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New York Law Journal

March 29, 1999, Monday

Help Wanted: Consulting Economist

Michael D. Hess

In Sherri Sonin and Robert Genis's article in the Law Journal, (Jan. 27) they stated that Bryant v. HHC and Fisk v. City "have cleared the murky waters of CPLR Articles 50-A and 50-B". The reality is that the structured judgment waters are still quite cloudy. The Court of Appeals has granted leave to appeal in Bryant and will hopefully clarify the issues this spring. As most tort litigators know, CPLR 50-A and 50-B were enacted to benefit defendants in response to the medical malpractice insurance crisis. Unfortunately, as interpreted, the structured judgment and related CPLR provisions now mostly serve to grossly inflate verdicts. Under the old law, the jury rendered a verdict for past and future damages and determined a discount rate. The present value of future damages was determined and then all damages were paid in a lump sum. CPLR 50-A and 50-B were enacted to spread out over a period of years the payment of what would have been the lump sum present value of future damages by means of an annuity purchased by defendants at a lower cost than the verdict, given insurance carriers' actuarial tables. The statutes included a 4 percent additur on each year's annuity payment. At the same time that 50-A and 50-B were enacted, CPLR 4111 was amended to direct trial judges to charge the jury to award a future damage sum, not discounted to present value.

In practice, plaintiff's experts have been submitting evidence about a plaintiff's anticipated expenses, which they project will grow annually at a very generous inflation rate. They then add together each year of those future costs, as inflated, and urge juries to accept that as the total future costs, notwithstanding that a first-year economics student would know that summing future values is meaningless and improper. The value of a dollar diminishes from year to year. Thus, a dollar earned in 1999 plus a dollar earned in 2000 do not equal $ 2. The only valid method of adding dollars that will be received in future years is by discounting those future amounts to the present value and then adding the present values together. The plaintiffs have also been adding 50-A and 50-B's 4 percent increment to those already inflated and improperly-added numbers and, only then, ascertain the "present value". What this methodology results in is triple inflation, with plaintiffs and their attorneys netting a huge windfall. The attorneys, who get their fees in a lump sum, get a windfall based on the gratuitous 4 percent additur, which was intended to compensate plaintiffs for the lost time value of money. Then, the plaintiffs get an inflated award, leaving the defendants paying the bill for jury awards, boosted by the inflated economic testimony, in the millions and tens of millions of dollars. A recent judgement says it all. In Abellard v. NYC Health and Hospitals Corp., Index No. 000967/91, entered April 17, 1998, plaintiff ended up with an annual payout of $ 732,192 for institutional care, to be paid commencing in year 1 after entry of the judgment... that is $ 2,006 a day. In contrast, defendant's proposed judgment advanced an annual payout of $ 428,343, or $ 1,174 a day. Abellard, Record on Appeal at A2146. The uncontroverted evidence, however, was that plaintiff's institutional care cost $ 338,878 annually at the time of trial. Id. at A635, A636, A670, A1335-37. Thus, plaintiff will receive more than twice as much as the cost of her institutional care in today's dollars, which, if invested, will grow over the 20 years specified by the jury to sums far in excess of what the jury awarded. Defendant's methodology, in contrast, uses the present value of the future damages as the basis for the annuity calculation and adds the 4 percent as directed by the statute -- after calculation of the annual payments. The authors' mischaracterize this methodology as "double discounting"; it is simply in accord with reality and fairness.

The problem with the structured judgment statutes is that they were drafted by lawyers, without consultation with economists knowledgeable about generally accepted principles of finance. The Court of Appeals will have the opportunity to review the methodologies advocated by both plaintiffs and defendants, informed by economic principles, and adopt calculations which will more equitably represent the jury's award and the original intent underlying the structured judgment statutes.