Knowing the difference between economic and non-economic damages may just ensure you receive fair compensation following your injury.
Believe it or not, many people believe that damages = damages. However, injury claims are actually comprised of two distinct categories of compensation. Pairing them up (or worse… excluding one altogether) can cost you big money.
The good news? It’s pretty simple once it’s broken down.
Understanding the difference between economic and non-economic damages not only helps during a case, but can change the outcome altogether.
What you’ll learn:
- What Are Economic Damages?
- What Are Non-Economic Damages?
- The Key Differences Between Economic And Non-Economic Damages
- How Insurance Companies Calculate Damages
- The Importance Of Both For Your Injury Claim
What Are Economic Damages?
Economic damages are just as they sound. These damages represent the actual financial losses suffered as a result of being injured.
Think of things that come with a receipt. Every cost is traceable with bills, documents, and paperwork.
Here are some examples of economic damages:
- Medical expenses (past and future)
- Lost wages and loss of earning capacity
- Property damage
- Rehabilitation costs
- Out-of-pocket expenses related to injury
Essentially…
If it costs money, and there is documentation to prove it, then it’s an economic damage. If someone loses half a year of work due to a car crash, that’s economic. Half a million dollars in medical bills? You guessed it. Economic damages.
Something else to consider…
States do not cap economic damages. That means every dollar of financial loss can be recovered regardless of where the claim is filed. This may seem like minor details, but speaking with a qualified Indiana personal injury attorney about damage calculations during a legal consultation is highly recommended. There’s no harm in covering all your bases.
What Are Non-Economic Damages?
Now onto the non-economic damages. As you may have guessed, these damages do not come with a neat little receipt.
Instead, they provide compensation for the intangible costs associated with being injured. Think pain and suffering, emotional trauma, and loss of enjoyment.
The most common examples of non-economic damages include:
- Pain and suffering
- Emotional distress
- Loss of enjoyment of life
- Loss of consortium
- Permanent disability
Because non-economic damages…
Require a bit of subjectivity, they’re often contested by insurance companies. Meaning, they’ll do whatever they can to pay as little as possible for these damages. As mentioned above, some states have even placed caps on non-economic damages.
Nonetheless, they can also be astronomical depending on the injuries suffered.
The Key Differences Between Economic And Non-Economic Damages
Here’s the best way to explain economic vs. non-economic damages:
Economic damages = What was suffered financially as a result of being injured.
Non-economic damages = What was suffered emotionally and/or personally due to the injuries.
Economic damages can easily be proven with concrete evidence. Medical records, pay stubs, tax returns, etc. Non-economic damages require more personal testimony along with medical expert opinions.
Another huge difference? States placing caps on non-economic damages.
Research shows that there are currently 26 states who have caps on non-economic damages. But that number only includes medical malpractice claims. State law can drastically reduce the amount of compensation available.
Hiring a lawyer to assist with an injury claim can help identify these problems before they happen.
How Insurance Companies Calculate Damages
Starting with economic damages…
As discussed, these costs come with proof of bills and losses. Adding up medical expenses and lost wages is pretty straightforward. Many times, experts will be used to help determine the exact amount.
Non-economic damages follow…
There is no set formula when it comes to calculating non-economic damages. However, most personal injury attorneys use something called the “multiplier method.”
Essentially, the total economic damages are taken and multiplied by a number. Common multipliers range from 1.5 – 5.
Some of the factors that go into this multiplier include:
- Severity of injury
- Length of recovery
- Permanent or not
- Overall damage to person’s normal lifestyle
Let’s say John Hurt took a wreck and came away with $100,000 in economic damages. If a multiplier of 3 is used, John’s non-economic damages would be $300,000.
That means his total case value would be $400,000.
Keep in mind…
Insurance companies want to use the lowest multiplier possible. That means having the right person fighting on your behalf to even things out. According to data from the DOJ, 95% of all personal injury claims settle before trial. Any negotiation can directly impact the settlement.
Calculating damages early can help lead to the right settlement number.
Why Both Types Of Damages Are Important For Your Injury Case
Here’s what happens when people try to act smart…
They attempt to only focus on economic damages and skip all of the non-economic damages. After all, who has time to try and put a price on suffering, right?
Wrong.
Medical expenses and lost wages are important, but they don’t always paint the full picture. Someone could walk away from an accident with a million dollars in medical bills, but live a normal life after recovery.
However, if that same person suffers from permanent brain damage they may never feel the same again. Pain killers, physical therapy, loss of relationships, and many other struggles could cost them plenty on the non-economic side of things.
Economic damages and non-economic damages go hand in hand when determining settlement value. Failing to include non-economic damages not only weakens the case, but could leave compensation that doesn’t fully cover every loss.
Understanding each type of damage is key to building a strong injury case.
The Bottom Line: Damages 101
There you have it. Everything you need to know about economic damages and non-economic damages.
Once again, here are the key takeaways to remember:
- Economic damages = Financial losses suffered as a direct result of being injured.
- Non-economic damages = Pain and suffering caused by the injuries.
- Insurance companies use multipliers to estimate fair non-economic damages.
- 26 states cap non-economic damages (and that only includes malpractice claims).
- Spend the money on a lawyer and make sure each damage is calculated during the case.
Bottom line? Both damages are needed to ensure full compensation is received after an injury.
Every injury case has its own unique circumstances. Make sure to have someone that understands both categories of damages and will fight every step of the way.
Don’t leave money on the table.