The Insurance Damages and Compensation Formula in a Personal Injury Case
Published on:March 31, 2014

After an accident in which a personal injury was sustained, insurance companies start with a damages and compensation formula to determine how much to offer in a settlement. Each claim relies upon the extent of the personal injury and the degree of fault by the injured party. Here is how it works.

What an Insurance Company Must Compensate After a Personal Injury Accident

After an accident that results in personal injury, the responsible party must provide compensation for:

  • the cost of medical care, including in-patient hospital care, out-patient aftercare, prescription medication, physical therapy, etc.
  • income lost as a result of the accident, including lost wages from work after the accident and time away from work for follow-up medical treatment
  • loss of experiences, including family events, lost opportunity for educational or training classes, and social activities that may include vacations or other special events
  • a physical disability that is permanent, including disfigurement
  • emotional damages including depression, embarrassment because of physical deformities due to injuries, break downs in relationships, and anxiety

It’s relatively simple to add up the cost of medical care and the income lost in the aftermath of an accident, but determining the amount of compensation for pain and suffering, loss of experiences, and emotional damages is not straightforward. For the latter, insurance companies use a pain multiplier from 1.5 to 5 when injuries are not permanent or disfiguring. Medical expenses are often referred to as “specials” within the insurance industry.

Maximum Compensation = Pain Multiplier x Medical Expenses + Income Loss

Minor injuries use a pain multiplier between 1.5 and 2. As the severity of the injury increases, the pain multiplier moves upward. When injuries are particularly severe, the multiplier can be as high as 10.

Determining Degree of Fault After an Accident

The maximum compensation is the starting point that insurance companies use to begin the negotiations. A determination of the degree that the injured party contributed to the accident is taken into consideration. If the injured party is found to be at least partially responsible for the accident, say 25% at fault, then this amount is subtracted from and used to determine the percentage of fault by the insured, in this case, 75%. A settlement offer is based on this formula:

Settlement Offer = Maximum Compensation x Percentage of Fault

There is no formula to determine the degree of fault. It depends upon the amount of available evidence, such as witness statements or physical information, and can be subjective. After an injury, it is important to act quickly before evidence is lost that will help in your case.

The Bottom Line

Most insurance settlements are quickly resolved using these damages and compensation formulas. However, when injuries are particularly severe and a determination is made that the pain and suffering far outweigh the compensation provided, these formulas do not apply. In these cases, a consultation with a Staten Island personal injury lawyer is always recommended.

Keep in mind that these formulas do not absolutely determine the value of a settlement for a personal injury case. Rather, they give a range of the potential value of compensation for damages after a personal injury. When the mitigating circumstances are complex, a Staten Island personal injury lawyer can help you to sort through the paperwork to get you the compensation you need to get your life back on track.