing plaintiffs more often than not want remuneration at the time of a verdict, awards of future damages need to be calculated and then reduced to their present value. Present value is the value of all the future benefits in today’s dollars.
Courts grant awards in present value in an effort to prevent overcompensating prevailing plaintiffs. Fifteen years ago, a dollar could buy more than it does today. Fifteen years from now, a dollar will buy less than it buys today. Present value calculations take into account factors such as interest rates, inflation and other economic indicators in an effort to calculate an award to be paid out immediately post-verdict that is identical in value, but not in amount.
Consider the following: An autoworker, fifteen years into his career, is making $50,000 per year when he is killed. His widow wins a wrongful death suit and a jury finds she is entitled to compensation for the loss of his future earnings. Assuming the autoworker was going to retire after 30 years on the job, the widow is owed 15 years worth of wages. The total amount the autoworker would have earned over the next 15 years is $750,000; this is the amount of the widow’s future damages. This example is a simple version of how future damages are calculated.
In most cases, the calculations get far more complicated. A life expectancy table is used to estimate the number of years the autoworker would have lived. Instead of just assuming he was going the “30 and Out” route, a life expectancy table reflects other factors that may increase or decrease the number of years the autoworker would have been expected to live and earn money.
Sticking with this basic example, the widow is not entitled to a $750,000 check from the defendant. The award must be reduced to present value because, as stated above, a dollar 15 years from now will be worth less than a dollar today. Mathematical formulas, tables and computer programs are used to estimate today’s value of one dollar 15 years in the future based on the number of years the decedent was expected to work and an annual interest rate. After that is determined, the estimate from the table is multiplied by the decedent’s yearly salary. Assuming a dollar fifteen years from now will be worth $.75 in today’s terms, the $750,000 would be reduced by 25 percent, for a present value of $562,500. In theory, that amount equals the value of the future lost wages and will be sufficient to cover expenses that may eventually arise if the money is conservatively invested.
The Bottom Line
Future damages and present value are concepts that are difficult to grasp for many plaintiffs, defendants, judges, juries and attorneys. The math involved can be complex and intimidating. But the bottom line is this: an award reduced to present value is calculated to have the same overall value to a plaintiff, even if it is a lesser amount.