"Present Cash Value" is an economic term that describes a future amount of money that has been discounted to reveal the current value. Present Cash Value comes into effect whenever a defendant has to make payments to you over a long course of time. Because it appears to represent a “reduction” in the compensation you will receive, the concept is sometimes hard for an injured person to accept. As experienced workers compensation attorneys, the team at Lipkin & Apter has put together more information to help you understand this complex legal issue.
Here is the bottom line of Present Cash Value. Your accident causes an injury that will affect your earning potential long into the future and/or results in your need for future medical treatment, maybe for the rest of your life. Your workers compensation case must obviously be decided at the time of trial but your lost earning capacity or need for medical treatment will continue beyond trial. Damages which will not arise until sometime in the future but which must be paid for now must be reduced to Present Cash Value. To do otherwise would require an overpayment by the workmans comp defendant, something the courts will not allow.
Let’s look at the following workers compensation case as an example. You are a 40-year-old construction worker earning $60,000 (wages and benefits), when you sustain a serious back injury that will prevent you from returning to work in that industry. You’re not permanently disabled or unable to work, but you’re just not able to go back to the construction industry or perform heavy physical labor in the future. You have other job skills and education sufficient to earn $30,000 (in wages and benefits) with another job. You always expected to retire at age 65. Therefore, you’ve sustained a wage loss or loss of earnings potential of $30,000 a year for the next 25 years.
How is this earnings loss calculated? You can’t just multiply your loss per year times the number of years (30,000 × 25 = $750,000). Why not? Because that $750,000 would be paid to you over 25 years, not at the time of trial.
Leaving aside questions such as wage growth rate and inflation, the basic questions is: What sum of money paid to you at the time of trial, invested at a rock solid, non-speculative rate of interest, will pay you $750,000 over the next 25 years? This sum is the Present Cash Value of your workers compensation case.
The higher the assumed interest rate, the lower the Present Cash Value. At trial, economic experts may offer competing opinions weighing one or another factor more heavily than the opposing expert does. However, the principle behind Present Cash Value remains the same – arriving at a sum paid today that accounts for years of payments that will not come due until the future.
The same concept applies to bills from future medical treatment. What sum of money “in today’s dollars” would pay those future medical bills? What if that knee replacement you had because of a car accident will not last a lifetime but will have to be replaced sometime in the future? Or worse, your auto accident resulted in the most serious kind of injuries, which will require constant medical care for the rest of your life? How much money will you need now to pay for that later medical treatment? There are individuals who can cost out your future medical treatment, whatever that may be, or how long the treatment may last. As long as the witness testifies to his opinion “within a reasonable degree of economic certainty”, the testimony is admissible at trial.
Besides the various economic factors that have to be taken into account, there is another significant issue that has to be considered, at least in the workers’ compensation context. In the above example, your “wage loss” without reducing it to present cash value is $750,000. This assumes you would have lived and worked until age 65.
However, the workers’ compensation insurance company will not assume that you will live to your full life expectancy. You may die in a car accident, from cancer, or in an earthquake—a thousand other ways. The only way you would be able to prove your life expectancy would be to actually live it. The law allows a workers’ compensation insurance company to pay your future benefits as they become due. That is, the insurance company does not have to pay you a single “lump sum” to resolve your case; it can elect to pay you on a weekly basis. The only way to get the carrier to agree to pay a lump sum is to appeal to its economic interests, which generally means reducing the lump sum to something less than present cash value. This entails a negotiation process, and most importantly an understanding by you, the injured worker, of this process. Ultimately, you have to decide whether you would rather have a (lesser) lump sum today or (greater) payment spread out over many years.
The attorneys at Lipkin & Apter are skilled at evaluating Present Cash Value, and have done so for numerous clients throughout the state of Illinois over the years. As experienced workmans comp and personal injury attorneys, we strive to help our clients understand the potential value of their case so that with our help, you can make the best decision for you and your family. Schedule a free consultation by contacting Lipkin & Apter today.