Economic

Damages in Nevada

 The Loss Of Society, Companionship & Other Economic Damages

 By Stan V. Smith, Ph.D. 

VLM is pleased to announce that Stan V. Smith, Ph.D., will be a regular contributor to the publication on the topic of economics. Smith is a nationally renowned expert in his field and was trained at the University of Chicago, one of the world’s pre-eminent institutions for the study of economics and the home of the law and economics movement. Testifying nationwide in personal injury, wrongful death and commercial damages cases, Smith has assisted thousands of law firms in successful results for both plaintiffs and defendants, including the U.S. Department of Justice.

 Other accolades? Smith pioneered the first course in Forensic Economics at DePaul University, based on his textbook, Economic/Hedonic Damages: The Practice Book for Plaintiff and Defense Attorneys. He pioneered the development of “Hedonic Damages” in landmark cases, and has been featured in the ABA Journal, National Law Journal, the Wall Street Journal, and on Larry King Live.

 To celebrate Smith’s new affiliation with VLM (which we think is quite the coup), we’re reprinting his first VLM submission which appeared in our inaugural 2015 issue. We hope you get as much out of his well-respected knowledge as we do.

Since Banks v. Sunrise Hospital, 120 Nev. Adv. Op. No. 89, 102 P.3d 52 (2004), my testimony on the loss of enjoyment of life in personal injury has been accepted by Nevada courts many dozens of times. Perhaps the most notable instances of the impact of this testimony were in the endoscopy cases where I testified to compensatory and punitive losses resulting in verdicts that ranged into the several hundred million dollars.  Awards for the loss of enjoyment of life in Nevada, as in most states, are independent of pain, suffering and mental anguish.

Over the past decades, courts around the nation have recognized that the peer-reviewed value-of-life literature in economics has developed to the point where it can provide useful guidance to jurors, assisting them in the valuation process for loss of enjoyment of life. Hence, I have testified on the loss of enjoyment of life damages in personal injury and wrongful death cases not only in Nevada, but also in most other states. In most Federal Circuits, as well.

Economic testimony based on peer-reviewed economic literature can now also be provided to value other losses in personal injury and wrongful death cases, as well as  losses in credit damage cases.

In personal injury and wrongful death cases, losses to close family members can include:

1. a) the loss of society and relationship.
2. b) the loss of advice counsel, guidance training and instruction.
3. c) the loss of accompaniment.

In credit damage cases, it can include:

1. a) the loss of credit expectancy.
2. b) the loss of enjoyment of life in credit damage cases.

The evidentiary approach to measuring the loss of enjoyment of life, often called “hedonic damages” in economic literature, is arrived at by subtracting human capital values from whole life values. The whole-life values are obtained using the value-of-life results based on the willingness-to-pay approach, which measures the costs of investing in safety equipment and safer consumer behavior, as well as inducements provided to workers who undertake risk in the workplace. The literature on the willingness-to-pay and the willingness-to-accept payment is extensive and one of the most settled areas of economic research, showing that the value of a statistical life is conservatively estimated in the $4.5-$7 million range.

This same approach, based on the value of a statistical life, can be used to value the loss of society and relationship to close family members in fatal and non-fatal personal injury. If a person places a smoke detector in his own bedroom, he is expressing a lower-bound to the value of his life in an amount equal to the cost of the detector (purchase price, installation, batteries, etc.) divided by the reduction in the risk of death.  If, for example, the detector costs $25 and reduces the risk of death by 1 chance in 200,000, then the value of life expressed is $5 million.

Now, suppose that a detector is placed in the bedroom of a close family member, such as a child, by a parent who seeks to preserve the society and relationship with that child. What value of life is expressed? The same statistically averaged value of $5 million. But this value can be used to value the relationship to the family of the child’s life. This conclusion has been arrived at by Ted. R. Miller (“Willingness to Pay Comes of Age: Will the System Survive?” Northwestern Law Review, Vol 83, 1989, pp. 876-907): “When…[an] individual’s survivors may recover for their own loss of enjoyment, whole-life costs can again be used to estimate the appropriate level of compensation.” Also Lauraine G., and Daniel M. Violette in “The Relevance of Willingness-To-Pay Estimates of the Value of a Statistical Life in Determining Wrongful Death Awards” (Journal of forensic Economics, Vol. 3, No. 3, 1991, pp. 75-89) come to a similar conclusion:  “We conclude that the WTP estimates are potentially useful when the definition of compensation involves putting a dollar figure on non-financial losses to the deceased or to survivors.” I, too, have summarized this approach in “The Value of Life to Close Family Members: Calculating the Loss of Society and Companionship” (American Rehabilitation Economics Association 1997 Monograph).

As an example of the loss of society and companionship due to the death of 12-year-old girl, survived by her parents, the losses are calculated through the life expectancy of the parents. Amounts can easily range to from $1-$2 million per parent depending on the life expectancies and the parents’ testimony as to the impact of the loss on their ability to derive value and satisfaction from their quality of life.

Peer-reviewed economic literature can also be used to measure an expanded view of the loss of household and family management services. When a family member is injured or killed, services go beyond the traditional physical chores such as scrubbing floors and cooking. (For a discussion of the expanded view of household services, see Smith David A., Smith, Stan V., and Uhl, Stephanie R., “Estimating the Value of Family Household Management Services,” Forensic Rehabilitation and Economics, 2010.)  Family members provide valuable advice counsel, guidance training and instruction to one another, on a weekly basis, and for years. Advice can comprise financial advice, medical advice, relationship advice, career advice, etc. I calculate such losses provided by family members who are age 25 and older. When young children are injured, family members frequently testify that they would have been provided such services when the child reached age 25. Again: Based on peer-reviewed literature, these values can range well into the six figures for each family member.

I also calculate the loss of accompaniment, or the value of time spent. This is independent of the love and affection that is inherent in society and relationship. The value of time spent—even with a stranger devoid of any significant affection—is clearly illustrated in what my high school teacher told me was the first great book in English literature: Robinson Crusoe. Convicts express a desire to spend time in a small jail cell with other strangers rather than be alone. In fact, solitary confinement is a punishment… one that elderly people eloquently share with me after they have lost a spouse. The hours that family members (especially spouses) spend with one another adds up over the years; hence, such losses—independent of society and relationship—can range well into the mid-six figures.

Credit damage can arise for many reasons including failure to modify a mortgage, credit error, etc. The consequences of such damage are far reaching and can include and isn’t limited to job loss, loss of home, inability to borrow. Courts are increasingly recognizing that victims also sustain a significant loss of enjoyment of life. Such damages can be calculated independent of an organic or physical injury. Indeed, in wrongful discharge, defamation, and credit damage, loss of enjoyment of life damages are routinely calculated. I have also calculated these in instances involving sexual harassment, child pornography, sexual predation, and other instances where victims are injured, but not physically. Again, such losses are independent of physical pain, suffering and mental anguish.

Finally, in credit damage cases, the reduction in the creditworthiness itself is a measurable damage: the loss of credit expectancy. (See Smith, David A., Smith, Stan V., and Uhl, Stephanie R., “Credit Damage: Causes, Consequences and Valuation,” in Forensic Rehabilitation and Economics, 2011.) The loss of credit expectancy is a value similar to the loss of other options in life. The inability to obtain a car loan—or even to use a credit card online to buy merchandise, or a plane ticket to visit a sick relative—is a significant and measurable loss. Chicago, my hometown, is the world’s center for trading in options. The loss of life options including credit options can range into the six figures. The losses can last years, as creditworthiness is not easily restored.

The late Nobel Laureate Gary Becker, and other economists at the University of Chicago, pioneered the use of economic concepts well beyond the original traditional areas of economics. Economists can now use expanded research into the enjoyment of life, society and relationship, advice and counsel, accompaniment, and credit expectancy, to provide information to jurors as to how to value such losses. Jurors can greatly benefit from this to provide more rational and enlightened verdicts.

– Stan V. Smith, Ph.D.

1165 N. Clark Street, Suite 600

Chicago, IL 60610

 Phone: 312-943-1551 | Fax: 312-943-1016

Email: Stan@SmithEconomics.com