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The Changing Art of Valuing Personal Injury Cases

By Steven D. Murphy.

Those of us who practice in the area of valuing personal injuries (plaintiff’s lawyers, defense attorneys, insurance adjusters, and mediators) analyze these cases by looking at the four areas of losses that a victim may suffer:  medical bills, lost wages, pain and suffering, and permanency of the injury. That is what the trial judge will tell a jury to consider at the end of trial. Some cases must be analyzed on less than four factors because one or more of the factors is zero. For example, a retired person has no lost wages.  Some victims do not have a permanent injury. But until recently, every case had medical bills and pain and suffering to consider.  

Until Indiana case law under Stanley and Patchett added a new dimension to the issue of the amount of medical bills, we always used the medical bills actually billed as the figure for that component.  Of course, pain and suffering was not capable of exact analysis, so we often placed an artificial value on pain and suffering as a multiple of the billed medical expenses.  For example, if a plaintiff had $25,000 of medical bills, no lost wages, and no significant permanent injury, the plaintiff’s case was worth “three times specials,” or $75,000.   And a lot of cases were settled on that basis. Of course, the plaintiff’s attorneys always argued for a higher result and the defense counsel argued for a lower figure, based on whatever other factors might exist in a case—likeability of the parties, drunk driving, bad behavior, etc. 

Stanley and Patchett hold that the defense may present to the jury the actual amounts of medical bills that were accepted by the doctor, hospital, or health insurance carrier (or Medicare) as payment in full.  In the case of a plaintiff with billed expenses of $25,000, the defense can now put into evidence the fact that Medicare accepted $3,000 as payment in full. In practice, the jury in most cases uses that lower figure for the medical bills component of damages.  This principle seems to result in lower jury verdicts and significantly lower valuations by insurance companies and adjusters in their efforts to resolve cases before trial. If an insurance adjuster uses a multiplier to value the case, it makes a big difference if they use the Patchett number of $3,000 as the base as opposed to the billed amount of $25,000.

In some cases, plaintiff’s lawyers have now countered by deciding not to place into evidence the cost of medical bills at all.  The theory is that the amount of medical bills, particularly if the Stanley or Patchett number is low, serves as an anchor on the valuation by a jury.  When a jury sees that a plaintiff only had to pay $3,000 in medical bills, whether the jury applies a multiplier or not, the verdict is not much above that low figure.  Focusing only on the factor of pain and suffering and concentrating all of the valuation efforts on the actual impact on the plaintiff in terms of how it has changed the plaintiff’s life is thought to be more likely to result in a higher verdict.  In practice, it seems to work sometimes but not always.  

From my point of view as a Mediator, this then requires a different approach in trying to reach a reasonable value for a particular case.  It does the same for defense lawyers and insurance adjusters. Rather than being in a mindset of starting with a number (the medical bills) and then looking for the correct multiplier for pain and suffering, it is critical to analyze the medical records and the impact of the injury on the plaintiff more carefully in order to try to determine how a jury might see the case.  It opens the door to larger verdicts in some cases, but also to smaller verdicts in some cases. The range of values is much greater, and to analyze the potential values requires more review of records and more creativity. It perhaps makes the valuation analysis more difficult, but more fair.  

The most important practical effect of this new plaintiff’s strategy, when applied to a mediation, is that it takes away the usual starting place.  Often, we start a mediation by discussing whether the parties are on the same page with respect to the special damages (medical bills and lost wages, if any).  That figure becomes a starting point, helping us (lawyers and the mediator) define some boundaries, such as possible or likely low verdicts and high verdicts. It gives us a tangible number for discussion, and helps the professionals give some guidance to the clients about how juries usually consider these factors.  Absent that number, it opens the range of verdicts (lower and higher) and makes it incumbent on the professionals to analyze more deeply the factual and medical issues that each plaintiff suffers. That analysis, while necessary in all cases, becomes more critical and will be more time-consuming when that is the only factor that a jury will ultimately consider.