Presenting an accurate picture of the economic damages in the field of litigation has become one of the most important components in presenting a supportable claim in court. While the nature of each case varies, there are basic skills and techniques required quantifying damages. This article provides a broad overview of the methods and difficulty experts deal with, in quantifying damages, and finally the experts’ role in quantifying damages.

A quick checklist of the necessary steps in developing claim is:

Understand the nature of the claim review statement of claim and defense;
Perform a detailed review of the fact situation, reviewing relevant evidence, discoveries, and witness statements;
Review relevant expert reports on which you are relying and those of the opposing side;
Gather collect information necessary for your claim development;
Start analyzing the claim in relation to your damage assessment. Explore various options for the existing fact situation in order to develop your damage theory scenario;
Review your loss assessment analysis with counsel or client to ensure full understanding and agreement as to the facts and possible loss development theories; and
Perform further investigation on any queries arrived at above and finalize damage claim.

Methods for Computing Damages

The methods used in calculating damages are widely accepted methods. With the exception f the breach of contract claim, which often falls under the provisions under the contract itself. Most business damages can be calculated under the following methods of quantifying damages:

The before and after method - compares the business revenues and profits before and after the injuring event.
The yardstick Method - focuses on the performance of comparable business in the same industry.
A Sales Projection or (But for) Method - entails creating a performance model for the business complete with growth and returns and compares the results with the businesses actual results. Many techniques may be utilized including regression analysis or other mathematical techniques.

Calculating business damages, the economic loss comes down to the difference between projected and actual results. The damages may include a loss of profits but may also include a decrease or total loss in overall business value.

Damage assessment may include non-business claims such as when a person is injured and requires care in the future. The damage assessment would have to take into consideration other expert reports which would be fundamental to quantifying damages. Often the damage assessment is critical in focusing other evidence presented in a case and will provide the economic results of other expert testimony. An example of this type of evidence may be lead, which summarizes the cost of care of disabled individual this evidence may be given by a rehabilitation or future care consultant. The damage assessment would be reliant on this expert report.

In quantifying claims for damages it is important that alternate economic theories are explored. In the previous example there may have been different treatments necessary for this disabled individual. If there are reasonable alternate scenarios then these should be considered and alternate scenarios developed for presentation at trial.

Common problems in Damage Assessments

Unsupported or subjective assumptions
Improper valuation techniques
Improper, unsupported or subjective forecasting techniques
Flawed or lack of information
Flawed or subjective treatment of risk
Comments outside of expertise
Lack of independence and objectivity

ROLE OF EXPERT IN QUANTIFYING DAMAGES

The expert’s role in quantifying damages normally consists of La) preparing a damage quantification report on behalf of the plaintiff; or (b) rebutting a plaintiff’s damage quantification report for the defendant. The defendant’s expert may not only be asked by counsel to prepare a critique of the damages report of the plaintiff’s expert, but in some cases will also be asked to prepare a “counter-damages” report.

In preparing an estimate of loss or any type of damage analysis, the expert must develop an economic model of what would have happened “but for” the alleged wrongful acts. In the process of developing such a model, the expert’s role includes: assessing the claim early in the process; gathering and interpreting documents and facts; providing guidance to the lawyer in interpreting the financial and business issues; presenting the information in an easily understood manner; developing alternate scenarios for other damage theories; and providing reasonable assumptions which will stand up under cross examination.

CONCLUSION

The nature of assessing damages depends to a large extent on the legal framework of the case. It can be seen that there are a variety of quantitative tools and techniques that can be used for the purposes of quantifying damages. These range in complexity from detailed economic modeling to the use of simple accounting. The choice and the model or technique adopted will depend on the specific of the case and the utilization of the best fit of the facts to the loss assessment. In general it is important to involve the expert early in the litigation process. Cases that involve and assessment of damages require creative but a realistic approach to calculating values. The guidance of an experienced expert can be the difference in a credible claim. It is hoped that this brief note will help better understand what is involved in quantifying damages.

By Gordon Krofchick and Saqib Durrani

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