When assessing cases, both Plaintiffs and Defendants need to evaluate risk.
What are the chances of success and more importantly; what does success look like?
For an insurer Defendant, the ideal successful case will involve a quick and quiet dismissal of the action; with or without costs. The case is closed and the insurer does not have to pay.
For an injured Plaintiff, success can mean a lot of things. It can mean a finding of liability against a Defendant which signals to the Plaintiff that s/he was right. It can mean a declaration that the Plaintiff is disabled or entitled to benefits which also validates a Plaintiff.
But for most personal injury lawyers and insurance companies, what they really look at is the worth of the case on the best day scenario for a Plaintiff (or worst day for the Defendant).
Now these estimates can vary depending on the lens through which the case is assessed. But it’s equally important for Defendant insurers to have an honest assessment of their potential exposure on a case so that they can underwrite it properly. Just as it’s important for a Plaintiff to understand their best day, or worst day so that they can best assess their risk every step of the way in the litigation process.
In finance, we hear the term “market cap“. This term is not used in personal injury law, but its meaning can easily be applied to any personal injury case.
A market cap is the measure of what the company is worth or perceived to be worth on the open market. Tesla has a market cap as of the time of preparing this personal injury lawyer blog post of $898.77 Billion Dollars, even though in 2021 Tesla reported an annual revenue of $53.82 Billion Dollars.
Even if Tesla is loosing money or has lost money in the past, it still has a perceived value on the open market of $898.77 Billion Dollars which is a lot of money.
Personal injury cases can be assessed in a similar way.
Take the case of an injured 90 year old Plaintiff who was struck by a car as a pedestrian. As a result of the accident he broke his legs and required 24/7 attendant care. His annual cost of care was $100,000/year. There is no income loss claim, or future income loss claim because the Plaintiff was retired. Two years after the car accident, the Plaintiff passed away. Because the Plaintiff died, his case is essentially capped at the two year mark. There cannot be a valid claim for future care. The cap of the Plaintiff’s care claim can be no greater than $200,000, plus general damages which are assessed from the date of loss, until the date of death. This is the perceived value of the case, or market cap if you will.
Take the case of a 60 year old Long Term Disability Claimant. Long Term Disability Benefits were never paid by his/her insurer. If payable, they would go up until the age of 65. This case is capped for a 5 year period plus any special damages because 5 years is all the insurer has exposure for. The market cap (or best case value) for the claim is 5 years, plus interest, plus any special damages, plus costs; less any set offs or deductions such as CPP Disability.
Take the case of a teenager who was involved in a catastrophic car accident. The teenager was rendered a paraplegic as a result of the accident and will never be able to walk again, compete properly in the workforce and will require some degree of care and assistive devices for the rest of his/her life. The “market cap” or value of such a claim is in the millions of dollars given the level of funding required for attendant care, housekeeping, future treatment and future income loss or loss of competitive advantage in the workplace. In such a claim where the “market cap” or value of the case will be in the 7 or 8 figures, it might be best for the insurer to pay out the policy limit and cut their losses. Note: the standard car insurance policy in Ontario has policy limits of $1,000,000 which might sound like a lot of money. But looking in to future care cost reports and income loss calculations; this $1,000,000 is really not a lot of money.
Side note: prices continue to soar due to inflation. Your annual home owner insurance and car insurance continues to rise despite the fact that you have driven less over the past 2 years of the Pandemic than ever before. But your benefits have not risen with the cost of inflation, nor have your standard policy limits increased either with inflation. You are paying more and getting less due to inflation. $1,000,0000 in 2019 got you a heck of a lot more back then compared to now. This is how inflation works. Funny how things like inflation always seem to end up going in the favour of the insurance company and not the people who pay their hard earned money for premiums.
Insurance companies, their lawyers and personal injury lawyers are constantly performing these “market cap” or underwriting assessments of personal injury cases. We all need to know how much the case is worth on its best day. Insurers need to assess their risk. Personal injury lawyers need to know what sort of potential award they can expect for their clients. Clients need to have reasonable expectations of the value of their case.
All personal injury clients have an idea of what their case is worth. For most clients, these valuations are based on little of a large number or perhaps a number which their friend, neighbour or family member put in their heads. All Plaintiffs want their case to be worth millions and millions (if not trillions of dollars). I can assure you that all personal injury lawyers want the same thing too. But the reality is that these assessments are not based on facts, precedent or evidence. And when we are not properly assessing the market cap or value of personal injury cases at the early stages, and reevaluating those models as the case progresses; insurer, personal injury lawyers and most importantly clients lose. We all want to “win” the case. But some wins by their very nature will reap larger compensation than other claims which don’t have the same cap.