This article first appeared in the winter 1996 issue of the Expert Witness.
There is an interesting discussion regarding pre-trial “work life expectancy” continuing among members of the National Association of Forensic Economics (NAFE). We mention here two issues: survival probabilities (i.e. life expectancy) and employment contingencies.
First, there is debate over whether or not survival probabilities should be applied to pre-accident income in the pre-trial period, when the plaintiff has in fact lived to the date of trial. It can be argued that the accident “changed the world” completely, and that the post-accident fact of survival does not guarantee the plaintiff would have lived, had the accident not occurred. While I believe this argument is correct, some writers have gleefully pointed out that the application of survival probability to reduce expected pre-accident income invites plaintiff’s counsel to say to a defense economist “So, you are suggesting that the injury to my client has helped to keep him alive, are you?” In fact, this debate is virtually meaningless in almost all cases, because survival probabilities are so close to one, even near retirement age, that approximating them as equal to one in the pre-trial period is accurate. This is Economica’s conventional approach.
The contingencies applied to reflect the pre-accident risk of unemployment and disability are much more significant in the calculation of pre-trial loss. Again, we usually view those “from the date of the accident” in the sense that, if the plaintiff has worked steadily since the accident, we still assume they might have become disabled or unemployed, had the accident not occurred. This is clearly correct when the plaintiff no longer works in the same field, or does not work at all. The only awkward circumstance is when the plaintiff works in the same job or field (presumably with lower hours and earnings). The argument then is that the fact of no (further) disability or unemployment between the date of the accident and the date of trial provides additional information which implies that those contingencies should not be applied to pre-accident income. I disagree with this argument as it applies to disability, believing that any injury significant enough to reduce a plaintiff’s income also changes their lifestyle, and in particular would tend to make them more risk-averse at home and at work. The argument has merit as it applies to unemployment, however, since the time path of unemployment for a given company or industry is known better 3 or 6 years later, and market-wide risk of unemployment is the same pre-or post-accident. If an industry had grown rapidly between the date of accident and date of trial, and unemployment in the plaintiff’s area had fallen from 12 to 6 percent, the use of a 12 percent contingency would seem incorrect.