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Calculating Economic Damages: It’s About Far More than the Math

Jeffrey H. Lewis
Director of Investigative Financial Consulting
January 29, 2021

Economic damages are designed to give claimants a chance to recover their financial positions in the wake of injuries caused by another party. To calculate those damages, however, is no easy task. Experts are required to help counsel and claimants build a credible calculation that matches the facts and circumstances of a case and can help tell a story about the data that triers of fact will understand and embrace. 

Without this kind of careful review and analysis, risks can multiply. Speculative projections or cherry-picked numbers that are not rooted in evidence are likely to result in a poor outcome in front of a judge or jury. Further, an expert must clearly understand professional accounting standards, have the right qualifications, and possess excellent communications skills if they are to overcome challenges from opposing counsel.

Calculating economic damages is not a straightforward process.

Experts must consider all evidence in the record—and will be open to attack if they blindly assume a plaintiff’s lost profits are all attributable to the actions of a defendant. They must consider other reasons the plaintiff could have experienced losses.  Failure to consider the sufficient relevant data (a term of art in the CPA’s professional standards of conduct) is a significant reason expert testimony is excluded from cases.

An expert opinion that is illogical or inconsistent with the evidence will crumble under scrutiny and may be excluded by a trier of fact. To avoid this, it is critical for experts to rely upon independent data to confirm that economic damages calculations are reasonable and that they will reconcile with the information available in the case. Also helpful is a strong dose of common sense, as well as the knowledge that data can tell a clear story that can help an expert determine whether a damages calculation aligns with the evidence or relies solely on speculation. 

Economic damages must be computed with reasonable certainty.

An expert should be involved in the discovery process and request information necessary to complete calculations.  Attorneys can be helpful in identifying categories of documents available, but the expert must decide what is relevant for his or her analysis and opinion.  

Often, the specific information that we want to review is not obtainable. In these situations, experts need to determine if there is sufficient relevant data to determine damages to a reasonable degree of certainty.

Independent research can assist in forming the basis of expert opinions and should be used to test the reasonableness of the assumptions and data utilized in calculations. It is important to verify that opinions are logical and supported by sufficient, relevant data.  Reconciling opinions to the realities of the case is a critical element to ensure they will withstand cross examination.

Why could an expert’s opinion be excluded?

An expert must consider sufficient, relevant data in the record or readily available for review. Cherry-picking or ignoring pertinent information allows the possibility of challenges to opinions or the exclusion by the court.  As we have noted, the expert should consider all appropriate evidence in the matter and be sure the story he or she tells is consistent with the events in the record.

An expert must demonstrate that the methodology used is reasonable, generally accepted in the professional community, and/or has been tested by other professionals. Experts must also establish that they have the appropriate level of skill, knowledge, experience, education, and training to offer expert opinions in a court of law.  Failure to make evident any of the above may result in an expert opinion being excluded from evidence.

Takeaway: A damages calculation is no simple matter. 

Calculating economic damages based on a lost-profits methodology is not a straightforward affair. For claimants and their counsel, it is critical to find a professional who understands the relationship between economic damages calculations and the evidence in record.  Equally important is finding the expert who can clearly and effectively communicate that story to a judge, jury, or other trier of fact.

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CATEGORIZED UNDER: Investigative Financial Consulting