Certain types of cases require an offset be applied to damage calculations. One particular type of offset that regularly comes up is a consumption offset. This is most commonly present in wrongful death cases. What exactly is a consumption offset?
For this example, let’s assume there was an accident at a construction site in a downtown area. A crane was being used to bring windows up to each floor for installation on high rise building, however, due to the widows being improperly secured, one of the windows comes loose and falls onto a woman on her way to grab coffee. She is crushed by it’s weight and passes away instantly.
The decedent, a middle school teacher, is survived by her husband, she was 53 at the time of her death. Counsel is retained and a lawsuit is initiated and served on the construction company. Insurance coverage has a policy limit of $3 million and the company does not have any assets to collect an excess judgment from.
The parties agree to an early mediation. Plaintiff demands the $3 million policy as an opening offer. In articulating the value of their case, Plaintiff's counsel cites a loss of earnings in excess of $1,034,096 for 11.2 years of work for middle school teacher at $92,330 per year. The attorney for the construction company acknowledges they were at fault but disputes the amount of damages being sought. They understand this is a tragedy, but they make it known they can’t recommend a settlement to their client that is above and beyond what they are legally responsible for. They also bring up social media posts showing the marital relationship might not have been as strong as represented.
Defense counsel identifies two issues with how the damages were calculated. The first is the economic damages have not been reduced to present value. Check out our prior blog post, Do I have to Discount to Present Value which details how to utilize Juris Economics for a present value calculation. The second is that there has been no offset for consumption.
In order to update their offer, the Plaintiff’s attorney logs into their Juris Economics account and runs a report. Based upon current market returns for government securities and past wage growth, a net discount rate of 1% is determined to be appropriate.
Since an economic report is being run and household services can be valued for no extra charge, it is included along with consumption. This takes damages from an undiscounted $1,034,096 for loss of earnings to $1,522,136 for loss of earnings and household services after being reduced to present value and discounted for consumption. The consumption reduction averages 24% for income and 15% for household services.
After presenting the mediator with the damage report prepared by Juris Economics, the case settles for $3 million. Should you need assistance with wrongful death damage calculations, contact Juris Economics at (858) 477-9537 or sales@juriseconomics.com
