Is an Expert on Economic Damages Necessary?

Section Excerpt from Chapter 2: Issues Preliminary to a Written Analysis of Economic Loss

Economic/Hedonic Damages: The Practice Book for Plaintiff and Defense Attorneys
by Michael L. Brookshire and Stan V. Smith

A logical first question is whether a search for an economic expert should even be undertaken. Normally, it is the plaintiff attorney who—representing the party with the burden of producing evidence and burden of proof—first addresses this multi-dimensional question.

One major factor in the decision on whether to seek an economic expert is the anticipated size of a settlement or verdict. Is the anticipated “return” from the use of the expert worth the costs of fees and expenses?

Many attorneys have told us that they use $100,000 in anticipated settlement or verdict as a rule of thumb. Below that amount, an economic expert normally will not be retained, and above that amount, such an expert will be utilized.

Perhaps a better and more general rule is that of the “No Cost Expert.”

This rule is that an expert is “no-cost” when his work is expected to result in an additional amount of damages greater than the costs expended upon him—and that additional amount could not have been obtained without him. Thus, the use of such an expert may be very important in obtaining a settlement or verdict in the $0-$100,000 range.

This, of course, is a matter of judgment for the attorney.

It should be noted that experienced economic experts will give their opinion over the telephone as to whether their benefits are likely to be greater than their costs in a particular case. Moreover, most experts after only minor computation can give the attorney a ballpark estimate of damages for use in settlement discussions. The economists will not generally lend their names to such an estimate or testify to it, since they will place their reputations on the line only after careful economic analysis.

The decision to use an economic expert has also been approached by plaintiff economists in a very different sense. Can a credible damage figure be laid before the jury as effectively or more effectively without an economic expert?

Some plaintiff’s attorneys, including several very successful attorneys, still prefer not to use an expert on damages, regardless of the anticipated size of a settlement or jury award. They may present the proposed amount of lost earning capacity to the jury themselves, simply multiplying $20,000 in wages and fringe benefits in the last work year by 20 years of lost working life, for example, to obtain a $400,000 estimate of loss.

However, as noted below, the clear trend appears to be toward the use of experts on damages, especially if potential awards are large.

A significant reason for this trend is the increasing complexity of dealing with the major variables affecting lost earning capacity: wage trends, productivity rates, fringe benefits, interest rates, inflation, personal consumption, income taxes, and work-life expectancy factors.

Plaintiffs’ attorneys and their clients are less sure that simplistic estimates made by those trained in the law will be reasonably accurate. They also may not have access to, or feel comfortable with, the range of data sources which should be involved in an accurate estimate.

Even the use of a total offset technique in some jurisdictions, under which wage growth rates and interest (discount) rates are assumed to offset, has not eliminated the need for an economist to make decisions regarding many important variables.

The movement toward increased use of offset rules, for purposes of “judicial simplicity,” appears to have stalled by the late 1980s. Little chance seems to exist that estimates of economic damages and economic testimony will become less complicated.

The emergence of hedonic damages and increased research and specialization in the field of forensic economics imply that the opposite will be true.

Another reason for the increasing use of economic experts is that their written reports are commonly used as a major part of the settlement package sent to the defense for consideration. It may also be felt that the testimony of an expert witness will have more credibility and an estimate offered by the attorney for the plaintiff.

Finally, an appellate court may be less likely to reduce the amount of a jury award if the award is related to an estimate of economic dames by a qualified expert. This reason for using an expert probably becomes more important as the possible jury award becomes greater.

Defense attorneys must also decide if their own expert on damages should be retained, especially when a plaintiff’s expert produces a loss estimate and is preparing to testify.

Historically, defense counsel are much less likely to present economic expert testimony than a plaintiffs’ counsel. However, the defense frequently retains an economist to analyze the economic side of the case and to prepare cross-examination questions for the expert used by the plaintiff.

This seems true at least partially because of the increasing complexity of economic loss analyses, mentioned above, and the need to know what is reasonable.

Line of attack can be mounted against virtually all assumptions and economic techniques. Also, we continue to see problems with economic loss reports even in such basic areas as the wage base and wage growth trend.

Secondly, rapid price inflation since 1970 (by historical standards) has resulted in higher dollar values in loss estimates and has increased the benefits of consultation with an expert on damages.

Third, as testimony on hedonic damages becomes common in more jurisdictions, with loss estimates sometimes double or triple traditional estimates, defense counsel may have an urgent need for help.

A fourth variable is the confidence of defense counsel in their contentions regarding the liability portion of the case. Where they are less confident on liability, they are more likely to worry about the plaintiff’s expert on damages and to hire their own economic expert to help them attack the plaintiff’s estimate of damages.

As will be discussed later, leading defense bar groups suggest that a defense expert normally be used to help prepare the cross examination of the plaintiff’s economic expert rather than to testify. Given this advice—which is sound—the defense should be more likely to employ its own expert for testimony when it is felt that the plaintiff’s economist has made mistakes, ignored important facts, made tenuous assumptions, or is otherwise “stretching” the estimate.

Experienced defense attorneys often become sufficiently familiar with economic techniques to know when a plaintiff expert seems vulnerable and a defense expert should appear as a witness.

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