Economic Loss Cases: Can You Afford not to have an Expert?
Eugenia Larmore, MBA, CMA, AVA, CFFA

Mr. Smith was excited to have found a accounting manager for his small company.  He could concentrate on growing his business without having to worry about daily financial issues.  His excitement soon turned to dismay as his “dream” employee arrived late for work, did not perform his duties and conflicted openly with other employees.  He fired the manager, who in turn filed a wrongful termination suit claiming breach of contract and asking for over $6 million in past and future lost income and benefits.  Our company was retained to estimate lost earnings and calculated the Plaintiff’s loss at less than $1.5 million.  The savings of $4.5 million for many firms can be the difference between bankruptcy and the ability to survive, and underscores the need to retain an expert in the field of economic damages.

Running a business has its dangers.  An employee files a wrongful termination suit against your business.  Your business faces unfair competitive practices by another company, resulting in lost revenue.  One of your suppliers reneges on a contract and doesn’t deliver the goods.  An insurance company refuses to pay your claim.  A malpractice suit is filed against your medical services company.  Any of these events can be detrimental to the business you worked so hard to create and need to be handled with utmost care.

Expert Witness

Your first step in litigation is to obtain the services of a good attorney, however it is also important to have an expert witness skilled in estimating the losses sustained.  Choosing the right expert is important, as his/her testimony will provide the basis for the court’s damages findings. 

A careful balance of selection criteria will result in the best expert for each case.  The expert must be qualified to provide professional and persuasive testimony and use appropriate and defendable data as a basis for his/her findings.  A University professor may have perfect qualifications, but may not be able to explain his findings to the jury in terms they understand, hindering the case rather than aiding it.  Similarly, a well-known expert in his field may have given past testimony that contradicts his current findings, thus challenging his credibility as a witness.

The expert must have enough experience to know what common mistakes to avoid in his or her report and testimony.  An expert must always use credible, verifiable and relevant data.  One expert in a Nevada construction case used a construction materials index published by a French university.  This made his data irrelevant and his findings suspect.  Another expert submitted a report that gave findings only, no calculations, no assumptions and no way to verify his data and findings. 

Types of Economic Loss

While an economic loss expert is an expert only in the area of economic damages, he/she will be able to provide these services across industry lines as the common denominator is each case focuses on the financial aspects of a case.  An economic loss expert provides assistance in a variety of cases, most common of these cases are discussed below:

Wrongful termination cases usually involve a party who feels the termination was without cause.  An example of this case was discussed at the start of this article.  Loss in these cases includes loss of income and benefits following termination and possible loss of future income if the defendant cannot find comparable employment. 

Discrimination cases vary, some may be part of wrongful termination while others involve a person still employed with the Defendant.  An example is a bank employee who felt she was not promoted within a company due to her race and gender.  These cases involve estimates of income/benefits that would have been received had the promotion occurred.

Wrongful death cases are usually filed by the decedent’s family or estate.  An example is a mother who was misdiagnosed and, who later died from pneumonia that went untreated.  Her family sued the doctor on behalf of the decedent’s daughter.  Economic loss in this case involves estimates of income that would have been earned during the decedent’s lifetime as well as estimates of the dollar value of the decedent’s portion of household duties, as some of this would have been spent to support her daughter.

Personal injury cases occur after an event leaves the Plaintiff either temporarily or permanently disabled.  A construction employee’s fall from a building left him with back injuries, resulting in a desk job as he was no longer able to work in the higher paying construction industry.  The difference in what he could have earned had he continued as a construction employee and earnings from his new position make up the economic loss in this case.

Business interruption/business income loss cases result from an event that forces a business to slow or cease its normal operations, resulting in an income loss.  These could be due to natural events such as floods and hurricanes, unfair competition or other related events.  A local business was forced into bankruptcy when its product was copied and sold at a significantly reduced price by a Chinese company.  The loss of income resulting from this competition was the focus of its economic loss case.

As a business owner, it is important to understand that these types of events can happen to anyone.  To be prepared, good records must be kept, as economic loss experts will require access to your historical financial, payroll and personnel records.  One should also have a good business attorney who is knowledgeable about expert witnesses and is able to recommend and retain one that will help you sleep better until the case is resolved.

As published in The Writ, February 2009 under the name Eugenia Kokunina.  Also published in the Las Vegas Business Press, September 2008 under the title “Economic Loss Cases: Why You Must Consider an Expert Witness.”