ICC seminar On Hedonic vs. Economic Damages

ICC Insurance Claims School of Technology 2020

Please call: (316) 683-0170 

ICC's Seminars  Coming Soon To Dallas Texas.  Know the Difference between Hedonic and Economic Damages Register to be Notified on upcoming Dates   




Hello my Name is Dan Martinez and I have been asked to speak to you about the differences between Economic and Hedonic Damages. My goal for today’s presentation is to help everyone here better understand each of these damages while also showing you how they are related to injury claims, specifically dealing with car accidents. Also, at the end of the presentation I will be utilizing a current case file to help relate this material to an everyday claim. Let’s start by first defining and discussing Economic Damages after which we will move on to Hedonic Damages. 

  • Wisi nulla phasellus.
  • Bibendum lacus, lectus enim.


In general economic damages are damages that can be calculated from documents or records. These documents usually involve medical bills and expenses (past and future), loss of income production (past and future), future lost earning capacity and profits / economic opportunity as well as damage to a person’s real and personal property, such as a damaged vehicle. That being said, there are also economic damages which can be presented which are not necessarily provable through financial documents and/or records but are just as devastating to the injured party. Some examples of this type of Economic damage would be loss of personal/social/family relationships due to the new disability and/or “home maker services.” Let’s take a look at some of these examples and see if we can break them down to better understand how they can relate to a claim.

  • Wisi nulla phasellus.
  • Bibendum lacus, lectus enim.
  • Arcu donec porttitor, libero quis, massa a auctor.

Many of you may be asking yourselves what is needed to present an economic damage claim to an insurance company. The first step would be to gather the medical bills and expenses related to the injury in question. These bills and expenses help the insurance company paint a picture as to the extent of the injury that is being claimed. Please keep in mind that in some cases the injury may be deemed severe enough to award the injured party future expenses as well to compensate for their future medical bills and treatments which we will discuss later. 


So what kind of documents comprise of Medical bills and expenses? Medical bills can include but are not limited to emergency room visits, primary care physician bills, X-Ray’s, chiropractic, rehabilitation therapy and expenses. Like medical bills, the injured party’s injury expenses can be documented in multiple ways. For example, injury expenses can run the gamut from cab fare needed to get to the doctor’s office to the repayment of the injured party’s loss of income while they are injured. But before we can start talking about loss of income we will have to first discuss how to properly document the injury in question which will then give support to the loss of income portion of the claim. 


  So, how can the injury itself be documented properly in order to present it to the insurance company? First and foremost the insurance adjuster is going to investigate the claim making sure the medical treatment was necessary and appropriate, according to standard medical practice. So, what does the phrase “necessary and appropriate, according to standard medical practice” mean? In general this phrase can be summarized by simply stating that any services rendered to the injured party must be clinically appropriate, in terms of type, frequency, extent, site and duration while also being considered effective for the patient's illness, injury or disease. The injured party can obtain this evidence through their treating physician. In this documentation, the physician must provide a diagnosis, prognosis, previous and future recommended treatment methods, an assessment of the injury, the patient’s history, and the current health and treatment plan. This documentation should be reviewed by the submitter to make sure the physicians diagnosis is detailed and includes all injuries and illnesses related to the treatment and medication provided for the injury(s) in question.  Also, the injured party’s medical evaluations such as diagnostic test results may be required, including x-rays and scans.


It is imperative that the injured party have the proper documentation upon submission as any incomplete information can cause a delay or even a denial of their claim. A good practice when dealing with any type of claim is to have a constant dialog between the claims adjuster handling the file and the injured party and/or representative. This will help by giving all parties a clear understanding of what is expected. Also the adjuster will be able to further explain to the document submitter / injured party exactly what documentation they will need to review the claim quickly and fairly. Now that we have discussed the documentation surrounding the claim let’s talk about the loss of income.


So why would an injured party’s loss of income be considered as part of an injury claim? Simply, the injured party’s loss of income can be a huge financial burden not only for the injured party but also his/her family unit. It can be argued that this hardship would not have happened in the event that the injured party was not exposed to this devastating injury and/or disability which the negligent party caused. The term Loss of income is used in multiple claims arenas within the insurance industry.  When dealing with a personal injury, the term “Loss of Income” refers to wages or benefits that are lost due to the injury.  For example, if a person was unable to work for one week due to a car accident, they will have “lost income” for the period of that week they were unable to work.


To start the consideration process, the injured party will first need to prove that the injury stopped him/her from working. In most cases the injured party would have received a note from his/her doctor. This doctor’s note will describe the injury and then recommend the amount of time the injured party should be off of work to allow for proper treatment of the injury. Also, the injured party can obtain financial documentation from his or her work place that shows the days the injured missed due to the injury in question. For a loss of income claim it is important to have documentation showing there was a drop in income brought on by the injury.


Because loss of income claims can be a bit complex it’s necessary to dive in a bit further.  Let’s recap, Loss of earnings / income claims are filed to compensate the injured party for the money lost as a result of injury. These injuries may prevent the injured party from working altogether, or they may have a partial disability that prevents them from doing portions of their job. In some cases the injured party is still able to work but will be required to take time off of work to attend doctor appointments, physical therapy or medical tests such as an MRI’s.


In the case where the injured party cannot work full or light duty the insurance carrier will require paperwork form the treating physician. Without this documentation the time off may not be considered. Should the injured party require an extended amount of time off from work it will be required that the injured party visit their doctor periodically to extend their time off should it be needed.


Once the medical support has been collected the injured party will need to establish a value of their time off. Typically, this can be calculated by the rate of pay. This rate of pay can be calculated as an hourly, daily, weekly or monthly rate. Unfortunately this calculation may not be as easy for a self-employed person.


As you may expect, generally it is more difficult to prove a loss of income for someone who is self-employed. Most self-employed people are paid based upon the profitability of their businesses. This does not lend itself to easy calculation on an hourly, daily, weekly or monthly basis. Extended time away from work can be analyzed by comparing earnings during a similar period of time before the injury. Like the non-self-employed worker it is important that a self-employed person keep records which support any loss of income being claimed.


Records that may be required to prove loss of income can include pay slips, bank statements and tax returns over the given period which will help prove a drop in income. As not all insurance companies and/or adjusters are alike these documents may not be enough. In some cases it may be required that the injured party fill out the Nevada Wage Verification Form, (Pursuant to NRS 616C.045(2)(d)) which can be found on the states website (http://dirweb.state.nv.us/FORMS/d-8.pdf) . This is mostly the case for a non-self-employed person. Now that we have discussed the loss of income that can occur as a result of an injury we can now discuss Lost earning Capacity.


The “Lost Earning Capacity” refers to a decrease in a person’s ability to earn income.  It is sometimes called “Future Loss of Earnings” or “Impairment of Earning Power”. 


There have been numerous court cases that have used this concept, including, for example, Sarah Beth Clingan Overstreet v. Shoney’s Inc., Court of Appeals of Tennessee, 1999. Overstreet, an educated, driven person received a graduate nursing degree and had minimal job experience in her field prior to her injury. The injury she sustained caused her to lose eyesight in one eye. Ms. Overstreet has continued to work as a nurse; however, her clinical skills and outlook for further education and professional advancement have dwindled. Nevertheless, the jury based her future earnings on her future education plans to pursue a nurse anesthetist degree.

As shown this type of injury qualified her for lost earning capacity, and entitled the injured party to damages over and above those which she would have received for lost income.  So how is Lost earning capacity calculated? Lost earning capacity is determined through a complex calculation, which might involve:e, health, age and employment history.

  • Using current market values and wage rates to determine how much income they would have lost in the future
  • Hiring an expert medical witness to determine the extent of the injury and how it would affect future work performance
  • Hiring of a vocational and economist expert

As you can see, lost earning capacity is much more difficult to prove than lost income.  Calculating someone’s lost earning capacity involves making intelligent predictions about the person’s work ability at a later date in the future.  Of course, this is difficult to determine exactly. 


In addition, the reviewer may have to make room for other factors such as future promotions, raises, and improvements in talent or skill.  In other words, the injured party should be prepared to make the case showing a projection of how his or her entire career would have unfolded if they hadn’t been injured.


Obviously, each case is based on its particular factors. The idea to bring to light is that earnings capacity represents what the injured party could have been capable of earning but for the impairing incident. However, the desire alone of attaining a particular employment without any specific evidence would likely be mere speculation. That being said, uncertain or speculative damages are prohibited only when the existence, not the amount, of damages is uncertain. The evidence required to support a claim for damages need only prove the amount of damages with reasonable certainty.


One type of expert that can be utilized to help prove the extent of lost revenue and future earnings is called a vocational expert. A vocational expert is an expert in the areas of vocational rehabilitation, vocational and earning capacity, lost earnings, cost of replacement labor and lost ability/time in performing household services. They perform evaluations for purposes of civil litigation, as an aspect of economic damages. Although vocational experts can be a valuable component in helping determine loss of income, economic experts can also be utilized should the claim become litigated.


Vocational experts identify what the person could have earned prior to the incident, compared to what they are likely to earn following the incident. Economic experts calculate the value of those earnings over time, so the difference, if any, between the two income streams is clearly understood. Those who act as vocational/economic experts blend the two disciplines, and offer testimony in both arenas.


Contrasting the more complicated and somewhat speculative economic damages mentioned previously, a person’s real property is much easier to prove and present to the adverse. For example, if the injured party was involved in a car accident causing a cracked rear bumper, they will have sustained “real property damage” for the physical damage to their vehicle. In most cases the adverse will send out their auto property claims adjuster who will evaluate the damages to the vehicle. This damage will be documented and handed to the involved party as a damage estimate.


As the word “estimate” suggests, an estimate is a roughly calculated or judgment of value, number, quantity, or extent of something.  This is an important point to make as the initial property damage estimate should not be deemed the final real property cost. In most cases the assigned property adjuster does not have the opportunity to see what lies behind the vehicles visible damages. Because of this the initial estimate may not represent the full extent of damages and/or the true cost of repair. This is important as the extent of damages can help in the evaluation of the severity of impact the injured party was involved in.


Once the damaged vehicle has been moved to repair shop it will be torn down. Upon the completion of the tear down a complete and final estimate of damages will be written. This final estimate is important as it will encompass all of the damages that were hidden from the adjuster on the initial inspection.


As I mentioned before personal, social and family relationships can also entail economic damage. For a lot of people relationships can be very challenging. This does not just refer to relationships with spouses though, but also includes relationships with family, friends, coworkers, and even acquaintances. Add an injury to the mix, and these relationships can become even more stressed.


Relationships can become stressed in many different ways. These stresses can include physical but also social and psychological ramifications for the injured person. The physcosocial problems that can affect an injured party can include sexual dysfunctions, problems with social adjustment, strained spouse relationships, and even sleep disturbances which can be classified as hedonic damages. Also, the frequent doctor’s appointments, hospitalization, inability to return to pre-injury employment, limited mobility and lack of independence can adversely affect their quality of life as well. However, the injured party is not the only person who is affected by the injury as family members can also bear a burden from stress, grief, and depression surrounding their loved ones misfortune.


Spouses clearly take on more responsibility as a result of their partner becoming injured in an accident. Frequently the burden of caregiving falls on the spouse which can cause stress in both parties’ lives. These caregiving spouses are stressed particularly due to the health issues that arise in their partner’s life after an injury. In some cases spouses have been known to suffer emotional stress that is comparable to or greater than those of the injured partner. Some examples of stress associated with caregiver spouses can include physical stress, emotional stress, burnout, fatigue, anger and resentment. 


The family unit as a whole can also become a source of stress as it may not be prepared to cope with such a life altering injury. In addition the family unit is losing tangible things that a spouse used to contribute to the running of the household, such as financial support and/or household services in the form of chores and other activities. As the injured family member is no longer able to fulfill these functions other family members are often called on to help fill this void. Family members may be forced to reallocate their personal time to adjust for these new family challenges. These changes can in turn causes family members to lose a portion of their personal time hindering them from taking advantage of the activities they once enjoyed. As shown, an injury not only affects the injured party’s life but also everyone involved in that persons life which is why additional economic damages may be considered.


In most cases the additional economic damages refer to a spouse who is acting as a caregiver to their partner while they are recovering. Because of this a caregiver who is a member of the victim's family may be entitled to attendant care reimbursement. Although the law does not set a specific hourly rate for the caregiver, the reimbursement should reflect the type and complexity of the services that the injured person receives taking into consideration the state for which the services are rendered. The services of a forensic economist to calculate the present day value of such losses, drawing on government statistics, life expectancy charts, past earning history, projected future earning history, etc. can also be used.


The Spouse can also present a claim for those intangible (but still important) things that a spouse used to contribute to the marital relationship, such as love, companionship, affection, society, sexual relations, comfort, support, and solace. In some states that law is written that when a spouse can no longer contribute those things to the marital relationship to the level or degree that they were contributed before the accident, then the other spouse is entitled to compensation in the form of money damages to make up for the loss of that love, companionship, affection, society, sexual relations, comfort, support, and solace. This type of claim is called loss of consortium and is strictly for the partner, family member and/or spouse of the injured party which is considered independent from the injured parties claim.



As you can see, generally, economic damages are easier to prove because there are documents and records that can be used to calculate and determine the amount of medical bills, lost earnings and property damage. However, Hedonic damages are subjective and require a different kind of analysis and proof to determine a monetary value since there are no specific records or documents that can be calculated as with economic damages. So what are Hedonic damages and how are they proved? First let’s define Hedonic damages.


Hedonic damages refer to damages for compensation for the loss of enjoyment or value of life. In most cases it is referred to as the loss of enjoyment of life. It's the intangible impact an injury has on your life. Therefore, court awards for lost pay and for pain and suffering are inadequate to make the injured party whole.

So how did the concept of Hedonic Damages come to be? In 1846, the Lord Campbell’s Act was passed by the English Parliament. This Act provided for liability for the death of a party caused by someone else’s negligence. Since then every American state has put into place a statutory remedy for wrongful death. The initial intent of this statutory remedy was to help benefit the family of the victim, often left both destitute and without remedy. Each state has however created its own statute which has led to inconsistency from state to state. For example, some of these statutes place restrictions on the amount that can be recovered without taking into consideration the actual financial loss suffered.


Today Hedonic damages, the loss of the value of life, are allowed in almost every state for Non-fatal injury Claims. Although Hedonic damages can be presented in every state it can also be viewed differently by each state. States predominantly view Hedonic damages in three (3) different ways. First there are a minority of jurisdictions that do not recognize Hedonic damages and will refuse any recovery to the injured party in this regard. Second, the majority of states take the position that consideration may be given to Hedonic damages, but only as part of general damages for pain and suffering. Supporters of the Third position argue that the loss of enjoyment of life, Hedonic damages, is a separate element of damages for which compensation should be awarded to the injured party separate from any other settlements (i.e. Loss of earnings, pain and suffering, etc.).


The use of Hedonic damages can be best shown in Huff v. Tracy, 57 Cal App 3d 939, 129 Cal. Rptr. 551 (1976), when the jury was instructed that they may award the injured party reasonable compensation for the physical and mental effects of the injury on his ability to engage in those activities which normally constitutes that enjoyment of life. What does this statement mean in a nutshell? This meant for example, if the injured party enjoyed playing softball before the accident and now was unable to play he/she could be awarded compensation for this lost enjoyment of life i.e. not being able to play softball any longer. Also, this gives the jury the ability to compensate the injured party for the mental anguish of knowing he/she cannot play softball any longer as well.

Hedonic damages can also apply in cases that have no injury. For example, cases that involve wrongfully accused inmates have been won utilizing hedonic damages. Such a settlement was awarded in a case for which William Gregory and David Pope were convicted and later exonerated on rape charges. William Gregory, who served 7 years in prison, received a $4.5 million settlement, while David Pope, who served 15 years in prison, received $385,000. Although the inmates had been exonerated and were now free, they were still “living the nightmare every day”. Hedonic damages were presented and awarded in this case as a portion of their settlement in an attempt to compensate and/or place a value for their suffering.

So how are Hedonic damages calculated? Today many courts have allowed triers of fact to award these damages, lost pleasure of life, in death and injury cases. What is new is that more and more state and federal courts are allowing expert economic witness testimony to assist juries in quantifying hedonic losses, acknowledging that there is much that economists can teach juries about how contemporary society contemporary values life. In some cases the lost pleasure of life has become a separate element of compensable loss. I’m sure you’re asking yourself, how exactly can economists truly provide useful guidelines for evaluating and placing an actual dollar amount on something like lost pleasure of life?


Well, in the last few years, economists have developed a way to measure, and to put a financial value upon, the happiness induced by different kinds of life events. To do so, they take random samples of individuals, record the mental well-being levels of those people at different points in time, study the incomes of and events that occurred to the individuals, and then use simple statistical methods (regression equations) to work out the implied consequences upon well-being of different occurrences in life. In this way, economists use happiness surveys to average across individuals in order to understand an average person.


Think of a person who experiences good and bad events. Imagine, too, that the person enjoys money—preferring more income to less income. In principle, then, it might be possible to calculate how much extra income would have to be given to that person to compensate exactly (neither too much nor too little) for a bad occurrence in life. That amount of cash can be thought of as a measure of the unpleasantness of the event.


The monetary valuation of events can be determined by using an equation in which the dependent variable is mental well-being or happiness as a type of utility function. When estimated as a regression equation using actual data, the equation might take the form:  U  = + Bι Sι + B²S²+ ...+ ΥóχΣ¹                                                       

where u is a measure of individual utility or happiness or well-being, A is a constant, Y is some measure of income, the Si are dummy variables for various kinds of labor market and life events (such as whether in work and whether married or single), and X is a vector of other influences. The X vector is known, in practice, to include demographic variables, regional location, day-of-the-week effects, variables from childhood such as whether parents divorced, and so on. The estimated coefficients from equation (1) can be used to calculate the pleasantness or unpleasantness of the Si events. Imagine that an individual changes from employment to unemployment (respectively states S1 and S2, say*). The compensating differential for this transition is the amount of extra money, or increment to Y, which would be required exactly to compensate the worker for being unemployed, i.e. to keep the worker at the same level of subjective well-being.


Intuitively, what this method does is to face up to the fact that many factors shape human happiness. Relationships matter; health matters; money matters. Within an equation, these and other factors are allowed for at the same time, and their respective weights in well-being can then be calculated. The marginal impact of each life factor is assessed by reading off its coefficient in the well-being regression equation. Now that you have a clear understanding of what economic and hedonic damages are and how they’re calculated, we can move on to evaluating a real life case study.


The case study which I will be utilizing today is a claim which took place in 2012 which consisted of two separate accidents occurring on the same day. I have changed the names of the involved parties for their privacy but the facts remain consistent and are as follows;

Mr. Jake Smith was involved in an automobile accident.  Jake was traveling south on Maryland Parkway in the right hand lane.  As Mr. Smith was preparing to make a right turn onto E. Vegas Valley Drive his 2008 Hyundai Sonata was struck from behind spinning his vehicle 180 degrees as he rounded the corner east bound, and his vehicle came to rest facing west bound on Vegas valley drive.  His vehicle sustained left rear damage estimated at $2,500 according to the body shop.  The driver who struck Mr. Smith’s vehicle did not stop but was apprehended shortly after by the police. This driver was charged with hit/run, inattentive driving, following to close and DUI. At that time Mr. Smith complained of neck pain to the police officers at the scene, but refused to go to the hospital because he did not want to have an ambulance bill. He had his car towed and called Good Cab Company to drive him home.  Mr. Smith got into the back of the cab failing to buckle his seat belt as requested by the driver.  During the trip, Mr. Smith kept telling the cab driver that his neck felt as though it was fractured.  A few minutes later the passenger let out a loud yell, which startled the cab driver and the cab driver rear ended the car in front of him that was stopped for a red light. There was less than $500.00 damage to the front bumper of the cab, as the front bumper absorbed most of the impact.  The cab driver looked in his rear view mirror and saw Mr. Smith fall forward and hit his head on the back side of the front passenger seat.   The cab driver then observed his passenger on the back seat floor complaining that he could not move his neck, arms, shoulders or legs.  The cab driver immediately called for an ambulance and Mr. Smith was taken to the emergency room while being fitted with a neck brace.   At that time, it was elected to perform an Anterior Cervical Discectomy at (C-3, C-4) surgery to help Mr. Smith.  Mr. Smith was in the hospital for 5 days and was required to have physical therapy.  Mr. Smith is employed as a black jack dealer at one of the Casino’s in Las Vegas and has been in that profession for over 5 years. 


For this example we are going to concentrate on the 2nd loss occurring on this day while also assuming the liability decision has been made. This way we can focus on the injury claim exclusively. First let’s take a look at the potential economic damages that may be presented as a result of this loss.


As we have already learned these economic damages may include medical bills and expenses (past and future), loss of income production (past and future), future lost earning capacity and profits / economic opportunity as well as damages to Mr. Smith’s vehicle. As all of these can be directly related to the injury being claimed, it is imperative to have a complete understanding of the severity of the injury.  


The above example explained that Mr. Smith was taken to the hospital shortly after the second accident. At that time it was determined that an Anterior Cervical Discectomy at C-3, C-4 with fusion would be performed. Based on this information the first question we should be asking ourselves is, “What is the cost and recovery time associated with this type of procedure?”


Like any surgery there are many factors that determine the associated costs. Typically the cost of discectomy surgery can vary from $15,000 plus hospital and anesthesia bills up to $75,000 if a spinal fusion surgery is required to stabilize the spine. Hospital fees and anesthesia bills will typically be around $15,000. Taking all of that into consideration, the worst case scenario would run you close to $100,000 if a spinal fusion is required. Now that we have a general idea in regards to the cost of the medical procedure lets discuss what this surgery entails and Mr. Smith’s potential recovery time.


First let’s discuss the anatomy of the neck so we can fully understand the extent of Mr. Smith’s injury and what was performed. There are seven vertebrae in the neck (cervical region), numbered C1 (top) through C7 (bottom). The discs between the vertebrae are also abbreviated. For example, C3-C4 refers to the disc between the third and fourth cervical vertebrae.

  • ·         Anterior – surgical approach from the front
  • ·         Cervical – refers to the neck
  • ·         Discectomy – removal of a disc
  • ·         Fusion – bone graft fuses vertebrae together during healing


A discectomy can be performed anywhere along the spine from the neck (cervical) to the low back (lumbar). The surgeon will reach the damaged disc from the front (anterior) of the spine through the throat area of the patient. This is done by moving aside the neck muscles, trachea and esophagus, in order to expose the disc and vertebrae. Surgery from the front of the neck is more accessible than from the back (posterior) because the disc can be reached without disturbing the spinal cord, spinal nerves, and the strong neck muscles. After the disc is removed, the space between the bony vertebrae is empty. To prevent the vertebrae from collapsing and rubbing together, a spacer bone graft is inserted to fill the open disc space. The graft serves as a bridge between the two vertebrae to create a spinal fusion. The bone graft and vertebrae are fixed in place with metal plates and screws. Following surgery the body begins its natural healing process and new bone cells grow around the graft.


Recovery times will vary per patient and it is unusual to need any further additional surgeries other than the removal of the fusion plate in regards to this type of injury. In most cases many patients go home the same day as surgery but in some cases the patient will remain hospitalized for a day or two should the patient require observation.  After the completed surgery the patient will be prescribed a cervical brace or collar to be worn in order to help support the neck during healing. During this time patients will be required to follow up with their doctor to evaluate his/her progress. During these checkups it may be necessary to take x-rays of the neck to confirm the healing is taking place as it should. A general recovery time of 6 to 8 months can be expected for a fusion to heal completely.


For some time after surgery it is important to note that the patient, in this case Mr. Smith, will not be able to drive until he is no longer required to wear the collar given to him by his surgeon.

After the collar is removed Mr. Smith will still be required to wait to drive until the pain has decreased to a mild level and mobility or his neck has improved. Mr. Smith should anticipate this time to be between 10-14 days after surgery. When driving for the first time after surgery, he will be required to make short drives only and have someone go with him, in case the pain flares up and he needs help driving back home. This will be Mr. Smith’s routine until he feels comfortable with a short drive at which time he will begin driving longer distances alone.


Based on the above restrictions most patients will be off work 2-3 weeks after surgery, depending on when the surgical pain has subsided. Of course this depends upon the nature of the work that the patient does for a living as well. For example; if they have an active, physical job, they may need to be off work longer. Ultimately the surgeon will decide when the patient will be released back to work but generally patients may return to heavy work and sports as early as

8-12 weeks after surgery.


So how will these restrictions affect Mr. Smith? First, Mr. Smith will not be able to work at least 2-3 weeks after surgery. Also, the fact that Mr. Smith is a Black Jack dealer must be taken into consideration. This is the case as his position will most likely require him to stand and bend for extended periods of time consequently agitating his injury. Because of the physical demands his career requires, Mr. Smith may need to be placed on light duty or have his hours restricted until he can return to regular duty without discomfort which could be 12 weeks after surgery.


As we already know, the full fusion recovery time can take up to 8 months. Knowing this, it will be necessary to begin collecting Mr. Smith’s income documentation to help determine the potential cost of his loss of income claim. The collection of pay stubs, tip information and any other disruptive income revenue streams Mr. Smith may have will need to be collected. Once this documentation has been compiled a dollar amount can then be justified for the loss of income portion of Mr. Smith’s claim.  But what if Mr. Smith is not able to completely return to his chosen profession full time?


If it is determined that Mr. Smith will be unable to return to Black Jack dealing indefinitely there may be a future lost capacity earnings claim. If this is the case Mr. Smith may be awarded loss of future earnings based on his potential to make money, even if he never would have actually exercised that potential. So, what does all of this mean? Well, we know Mr. Smith has been a Black Jack dealer for the past five years. Consequently by utilizing his past income documentation, it should be fairly easy to accurately predict the amount of income Mr. Smith will potentially make for years to come. In most cases this amount is easily attainable and straight forward.

So what happens in the event that the injured party is working their job temporarily in order to do something else? For example, what if we find out that Mr. Smith has been attending classes to be a floor supervisor or that he has been going to college to be a surgeon when this car accident occurred? Now, as a result of this accident Mr. Smith was required to drop out of training classes or school due to his new physical limitations. If either of these scenarios were true Mr. Smith’s future income potential could  be severely hindered as opposed to a scenario in which he was making no attempt to progress out of his current position. In other words if Mr. Smith was trying to make a career change or something to that extent there may be a greater potential for him to earn more money in the future which may now have been lost due to this injury.


In the above example Mr. Smith’s loss of earnings would not be calculated based on his actual dealer earnings, either before or after the injury.  Instead, the damages will be calculated based on his ability to earn money.  In this case it will be necessary to estimate his earning capacity, and then compare it to the reduced earning capacity resulting from the injury. Based on these findings a settlement /award may be issued exclusively on the difference in Mr. Smith’s potential earning power, not on what he actually earned in the past.


As you can see communication with the injured party is critical throughout the course of the claim. Without this communication it will be very difficult to understand the true nature and all the relevant aspects of the claim. In essence, to be prepared,  it is necessary to understand what Mr. Smith’s life consisted of before the accident took place and how the injury will affect him for the remainder of his life. In this example we were not made aware of any pursuits by Mr. Smith that would drastically change his earning potential in the foreseeable future. Also, according to what we have learned about Mr. Smith’s injury and the associated recovery times, it is unlikely that a future earning capacity claim will be presented but it’s always a possibility to be aware of.


The final economic portion of Mr. Smith’s claim we will discuss is the physical property damage to the vehicle he was riding in. Per the example, there was $500 worth of damages done to the taxicab that Mr. Smith was riding in when the second accident occurred. That being said, since Mr. Smith does not own this vehicle he will not be entitled to any property damage awards. Although, the damages to the vehicle are not pertinent in regards to any financial property payouts to Mr. Smith, it is still important to analyze this damage as it can give light to important clues when determining comparative negligence, possible pre-existing vehicle damages and claimed injuries.


In some cases insurers, self-insurers, and TPA’s find themselves presented with claims that have a very low property damage value while the presented injuries are very high. In cases like these, carriers may decide to hire a biomechanical analysis. This is done in order to evaluate whether there were forces and an “injury mechanism” present in the specified collision that would have been sufficient to produce the alleged injury.


 According to some to be somewhat of a controversial science, a biomechanical analysis can often reveal many claimed injuries to be quite unlikely given the forces involved in the incident in question. Some low-speed claims may involve claimants with real back, shoulder, neck, wrist, and knee injuries; however, the vehicle contact forces in the specified incident did not approach the level required to produce an injury mechanism consistent with the claimed injuries and/or generate forces high enough to receive any injury at all. In other words, the insurer may not dispute that the claimant has the injuries, but may very well question whether they could have been received during this event. Based on the damages and injuries being claimed in Mr. Smith’s case the possibility of a biomechanical analysis being performed is obviously higher than other cases in which injuries being claimed are lower.


Lastly we will discuss the possibility of hedonic damages for this claim. Again the term "hedonic damages" refers to the loss of enjoyment of life i.e. the intangible impact an injury has on someone’s life, in this case Mr. Smith. In Mr. Smith case a couple different types of Hedonic claims may be presented and come to mind. Some such claims could be lost relationships with coworkers, emotional harm causing lack of sleep, or a claim stating that he can’t participate in the activities that had once brought him the most joy which could include things like hunting, fishing, and tending to his yard.


Lost relationships can be a very serious consequence of an injury. If Mr. Smith is unable to return to work indefinitely, it is a possibility that his coworker friendships could potentially fall apart.  Even worse, if Mr. Smith’s injury is significant enough to exclude him from participating in activities with his family and/or friends whom he once enjoyed, he may begin to notice the deterioration of these relationships as well.  


What would cause these relationships to start breaking down? These things tend to happen because coworkers and family members are not able to understand what Mr. Smith is going through physically or mentally. In some cases people may also perceive Mr. Smith as likely faking his injury to get out of work. Perceptions like this can easily cause friends and family to suddenly abandon him causing him to feel a loss of enjoyment or value of life.  


It is understandable to experience a loss of enjoyment of life should personal relationships start to breakdown but can losing sleep cause Mr. Smith to experience loss of enjoyment of life as we’ll? As we know car accidents can cause serious physical injury, but they can also leave the driver and passengers with mental and/or emotional injuries that may not be as apparent. People with even mild cases of mental or emotional distress can experience bouts of crying, severe anger, loss of appetite, lack of energy, sexual dysfunction or loss of interest in sex, mood swings, and/or sleep disturbances. If Mr. Smith truly had a mild case of mental or emotional distress it might go away relatively quickly allowing him to sleep, but a more severe case might require professional medical or psychological assistance.


Like the loss of relationships and emotional stress, coming to the conclusion that you may never enjoy favorite hobbies such as hunting, fishing, or tending yard can be very traumatic. Any one of these alone may also cause a loss of enjoyment claim. Of course based on the current claim example we have not been given any facts about Mr. Smith’s personal life that would suggest any of the above Hedonic damages would be claimed. Therefor we can only anticipate and prepare for these types of possible claims until all facts are known. 


Today we have discussed a great deal of material in regards to the differences between economic and Hedonic damages. I realize there was some subject material that we could have easily explored to a fuller extent had time not been an issue.  With that in mind I hope I was able to  give you a better understanding of these two types of damages while also showing you how they are utilized, calculated and understood in the claims industry. I would like to thank you for your time and would be more than happy to answer any questions you may have at this time.