Accident & Personal Injury Compensation Guide

If you are personally injured in an accident, you may be entitled to compensation for damages. 

When determining compensation, it is usually simple to add up the money spent and money lost, but there is no precise way to put a dollar figure on pain and suffering or on missed experiences and lost opportunities. That's where an insurance company's damages formula comes in.


How the Damages Formula Works

At the beginning of negotiations on a claim, an insurance adjuster will add up the total medical expenses related to the injury. These expenses are referred to as “the medical special damages” or simply “specials.” As a way to begin figuring out how much to compensate the injured person for pain and suffering, permanent disability, and emotional damages -- together called “general damages” -- the insurance adjuster will multiply the amount of special damages by about one-and-a-half to three times when the injuries are relatively minor, and up to five (and sometimes more) times when the injuries are particularly painful, serious, or long-lasting. After that amount is arrived at, the adjuster will then add on any income you have lost as a result of your injuries.

That total -- medical specials multiplied by 1.5 to 5 (and occasionally higher), then added to lost income -- becomes the number from which settlement negotiations begin.

Damages Formula Example

Mary was injured in an auto accident. Her medical specials --the cost of her medical treatment -- amounted to $600. There were no permanent effects from her injuries. Applying the damages formula to her claim, an insurance adjuster would begin with a figure of between $900 and $3,000 (1.5 to 5 x $600). This would then be added to Mary’s lost income of $400 to get the figure from which negotiations would begin as compensation for Mary’s injuries. Once this figure is arrived at, the adjuster would then factor in all the other variables (discussed here) to determine how much total compen­sation the insurance company was willing to pay Mary for her injuries.

Insurance Adjusters Don’t Reveal Their  Formula

During negotiations on an insurance claim, adjusters usually will not tell you what formula they use to arrive at how much they believe a claim is worth, or even that they are using any formula at all. They are following a basic rule of negotiations: Do not let the other side know how or what you are thinking. Since the insurance adjusters won’t let you know what formula they are using, it’s probably a good idea not to let them know you're thinking, either. Instead, you will simply negotiate total settlement amounts.

The Formula and the Deciding Factors

There are two important points to remember about a damages formula. One is that the figure arrived at by multiplying special damages is only the starting point for reaching a settlement amount. After this starting point is reached, other facts about the accident and your injuries come into play. The second point is that because the starting formula could be anywhere between one-and-a-half to five times specials (and sometimes even more if a higher multiplier is warranted), it can produce considerably different numbers depending on which end of this multiplier spectrum is applied to your claim.

Several things determine which end of the damages formula to apply to the special damages in your claim.

  • The more painful the type of injury you suffered, the higher the end of the formula you use.
  • The more invasive and longer-lasting your medical treatment, the higher the formula.
  • The more obvious the medical evidence of your injury, the higher the formula.
  • The longer the recovery period from your injuries, the higher the formula.
  • The more serious and visible any permanent effect of your injury, the higher the formula.

Collecting Damages

A plaintiff becomes entitled to damages in a personal injury claim once a settlement has been reached or after a judgment/award in court. Receiving the damages award and actually collecting the money, however, are two very different things.

Defendants on the hook to pay a damages award may or may not be able to satisfy the entire award and might be unwilling to pay it at all. A plaintiff’s attorney can help with the collection process by discovering undisclosed assets, placing liens on property, and even garnishing wages. Also providing motivation for defendants who owe damages is the fact that interest accrues on most damages awards until they are paid in full. If the defendant responsible for paying damages has liability insurance, the insurance company will usually pay a valid damages award or settlement without hassle, up to the liability limits.