Medical malpractice: Strategies to improve economic damages

Challenging the defense experts’ calculations is vital to maximize damages

2014 February

In All the President’s Men, Bob Woodward meets Deep Throat in a garage. Woodward tells his source that the Washington Post is stuck. The Watergate story has stalled. Deep Throat tells Woodward: “Follow the money.” That catchphrase should be repeated to every plaintiff’s lawyer litigating a medical- malpractice case, with a clarification: “Follow the economic damages.”

Since MICRA’s enactment in 1975, non-economic damages in medical-malpractice cases have been capped at $250,000 (Civ. Code, § 3333.2). Economic damages, however, are not capped. Therefore, to come anywhere close to compensating your clients for their actual losses, you must maximize your clients’ economic damages.

This article presents three defense tactics – commonly overlooked by plaintiffs’ counsel – which substantially reduce plaintiffs’ economic damages. This article also discusses straightforward strategies to defeat these defense tactics. Our firm has seen these strategies increase our clients’ economic damages many times over.

Determining present cash value

Read CACI 3904A literally: Present cash value must be determined by investments the plaintiff can make today.

First, evidence relating to the present cash-value calculation of the plaintiff’s future damages may be the single largest factor in determining the size of a plaintiff’s verdict. Yet, it is rarely contested or addressed. Challenging such calculations is vital.

The heart of every plaintiff’s economic damages case is the life-care plan. A life-care plan is a document that provides a comprehensive assessment of the plaintiff’s future medical, household, and other needs. The plan also states how much each of those needs is expected to cost over time. Generally a nurse or physician will testify to the life-care plan.

After the life-care plan is entered into evidence, an economist will testify. An economist’s testimony is required because future economic damages must be reduced to present value.

The first paragraph of CACI 3904A explains:

[T]he amount of… future damages must be reduced to their present cash value. This is necessary because money received now will, through investment, grow to a larger amount in the future…

In other words, by awarding the plaintiff future economic damages, the jury has awarded the plaintiff money for expenses that the plaintiff will owe over the course of his or her lifetime. The plaintiff, however, will not receive the money over the course of his or her lifetime. Instead, the plaintiff will be paid in one upfront lump sum. The law assumes that the plaintiff will invest that lump sum and earn investment income over time.

Theoretically, if the award were not reduced, the plaintiff would be overcompensated, because the plaintiff would receive both compensation for the future expenses and the investment income earned while the plaintiff waited for the future expenses to come due. On the other hand, if the lump sum award is reduced to present value, the plaintiff can supposedly invest the award and, over time, grow the principal to match the expenses as they come due.

In practice, the second paragraph of CACI 3904A is the most important language in the instruction. It is the language that the plaintiff’s lawyer can use to exclude the defense economist’s opinion or to persuade the jury that it should be afforded very little weight. The instruction states:

To find present cash value, you must determine the amount of money that, if reasonably invested today, will provide [plaintiff] with the amount of [his/her] future damages.

(CACI 3904A; emphasis supplied.)

The key phrase is: “if reasonably invested today….”

Our firm has found that defense economists – and even some plaintiffs’ economists – will testify to how much the plaintiff will earn based on historic averages. More specifically, these economists will look to historic yields of U.S. Treasury bonds to determine what investment return the plaintiff is likely to earn over the course of his or her lifetime.

Such an analysis is both very common, and very wrong. Defense economists’ testimony based on historic averages is improper and should be excluded. CACI 3904A states that the proper investment return to be considered by the jury is the yield “if reasonably invested today….” CACI 3904A does not state that the proper investment return is the yield “if the sum had been reasonably invested at the historic average rate.”

This only makes sense. The plaintiff is incapable of investing his or her award at historic average rates. The plaintiff is not receiving his or her award at some theoretical historic average time. The plaintiff is receiving the award today and, therefore the plaintiff can only invest at today’s actual rate.

And, today – unlike in decades past – we are experiencing historically low interest rates. On the date of this writing, the yield on a 30-year U.S. Treasury note is 3.82 percent. On this same date in 1990, the yield was more than double: 8.47 percent. Therefore, if the award is “reasonably invested today,” the plaintiff will earn today’s rate: 3.82 percent. The plaintiff, investing today, is not capable of earning 1990’s rate nor the historic average of today and 1990. The plaintiff is only able to earn today’s lower rate.

3904A’s reliance on today’s lower rate – as opposed to higher historic averages – greatly benefits plaintiffs. Plaintiffs want the jury to find lower rates of return – not higher rates. Lower rates translate into larger awards. This is because the less interest a plaintiff will earn on his or her investments, the more money the plaintiff requires upfront to pay for his or her life-care plan.

Confront this issue at the defense economist’s deposition. On the morning of the deposition, plaintiff’s counsel determines that day’s U.S. Treasury rate which can be found here: www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield.

Inevitably, the defense economist will testify to a rate of return much higher than today’s yield – sometimes double or triple or even more. Plaintiff’s counsel then asks the defense economist: “Where can the plaintiff obtain your rate of return today?” Plaintiff’s counsel, if in a snarky mood, might even offer to give his or her own personal money to the defense economist to invest at that higher historic rate. The defense economist will say something like: “The plaintiff can’t get that today. No one can get that rate. It’s the historic rate of return. It’s not today’s rate.”

Plaintiff’s counsel should then present the defense economist with a copy of 3904A and have the economist review it. The economist will acknowledge that instruction expressly and unequivocally states that the present cash value is to be calculated based on the sum needed to be “invested today.” Plaintiff’s counsel should ask the defense economist whether his or her opinions are based on an assumption that the money would be “invested today.” The defense expert will have to acknowledge that it is not. The defense expert’s opinions are based on an assumption that the plaintiff does not invest his award today, but invests it on an historic average day.

Consider a motion in limine to exclude the defense economist’s testimony, which is based on historic averages, as not comporting with 3904A. In case the court allows the defense economist’s testimony to be presented to the jury, inquire more deeply at the expert’s deposition to ensure the testimony will be afforded little weight and to help undermine the defense team’s credibility generally.

Plaintiff’s counsel should ask the defense economist why he or she calculated present cash value based on historic values instead of “today’s” yield as 3904A requires. Thus far, no defense expert has been able to provide our firm with any authority for using historic averages, as opposed to today’s rate. And there is no good reason to use historic averages. Again, unlike today’s rate, historic averages are not available to investors. To be sure, all kinds of excuses will ensue. They generally boil down to: The defense economist has always done it that way. In other words, the defense expert has always done it wrong.

Plaintiff’s counsel should then inquire whether or not defense counsel instructed the economist to calculate the present value based on today’s rates, as 3904A requires, or only to calculate based on historic rates. The defense economist will testify that he or she was only instructed to use historic rates. Alternatively, the economist will testify that defense counsel did not instruct the expert either way. The defense economist will concede, however, that when the expert presented defense counsel with figures based on historic rates, the economist was not then instructed to recalculate with today’s rates. This series of questions is helpful to show, at trial, that the defense team – despite knowing the text of 3904A – is trying to pull an economist’s trick and get off cheap. Jurors – many of whom are still very affected by the economic downturn – are keenly aware of economists’ tricks and respond poorly to them.

Finally, plaintiff’s counsel should ask the defense economist to re-calculate based on today’s yield. Plaintiff’s counsel should be sure to have the defense economist perform this recalculation with plaintiff’s expert’s life-care plan.

If the deposition is videotaped, plaintiff will rightly appear eminently reasonable by introducing in plaintiff’s case-in-chief the video of defense economist’s calculation of the plaintiff’s life-care plan. (Code Civ. Proc., §2025.620; 2025.340(m).) This leaves the defense in the awkward position of explaining during their case why the jury should ignore 3904A and use historic rates, rather than today’s rate to which the defendant’s own economist previously testified by video.

Finally, it is important to understand the dramatic difference in awards that result from approaching present cash value based on today’s rates, rather than historic rates. In 2012, we had to present two economists in a medical-malpractice birth-injury case. Both economists agreed that the plaintiff’s future medical costs were approximately $51 million. The economist who used historic rates testified that the present value of that sum would be $14 million. The economist who used today’s lower yield testified that the present value was more than double: $35 million.

Periodicized judgment

If the defense demands a periodicized judgment, move to exclude any reduction to present cash value.

Second, while the above interpretation of 3904A will prevent excessive reduction of your client’s future damages’ award, there are times when no reduction at all is permitted.

More specifically, Code of Civil Procedure section 667.7(a) provides that a medical-malpractice defendant may demand that any award of $50,000 or more in future damages be entered by the court not as a lump sum, but instead in periodic payments over time. Case authority provides that when such a demand is made, the court must enter a judgment which specifies “the dollar amount of payments, the interval between payments, and the number of payments or the period of time over which payments shall be made.” (Hrimnak v. Watkins (1995) 38 Cal.App.4th 964, 973-974.)

Critically, when a future damages’ award is to be paid in periodic payments, it should not be reduced to present value at all. As the California Supreme Court explained:

When a party properly invokes section 667.7… the [trial] court must fashion the periodic payments based on the gross amount of future damages. This is because if a present value award is periodized, a plaintiff might not be fully compensated for his or her future losses; the judgment, in effect, would be discounted twice: first by reducing the gross amount to present value and second by deferring payment.

(Salgado v. County of Los Angeles (1998) 19 Cal.4th 629, 639 (emphasis in original; citations and punctuation omitted.)

The California Supreme Court added:

The proper approach… is for the jury to determine the gross amount of future damages and for the court to structure a periodic payment schedule based on that amount.

(Id. at 639 (emphasis added; citations omitted).)

Virtually all medical-malpractice defendants demand a periodic payment judgment in their Answer. Defendants prefer periodic payments for at least two reasons: 1) The longer the time a defendant has to pay any judgment, the less expensive the judgment effectively is; and 2) If a medical-malpractice plaintiff dies before all payments are made, all non-earnings future losses are terminated. Only the future earnings must be paid to the plaintiff’s heirs. (Code Civ. Proc., § 667.7(b)(1), (c).)

Once a defendant has demanded a periodic payment judgment, the jury should not hear any evidence of present-value reduction. Again, this is because when a periodic-payment judgment is invoked, the jury does not reduce the award to present value. Instead, the jury renders a judgment for the full gross value. Post-verdict, the court – not the jury – addresses any periodicizing.

To allow the jury to hear present-value evidence, when the jury is not tasked with reducing the judgment to present value, only allows the defense to confuse jurors with evidence of lower sums that are not probative for the jury’s fact-finding purposes. When the defendant has invoked its right to a periodic payment judgment, plaintiff’s counsel should move in limine, pursuant to Evidence Code section 352, to exclude present-value reductions. The probative value of such evidence – none for the jury which does not reduce the award – is substantially outweighed by the probability that its admission will create a substantial danger of confusing the issues or will mislead the jury. To the extent the court wishes to hear such testimony, it may receive such evidence after the verdict when it is fashioning the periodic-payment judgment.

For the sake of completeness, I note that there are several circumstances where a present-value calculation might be necessary. Chief among them is to determine whether the plaintiff obtained an award greater than a prior statutory offer to compromise under section 998 of the Code of Civil Procedure. In cases that seem headed to trial, a plaintiff may elect not to make such an offer, or during trial to waive the benefits of such an offer, in order to prevent introduction of present-value calculations that may unnecessarily reduce the jury’s awards.

A present-value calculation may also be required to determine plaintiff’s attorney’s fees. Presumably, however, plaintiff and plaintiff’s counsel can stipulate that such an issue is to be resolved by the court, rather than the jury. Further, case law provides that the cost of any annuity purchased to fund the future pay-ments is presumed to be the appropriate present value for calculating attorney fees. (Holt v. Regents of Univ. of Calif. (1999) 73 Cal.App.4th 871, 884; Schneider v. Kaiser Found. Hosps. (1989) 215 Cal.App.3d 1311, 1319.) Also, a settlement by a co-defendant may present complex offset issues that require a   present-value determination by the jury.

Life-expectancy interrogatory on the verdict form

Third, medical-malpractice defendants will often try to force the jury to make a finding of the plaintiff’s life expectancy. You must oppose defense efforts to include a life-expectancy interrogatory on the verdict form. Such findings – while seemingly innocuous – have a tendency to reduce medical-malpractice plaintiffs’ judgments.

Plaintiffs’ counsel should oppose the inclusion of any life-expectancy question on verdict forms. Jurors do not want to pronounce judgment that the plaintiff – a human being they have come to know well – may soon die. To jurors, expressly finding a shortened life expectancy has all the allure of being an executioner. This is especially true for jurors who have accepted the plaintiff’s multi-year life-care plan. They have hope that the plan will work and it will preserve the plaintiff’s longevity.

Defendants, on the other hand, will take advantage of a jury’s finding that the plaintiff will live for a long period. Defendants will argue that the jury’s long life-expectancy finding compels the court to periodicize the judgment over a long period of time. While plaintiffs do not wish for short lives, they prefer a short periodic-payment schedule because of the principle of the time-value of money, i.e., money available today is worth more than the right to the same amount of money at a later time. Moreover, if the life-care plan is periodicized over too great an amount of time there may be insufficient funds early on for the plaintiff to obtain all necessary treatment that would prolong the plaintiff’s life.

Plaintiffs should object to the inclusion of life-expectancy questions on verdict forms as irrelevant. Section 667.7, subd. (f) of the Code of Civil Procedure does not require it, stating the court may convert the verdict into a periodic-payment judgment spaced over “whatever period is necessary.” Case law expressly provides that the periodic payment judgment need not conform to a life-expectancy finding:

Nowhere in the statutory scheme or legislative history is the court’s periodic payment schedule necessarily dependent on, nor must it directly correspond to, a plaintiff’s life expectancy.

(Atkins v. Staryhorn (1990) 223 Cal.App.3d 1380, 1397.)

If you use these three strategies, you can increase your medical-malpractice clients’ recovery of economic damages and bring them closer to full compensation for their losses.