A. Michigan's Five Percent Simple Discount Rate

Gross present cash value is defined as being, “the total amount of future damages reduced to present value at a rate of 5% per year for each year in which those damages accrue, as found by the trier of fact. . .” (Michigan Compiled Laws (MCL) 600.6306(2)). The Michigan Supreme Court removed all doubt that this fixed 5% is not a compounded rate but a simple rate of discounting explicitly by stating, “[Awards] are to be reduced to present cash value using … [a] simple interest [rate]” in Nation v. WDE Electric Co 1997. (p. 499) An example of how this is applied to a future stream of losses is as follows:

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In personal injury actions, MCL 600.6306(2) also provides that “the court shall determine the ratio of total past damages to total future damages and shall allocate the amounts to be deducted proportionally between the past and future damages.” (Emphasis added). Consistently, Michigan Civil Jury Instruction (M Civ JI) 53.03A, added April 1, 2004, provides:

if you decide that plaintiff is entitled to an award of future damages, you should award the full value of future damages as you determine them. You should not reduce any award of future damages to present cash value. (Emphasis added).

A sample Jury Verdict Form is provided in the Appendix to show the form that juries are required to complete.

B. Treatment of Income Taxes

Income taxes are not to be deducted from an award unless the statute specifically states that they should be deducted. For example, Michigan's automobile negligence law expressly states that taxes should be deducted. “Generally, in fixing damages for lost future earning capacity resulting from personal injuries, courts must disregard the income tax consequences. The decisions indicate that deductions for prospective taxes are only proper where specifically provided for by statute. . . .apply to authorize the deduction of prospective taxes” in cases “arising from the negligent ownership, maintenance, or use of a motor vehicle.” (Gorelick v. Michigan Department of State Highways and Transportation, 1983. p. 341–42.)

C. Inflation

The Michigan Supreme Court has determined that the effects of inflation on future damages should be considered. In Kovacs v. Chesapeake & Ohio Railroad Company 1896, the court stated:

Just as the amount of a plaintiff's damages should be reduced to present value to take into account the income that might be earned upon investment of the award, so too inflation should be taken into account in assessing plaintiff's damages to reflect the attrition of the award as a result of inflation. (p. 651)

D. Mitigation of Damages

Anyone in Michigan claiming damages for an injury has an affirmative duty to mitigate those damages. “It is well-settled that an injured party has a duty to exercise reasonable care to minimize damages, including obtaining proper medical or surgical treatment.” (Klanseck v. Anderson Sales & Service, Inc., 1986. p. 91)

There is no clear and distinct definition of how mitigating damages are to be addressed. However, in most cases the economic expert can rely on the opinion of a vocational rehabilitation expert, given that the ability to mitigate may or may not be hindered by the injury that is related to the litigation.

E. Collateral Source Rule

Generally, an injured party's expenses that have been paid in full or in part by any outside sources apart from the defendant are known as “collateral sources.” This includes all insurance directly related to compensation due to the injury such as disability insurance covering periods of lost income or Social Security disability benefits.2 Collateral sources are not normally considered by the economic expert since they are not a component of either lost earning capacity or work loss. However, in certain circumstances, the economic expert may be asked to make the calculations to inform the litigants of the net result for settlement purposes. There is nothing unique in doing these calculations that needs to be explained. The damages expert should not make any legal interpretation of what is a collateral source but accept guidance from the attorney contracting their services.

Collateral sources considered. The reduction of a damage award for collateral source payments is a court function and should not be included in a lost earning capacity report or be presented to the trier of fact. MCL 600.6303(1) provides:

In a personal injury action in which the plaintiff seeks to recover for the expense of medical care, rehabilitation services, loss of earnings, loss of earning capacity, or other economic loss, evidence to establish that the expense or loss was paid or is payable, in whole or in part, by a collateral source shall be admissible to the court in which the action was brought after a verdict for the plaintiff and before a judgment is entered on the verdict. Subject to subsection (5), if the court determines that all or part of the plaintiff's expense or loss has been paid or is payable by a collateral source, the court shall reduce that portion of the judgment which represents damages paid or payable by a collateral source by an amount equal to the sum determined pursuant to subsection (2). This reduction shall not exceed the amount of the judgment for economic loss or that portion of the verdict which represents damages paid or payable by a collateral source. (Emphasis added).

However, not every outside source is a collateral source. MCL 600.6303(4) defines collateral source as being:

… benefits received or receivable from an insurance policy; benefits payable pursuant to a contract with a health care corporation, dental care corporation, or health maintenance organization; employee benefits; social security benefits; worker's compensation benefits; or Medicare benefits. Collateral source does not include life insurance benefits or benefits paid by a person, partnership, association, corporation, or other legal entity entitled by law to a lien against the proceeds of a recovery by a plaintiff in a civil action for damages. Collateral source does not include benefits paid or payable by a person, partnership, association, corporation, or other legal entity entitled by contract to a lien against the proceeds of a recovery by a plaintiff in a civil action for damages, if the contractual lien has been exercised pursuant to subsection (3).

Those benefits excluded as collateral source payments also include: “Workers' compensation benefits . . . subject to a valid lien.” (Heinz v. Chicago Rd Investment Co., 1996, p. 297) As to future workers' compensation benefits the Michigan Court of Appeals has held, “to the extent that the employee has recovered a judgment, future compensation benefits are not, in fact, ‘payable' because the employer has a credit for the amount recovered by the employee in the tort action. Because those future benefits are not ‘payable', they do not constitute a collateral source under MCL 600.6303(4).” (Rodriguez v. ASE Industries, Inc., 2007, p. 15–16)

Social Security Benefits cost of living increases. There is a special consideration that needs to be referenced when deducting Social Security benefits from future lost earnings. Future Social Security benefit increases are assumed to be too uncertain to be considered. Therefore, the damages expert should not make any estimate of future cost of living increases. If the plaintiffs or their survivors are currently receiving benefits and will continue in the future, those benefits should be continued but without increases. If the plaintiff is not currently receiving benefits but is expected to in the future, then the amount of those benefits is to be presented as if it were received today. The Michigan Court of Appeals opined, “The trial court did not err by refusing to reduce the award of future economic damages on the basis of a speculative determination regarding possible future cost of living increases in social security benefits.” (Jimkowski v. Shupe, 2008, p. 12–13)

F. Michigan Law in the Federal Courts

The federal courts are often required to apply state law when dealing with these cases since the issues concern matters of state law. This is especially the case in Federal diversity actions, cases between parties of two different states and the amount at issue exceeds $75,000. (Erie Railroad v. Tompkins, 304 U.S. 64, 1938) In Erie, the Court held that when deciding diversity cases, federal courts are to apply state law, which includes state common law.

G. Other Valuation Considerations

Cause of action and determining economic damages. As will be discussed, the cause of action will determine the applicable statute and what damages should be included in the expert's opinion. Therefore, it is very important for the expert to request a copy of the complaint to ensure the appropriate method is applied.

Self-employment. There is no case law, to our knowledge, that addresses self-employment earnings and how they are to be computed for general tort damages. However, there is a case that speaks directly to the subject but it is only for no-fault auto injuries and death. The case states that the economic expert is permitted to make adjustments to income tax statements as is appropriate to reflect actual profits. (Adams v. Auto Club Insurance Association, 1986)

Remarriage. The economic expert should not consider remarriage since the Michigan Supreme Court has opined that remarriage is irrelevant to mitigate damages. (Wood v. The Detroit Edison Company, 1980) In another case, the court ruled that the economic expert could be questioned about whether the assumption of remarriage was included in his/her calculations. (Schaible v. Myers, 1981)

Incarceration. In Prince v. Lott 1963, the plaintiff was allowed to recover for lost earning capacity regardless of the fact that he was in prison. This is not to say that this applies to all cases of personal injury since Michigan automobile negligence law does not permit recovery for lost earning capacity and only permits wage loss as the basis for damages.

H. Plaintiff or Decedent Over Age 60.

Plaintiff is over age 60. MCL 600.6311 states that future damages awarded to a plaintiff who is 60 years of age or older at the time of judgment are not reduced to present value. In the case of death, the applicable age is that of the decedent. (Estate of Shinholster v. Annapolis Hospital, 2004)

A. Reports by the Expert.

If the economic expert is providing an opinion for the plaintiff's attorney, it is expected that the attorney will want one or more reports that contain all of the opinions of the expert. The report will then be offered as an exhibit for any deposition or trial testimony that will follow. Typically, the economic expert, when retained by the plaintiff, will offer a report that includes a reduction to present value to be used for settlement purposes and presented in a deposition prior to any trial testimony. Collateral source offsets are not typically included in a report for the plaintiff but are typically included in a report for the defense. When retained by the defense, a written report may or may not be requested. In all cases the expert will be asked to comment on the plaintiff's expert report and will frequently offer questions for cross examination or deposition.

For trials, the subject of presenting a report with present value is something that should be discussed with the attorney since there is no typical format. Since the jury is not to consider present value, the subject should be handled carefully when presenting it to a jury so as not to confuse the members as to what amounts, future value or present value, to write into the “Jury Verdict Form.”3 Confusion between the two concepts could lead to significant differences to the actual award to the plaintiff.

B. Deposition Testimony

The damages expert can be expected to be deposed after a report is provided to counsel. The percentage of cases where a deposition is taken can exceed 50%.

C. Trial Testimony

The probability of testifying at trial is less than 50%. When a case does go to trial, it is possible that the judge will rule that the expert's report is hearsay and not admissible as evidence but will allow the expert to testify from their report. If the damages expert is not prepared to deal with this possibility, it can make his/her testimony difficult given the requirement of the jury verdict form.

From the plaintiff's perspective, it is important that the economic expert be prepared for the possibility of presenting the reduction of the future values to present value using the 5.0% simple discount rate. As previously stated, Michigan's reduction to present value is a court function. It is up to the expert's retaining attorney and, ultimately, the judge at the trial whether the jury will hear about the court's function to reduce future values to present value. There is no typical standard and the economic expert should be prepared to be flexible in presenting opinions as to the present value of damages. One of three situations may occur once the trial testimony begins:

1. The present value is discussed with the calculations presented to the jury. The jury is then told to ignore them because the jury instructions require only the future values are to be listed in the specific year in which they occur.

2. The economic expert can discuss the fact that the court will make the calculations to present value so the present value is not mentioned.

3. The subject of present value is not permitted to be mentioned at all since this is a court function and the jury need not be concerned with what that value would be.

Collateral sources offsetting lost income are always excluded from trial testimony. From the defense perspective, a report may be offered as an exhibit from the damages expert but it is more common for the testimony to be focused on critiquing the opinions of the plaintiff's expert.

D. Post-Verdict Calculations

The need to offer calculations after a verdict has been rendered is infrequent. These calculations cover the time period between when a complaint is filed to when the payment is actually made to the plaintiff. MCL 6013(1) reads:

Interest is allowed on a money judgment recovered in a civil action, as provided in this section. However, for complaints filed on or after October 1, 1986, interest is not allowed on future damages from the date of filing the complaint to the date of entry of the judgment.

For post-verdict calculations the 5% simple discount rate does not apply. When asked to perform the calculations, it is first necessary to find the appropriate interest rate to apply. Michigan's Treasurer publishes these interest rates semiannually in accordance with MCL 600.6013(b) and 600.6455(2). Although the calculations must include the changing semiannual interest rate; it should be noted that interest is only compounded annually.

A. Lost Earning Capacity in Personal Injury and Wrongful Death Cases

Lost earning capacity is the standard for awarding damages due to a personal injury. Canning v. Hannaford, (1964); Prince v. Lott, (1963); Harris v. Wiener, (1961). The injured party may recover for the loss of earning capacity even if, at the time of the injury, he/she was not receiving a salary or wages or any other form of compensation. (Motts v. Michigan Cab Co., 1936)4

In all personal injury cases, the Michigan Legislature has given specific guidance to the finder of fact in awarding damages. The Michigan Legislature has directed that “Any verdict or judgment rendered by a trier of fact in a personal injury action subject to this chapter shall include specific findings . . . “ as to the following:

• (a) Any past economic and noneconomic damages.

• (b) Any future [economic and noneconomic] damages and the periods over which they will accrue, on an annual basis, for each of the following types of future damages: (i) Medical and other costs of health care. (ii) Lost wages or earnings or lost earning capacity and other economic loss. (iii) Noneconomic loss. (MCL 600.6305(1))5

The worklife of an individual, in either personal injury or death, is not specified or limited, but left to the trier of fact to decide whatever is appropriate. MCL 600.6305(2) is the governing statute which states:

The calculation of future damages for types of future damages described in subsection (1)(b) shall be based on the costs and losses during the period of time the plaintiff will sustain those costs and losses. In the event of death, the calculation of future damages shall be based on the losses during the period of time the plaintiff would have lived but for the injury upon which the claim is based.

Following any verdict, MCL 600.6305(1) directs that the court must issue an order of judgment setting forth the following in the order specified:

• (a) All past economic damages, less collateral source payments as provided for in section 6303.

• (b) All past noneconomic damages.

• (c) All future economic damages, less medical and other health care costs, and less collateral source payments determined to be collectible under section 6303(5) reduced to gross present cash value.

• (d) All future medical and other health care costs reduced to gross present cash value.

• (e) All future noneconomic damages reduced to gross present cash value.

• (f) All taxable and allowable costs, including interest as permitted by section 6013 or 6455 on the judgment amounts.

Gross present cash value is defined as being the total amount of future damages reduced to present value at a non-compounded rate of 5% per year. M Civ JI 53.03A, added April 1, 2004, provides: “If you decide that plaintiff is entitled to an award of future damages, you should award the full value of future damages as you determine them. You should not reduce any award of future damages to present cash value.” Awards “are to be reduced to present cash value using . . . [a] simple interest [rate].” (Nation v. WDE Electric Co., 1997, p. 499)

There are certain damages in personal injury cases which can be quantified with some precision. These include past lost wages, past medical expenses, past miscellaneous expenses attributable to the plaintiff's injury, and other past economic damages such as lost fringe benefits. The assessment of past economic damages is typically a straightforward matter. The net result of this effort may then be subject to a test as to the reasonableness of the expenses themselves, an area outside of the scope of the economic expert's expertise.

A major component of the economic expert's assignment is to provide testimony on the plaintiff's lost earning capacity. In general, lost wages are to be considered synonymous with lost earning capacity except where specifically stated otherwise in Michigan's statutes.6 M Civ JI 50.06 instructs a jury to award damages resulting from a personal injury not for actual lost wages, but instead for “lost earning capacity.” Moreover, Michigan case law does not set forth a clear definition of lost earning capacity per se.

The difference between the two kinds of damages in the typical tort suit was succinctly explained in Justice T. E. Brennan's opinion in Rohm v. Stroud 1972:

In tort cases generally, an injured party is entitled to recover for loss of earning capacity. In such cases, it is customary to prove actual lost wages... Actual lost wages are not the true or total measure of damages, but actual earnings are conclusive upon the question of the minimum earning capacity. (p. 696)

Although MCL 600.6101(a) does not define “loss of earning capacity,” it is instead identified as being separate and distinct from “wage loss.” From an economic expert's point of view, there is a distinct difference between lost earning capacity and terms such as “work loss” and “lost wages” and “expected earnings.”

The Michigan Court of Appeals in Nawrocki v. Hawkeye Sec Ins Co 1978 makes as clear a statement of the definition as is possible when it states:

A person physically harmed by the tort of another is entitled to receive as damages the amount of earnings which he has been prevented from acquiring up to the time of the trial. This amount is the difference between what he probably could have earned but for the harm less any sum which he actually earned in any employment or, if he failed to avail himself of opportunities, the amount which he probably could have earned in work for which he was fitted, up to the time of trial. This difference represents the harm to his earning capacity.7 (p. 139, n. 2)

Some commentators have acknowledged that, “The two categories of damage [lost earning capacity and work loss] are often equivalent.” (Atkinson, et. al., 2000, p. §21–10) Michigan's common law does hold that lost wages and loss of earning capacity are two separate and distinct measures of damages. Again, in Nawrocki v. Hawkeye Security Insurance Company 1978 the Michigan Court of Appeals clarified:

The case law in this state is quite clear that loss of earning capacity is a category of harm separate from loss of wages, and that sustaining the second is not a prerequisite for recovery of damages for the first. Indeed, our courts have declared that the plaintiff may recover damages for loss of earning capacity even though actual earnings increased. (p. 140)8

Regardless of the type of injury incurred, Michigan law makes no limitation to either the rate of pay for lost earnings or the age of the plaintiff. In Kirchgessner v. U.S 1992 the Sixth Circuit Court of Appeals held that Michigan law “provides for earnings estimates based upon . . . estimated life span, rather than worklife expectancy.” (p. 163) In order to recover for lost earning capacity it is not necessary that he or she had been employed for compensation at the time of the injury, Miller v. Pillow 1953.

There are two conditions that must be met for a valuation of lost earning capacity. The first is that the activity must be legal and the second that income from investments cannot be included in the lost earnings calculations. (Michigan Law of Damages Chapter II, p. 10)

B. Wrongful Death – Lost Financial Support

In cases of wrongful death the recoverable damage is a loss of financial support to the surviving family members. Typically this is done by first determining the lost earning capacity and then deducting the personal consumption of the deceased to arrive at the lost financial support amount. However, this is not the only way to determine a loss of support and the damages expert should assume that other methods can be applied to certain circumstances.

C. Cost of Care in Personal Injury Cases

When the plaintiff has been injured to such a degree that he/she will have a need for future care, the economic expert will be asked to prepare a report showing the present value of future care. To do this the economic expert, in most circumstances, can rely upon the assessment and testimony of a life care planner to establish the costs associated with the providing of care to an injured party for whatever duration is necessary. Other sources for the level and type of care required are acceptable and should be provided to the economic expert prior to the expert preparing a report. Although assessing the base level of need and cost is outside the economic expert's scope of expertise, projecting such costs into the future is well within the economic expert's purview. There is no established standard for the economic expert to follow in terms of methodology or sources for applying the life care plan to a model of estimating future costs.

The rules for recovering future medical expenses also apply to any reasonable future miscellaneous expenses, such as those suggested in the commentary to M Civ JI 50.08. Future miscellaneous expenses for services required as the result of the injury may include extraordinary and required travel expenses, Sherwood v. Chicago & WM Ry Co 1890 and substitute transportation, Andries v. Everett, Metzger, Flanders Co 1913.

All future damages should be awarded for the duration in which the result of the injury is experienced. This will frequently be the remainder of the plaintiff's lifetime. Undoubtedly, opposing parties in a personal injury case will wish to establish the duration of a plaintiff's lifespan as to whether it will be normal or reduced by some period of years. Without a qualified expert opinion on the life expectancy pertaining specifically to the plaintiff, this is accomplished by reference to mortality tables in determining life expectancy and is generally admissible into evidence, Rickwalt v. Richfield Lakes Corp 1901. There are no known limitations or mandates as to what mortality table is acceptable in estimating a party's life expectancy. However, the U.S. Life Tables published by the Center for Health Statistics, Center for Disease Control and Prevention, are commonly used and accepted by the courts as self-authenticating, which means they are not considered hearsay or speculative.

D. Household Services in Personal Injury and Wrongful Death

It is well recognized that a loss of household services is a component of economic damages. The Michigan Court of Appeals ruled in Thorn v. Mercy Memorial Hospital 2008 that the loss of household services can be included as an economic damage in a wrongful death case and that it is not a noneconomic component of the loss of society and companionship. This is an issue since there is a cap on noneconomic damages in medical malpractice cases in Michigan and the opinion states that the household services are outside of that cap.

The loss of the ability to provide household services in a personal injury case has been accepted on a regular basis for many years. There is no statute or established case law that defines an explicit method to calculate the value of lost household services.

E. Wrongful Death Cases.

In personal injury cases that result in death, Michigan's Wrongful Death Act, MCL 600.2922, provides the exclusive mechanism for bringing a claim in court. It provides that the damages recoverable are those that are fair and equitable, including reasonable medical, hospital, funeral, and burial expenses; and damages for loss of financial support and for loss of the decedent's society and companionship, MCL 600.2922 (6). The Wrongful Death Act does not state a dollar limit on the amount of recoverable damages. (Branyan v. Alpena Flying Serv, Inc., 1975)

F. Only Family Can Collect Damages

Compensation awarded for loss of financial support must only be distributed to those persons sustaining the damages rather than to the estate of the decedent. MCL 600.2922(2) provides that “[e]very action under this section shall be brought by, and in the name of, the personal representative of the estate of the deceased . . .” while MCL 600.2922(3) provides that:

[s]ubject to sections 2802 to 2805 of the estates and protected individuals code, 1998 PA 386, MCL 700.2802 to 700.2805, the person or persons who may be entitled to damages under this section shall be limited to any of the following who suffer damages and survive the deceased:

• (a) The deceased's spouse, children, descendants, parents, grandparents, brothers and sisters, and, if none of these persons survive the deceased, then those persons to whom the estate of the deceased would pass under the laws of intestate succession determined as of the date of death of the deceased.

• (b) The children of the deceased's spouse.

• (c) Those persons who are devisees under the will of the deceased, except those whose relationship with the decedent violated Michigan law, including beneficiaries of a trust under the will, those persons who are designated in the will as persons who may be entitled to damages under this section, and the beneficiaries of a living trust of the deceased if there is a devise to that trust in the will of the deceased.

However, Subsection (6)(d), states “[t]he court shall then enter an order distributing the proceeds to those persons designated in subsection (3) who suffered damages and to the estate of the deceased for compensation for conscious pain and suffering, if any . . .” thereby limiting the award of compensation for loss of financial support to those “who suffered damages” and not to the estate of the deceased.

G. Personal Consumption

Personal consumption is normally considered as a deduction from a decedent's earning capacity in determining lost financial support. Typically the economic expert makes this deduction. As with lost household services, Michigan's statutes and case law are silent as to the sources or methods acceptable to appropriately reduce the damages for the consumption of the decedent. The reduction is not specifically required and there may be times when the retaining attorney wishes not to make this deduction a matter of law. It is then up to the economic expert to decide if he/she wants to continue with the case.

H. Death or Injury of a Child

In Michigan, the rule regarding loss of future earning capacity of an un-emancipated minor is that such a loss is recoverable only by the child's parents. In Gumienny v. Hess 1938, the Michigan Supreme Court held, quoting Freeman on Judgments (5th Ed), vol. 1, §481:

If an infant is wrongfully injured, two distinct causes of action accrue, one in favor of the parents for loss of services and expenses incurred and another to the infant for the other elements of damage from personal injuries including impaired earning capacity after reaching majority. In such case a judgment in action by one is not res judicata or a bar in action by the other. The parent is not bound by the judgment in the child's action merely because he acted as next friend, guardian ad litem or guardian, except where he has permitted the child to recover or litigate the right to damages which would otherwise belong to him. (p. 414–415)

The death of a child is valued by a method that applies an “investment approach” to recover for the parents the investment they have made in their child. In the seminal case of Wycko v. Gnodke 1960, the Michigan Supreme Court described the methodology to take the expenditures made on the child and compound each year the child was alive with some reasonable growth rate up to the year the child died. The cumulative value of each year's compounded expenditures becomes the value of the economic damages to the parents. (Ireland & Ward, 1995)9

A. Self-Employment Work-Loss

In the case where the injured individual was self-employed, there may not be a clear statement establishing his/her work loss at the time of the injury. It is especially true with proprietorships and other single owner businesses, including S Corporations and Limited Liability Companies, but also can apply to businesses with only a small number of owners. In compensating an injured self-employed plaintiff for his/her lost work, the economic expert is not restricted to using only the net profit line on the Schedule C of the IRS tax form 1040. The Court of Appeals has an opinion that addresses the subject by permitting the introduction of a restatement of income. The court stated in Adams v. Auto Club Insurance Association 1986:

In the present case, we believe that the trial court did not err in ruling that plaintiff's business expenses should be deducted from his gross receipts in determining his lost income. The goal of the no-fault act is to place individuals in the same, but no better position than they were before their automobile accident. Certainly, plaintiff cannot claim that his actual expendable income included even that income which he was required to pay out as business expenses. Therefore, in order to avoid over-compensating plaintiff, the trial court's interpretation of § 3107 (b) was proper. On cross-appeal, however, defendant argues that the trial court should have relied solely upon Schedule C of plaintiff's income tax return in determining what were appropriate business-related expenses. We disagree. (p. 193)

The trial court determined that only certain costs of doing business should be subtracted from plaintiff's gross receipts. These included chair rental, materials and supplies, advertising, laundry and cleaning, accounting services, utilities, telephone, license and office expenses. There were a number of other business-related expenses that plaintiff reported on his Schedule C which the court did not consider to be legitimate business expenses for purposes of the no-fault act. The decision concerning whether certain business-related expenses should be deductible business expenses for purposes of determining work-loss benefits is primarily a factual question. In this case, we cannot say that the trial court's findings were clearly erroneous. MCR 2.613(C). Thus we refuse to adopt the rule advocated by the defendant that all of the Schedule C of his or her tax return should automatically be deducted in determining work-loss benefits under the no-fault act. Therefore, we affirm the ruling of the trial court on this issue. (p. 193)

B. Temporarily Unemployed

“Work loss for an injured person who is temporarily unemployed at the time of the accident or during a period of disability shall be based on earned income for the last month employed full time preceding the accident.” (MCL 500.3107a)

C. The First Party Personal Injury Protection (PIP) Claims

This is the claim for damages made by the insured, the first party, to their own insurance company, the second party. The insurance company of the injured is required by contract or law to pay the no-fault benefits of work loss income and household services, known more commonly as replacement services, for the first three years after the accident. In addition, medical expenses are also covered for all the years needed. These claims are limited by the amounts specified by the state's Attorney General for both work loss and household services within the fixed three year period for recovery.

As stated, it is rare that an economic expert may be asked to calculate PIP benefits in a first-party auto injury case. The benefits available to the plaintiff are contained in MCL 500.3107(1) and are payable for the following:

(b) Work loss consisting of loss of income from work an injured person would have performed during the first 3 years after the date of the accident if he or she had not been injured. Work loss does not include any loss after the date on which the injured person dies. Because the benefits received from personal protection insurance for loss of income are not taxable income, the benefits payable for such loss of income shall be reduced 15% unless the claimant presents to the insurer in support of his or her claim reasonable proof of a lower value of the income tax advantage in his or her case, in which case the lower value shall apply. …Beginning October 1, 1974, the maximum shall be adjusted annually to reflect changes in the cost of living under rules prescribed by the commissioner but any change in the maximum shall apply only to benefits arising out of accidents occurring subsequent to the date of change in the maximum. 10

(c) Expenses not exceeding $20.00 per day, reasonably incurred in obtaining ordinary and necessary services in lieu of those that, if he or she had not been injured, an injured person would have performed during the first 3 years after the date of the accident, not for income but for the benefit of himself or herself or of his or her dependent.11

D. First Party Damages – Death Only – The First Three Years After the Accident

First-party survivor's benefits are statutorily limited by MCL 500.3108 as follows:

(1) Except as provided in subsection (2), personal protection insurance benefits are payable for a survivor's loss which consists of a loss, after the date on which the deceased died, of contributions of tangible things of economic value, not including services, that dependents of the deceased at the time of the deceased's death would have received for support during their dependency from the deceased if the deceased had not suffered the accidental bodily injury causing death and expenses, not exceeding $20.00 per day, reasonably incurred by these dependents during their dependency and after the date on which the deceased died in obtaining ordinary and necessary services in lieu of those that the deceased would have performed for their benefit if the deceased had not suffered the injury causing death. Except as provided in section (2) the benefits payable for a survivor's loss in connection with the death of a person in a single 30-day period shall not exceed $1,000.00 for accidents occurring before October 1, 1978, and shall not exceed $1,475.0012 for accidents occurring on or after October 1, 1978, and is not payable beyond the first three years after the date of the accident.

E. Third Party Claims

A third-party claim is the typical automobile negligence claim since the damages do not have a cap either in amount or time period of loss.

F. Work Loss and Benefits

In addition to first-party benefits, a Michigan no-fault claimant may be entitled to bring a third-party claim for economic damages. The injured person may recover against a negligent defendant for pain, suffering and other noneconomic losses. MCL 500.3135 (2) is of greatest concern to the economic expert and provides:

(c) Damages for allowable expenses, work loss, and survivor's loss as defined in sections 3107 to 3110 in excess of the daily, monthly, and 3-year limitations contained in those sections. The party liable for damages is entitled to an exemption reducing his or her liability by the amount of taxes that would have been payable on account of income the injured person would have received if he or she had not been injured. (Emphasis added).

(d) Damages for economic loss by a nonresident in excess of the personal protection insurance benefits provided under section 3163(4).13 Damages under this subdivision are not recoverable to the extent that benefits covering the same loss are available from other sources, regardless of the nature or number of benefit sources available and regardless of the nature or form of the benefits.

Moreover, the party responsible for the injuries sustained is entitled to a reduction for the taxes the injured party would have otherwise had to pay without regard to the cap of 15% as defined in an injury claim. MCL 500.3135(3)(c) provides:

The party liable for damages is entitled to an exemption reducing his or her liability by the amount of taxes that would have been payable on account of income the injured person would have received if he or she had not been injured.

To summarize, calculating the economic damages for a third-party claim requires the economic expert to refer back to the language of the first-party claim, MCL 500.3107 for injuries and 500.3108 for death. The calculations from an auto injury differ from other types of damage calculations for injury and wrongful death. The important components of a report are paraphrased as:

Components of automobile injury.14 Work loss is not earning capacity. A claim of lost earning capacity will not be admissible. There does not seem to be any case law that actually describes the difference between work loss and earning capacity. Nevertheless, the economic expert should be prepared to offer the court an explanation on why his/her assumptions are consistent with the work loss standard.

1. Income taxes should be deducted and should not be more than 15% and can be less than 15%. If a tax rate lower than 15% is used there must be support for why it was chosen.

2. Fringe benefits are not included in work loss benefits.

Components of automobile death.15

1. Work loss is not earning capacity. A claim of lost earning capacity will not be admissible. There does not seem to be any case law that actually describes the difference between work loss and earning capacity. Nevertheless, the economic expert needs to be prepared to offer the court an explanation on how he/she applied the work loss standard.

2. Income taxes should be deducted at whatever rate is appropriate and supportable.

3. Fringe benefits are included in work loss benefits.

There is no explanation for the differences between the two methods for computing damages in cases of personal injury or wrongful death.

A. Pain and Suffering

A long-standing practice of Michigan courts is for the trier of fact to award money damages as compensation for intangible damages such as pain and suffering. As stated by the court in Sebring v. Mawby 1930, “The law furnishes no exact rule by which damages for pain and suffering can be measured. Their determination must necessarily be left to the good sense and sound judgment of the jury in their view of the evidence.” (p. 629) See also Cleven v. Griffin 1941. Under M Civ JI 50.02, all possible elements of pain and suffering should be added to the instruction where appropriate, not merely the five elements listed in the instruction. In any event, to be fully compensated, the personal injury plaintiff must be awarded damages for both past and future pain and suffering, if such pain and suffering can be shown, Mosley v. Dati 1961. Finally, it must be noted that the elements of damages for pain and suffering are cumulative. All of the elements can be set forth in appropriate jury instructions and all can be awarded by the jury if all are proved. M Civ JI 50.01, which states that all appropriate elements of damages listed in M Civ JI 50.02–.09, as well as any other “elements which are not covered by these instructions, but are equally appropriate” that can be proven by the plaintiff should also be presented to the jury.

B. Economic Expert's Testimony on Hedonic Damages

In Michigan wrongful death cases, a plaintiff can be compensated for damages “consciously suffered by the decedent between the time of injury and death.” (Brereton v. United States, 1997, p. 757) The challenge to the plaintiff has been the admission of expert testimony to establish the value of the claimed damages. The plaintiff sought to introduce the testimony of an expert to assist the fact finder in placing a value on the damages. More specifically:

Plaintiffs seek to admit the expert's testimony to assist the fact finder in placing a value upon the survivors' loss of society and companionship caused by the death of Albert Brereton. The expert has calculated the value of Albert Brereton's life based upon his expected lifespan, a statistical individual's willingness to pay for safety, to endure on-the-job safety risks, and the costs of government health and safety regulations. … [the expert] asserts that this value of life-or the value of preserving the ability to live a normal life-‘is also a measure of the value placed on the loss of relationship or society and companionship.' Thus, not only is the statistically-calculated value of life a measure of hedonic value to an individual, it also is an estimate of the value of that individual's relationship to his survivors. (p. 752)

The court in Brereton concluded, “I find, however, that even if one were to accept the expert's testimony as producing a scientifically reliable value of the decedent's life, the conclusion that this same figure provides a value of that person's relationship to his or her survivors is unfounded.” (p. 758)

The U.S. District Court for the Western District of Michigan reached the same conclusion regarding similar proposed testimony in Kurncz v. Honda North America 1996. Additional theories of damage assessment have been proposed that may prove viable. To summarize, the Michigan courts have not approved any approach or methodology for estimating the economic value of hedonic damages.

C. Medical Malpractice Damage Limits

In the 1990s many states pushed forward legislation to place caps on medical malpractice awards. The stated objective is to lessen the costs to practitioners of medical malpractice insurance premiums. Effective April 1, 1994, MCL 600.1483 went into effect which provides:

• (1) In an action for damages alleging medical malpractice by or against a person or party, the total amount of damages for noneconomic loss recoverable by all plaintiffs, resulting from the negligence of all defendants, shall not exceed $280,000.00 unless, as the result of the negligence of 1 or more of the defendants, 1 or more of the following exceptions apply as determined by the court pursuant to section 6304, in which case damages for noneconomic loss shall not exceed $500,000.00.16

• (2) In awarding damages in an action alleging medical malpractice, the trier of fact shall itemize damages into damages for economic loss and damages for noneconomic loss.

• (3) As used in this section, ‘noneconomic loss' means damages or loss due to pain, suffering, inconvenience, physical impairment, physical disfigurement, or other noneconomic loss.

• (4) The state treasurer shall adjust the limitation on damages for noneconomic loss set forth in subsection (1) by an amount determined by the state treasurer at the end of each calendar year to reflect the cumulative annual percentage change in the consumer price index. As used in this subsection, “consumer price index” means the most comprehensive index of consumer prices available for this state from the bureau of labor statistics of the United States department of labor.”17

Presently, the limitations for actions “arising after September 30, 1993 . . . the limitation on noneconomic damages for . . . 2008 [is] $401,500” and for “noneconomic damages for certain permanent disabilities . . . [is] $717,000.” For causes of action arising “before October 1, 1993 . . .” the limitation on “non-economic damages for . . . 2008” is “$421,700.” (Letter of Michigan State Treasurer, Robert J. Kleine of 01/22/2008) The medical malpractice damages cap also applies to a wrongful death action based on an underlying claim of medical malpractice, Estate of Shinholster v. Annapolis Hospital 2004; Jenkins v. Patel 2004.