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Defending Economic Damages with Cost of Annuity Evidence (Anniversary Issue Litigation Quarterly March 2008)

May 1, 2008 | Daniel Kissane

Florida Statute § 768.77 requires verdicts in any personal injury or wrongful death action to be itemized and any amounts awarded for future economic losses to be reduced to present value. In determining present value, a plaintiff’s economist will invariably use the “growth factor-discount rate method” for calculating the present value of future economic damages. This method results in a present value amount that is significantly larger than it would cost to secure the same future damage payments through a guaranteed annuity contract. This article addresses techniques for defending future economic damage claims through the use of cost of annuity evidence.

As an example of the above, in utilizing the “growth factor-discount rate” method a plaintiff’s economist will determine present value of future economic damages by first determining the historical Consumer Price Index (“CPI”) in order to calculate the inflation rate or growth factor. To escape the effect of low inflation during recent history, a plaintiff’s economist will generally use the last 30 year (or longer) period of the CPI. Although inflation is presently 2.7%, and core inflation (excluding food and energy) is only 1.9%, using this historical index permits a figure of 5.5% or higher. Growing the future economic damages (either medical expenses or wages) at this rate, a plaintiff’s economist will then apply a “discount rate.” The discount rate is arrived at by determining what amount must be invested today in order to satisfy this damage cost in the future (what interest rate will be used to grow the funds). In order to maximize the amount of the present value figure, a plaintiff’s economist will use the very conservative United States Treasury 30-year bond as the yardstick to measure the interest rate (presently returning 4.4%). However, using the annuity cost method, these same future economic damages could be satisfied for a small fraction of the present value claimed by the plaintiff.

To illustrate the above, we wil use the actual figures from the case of Gold, Van & White, P.A. v. DeBerry, 639 So. 2d 47 (Fla. 4th DCA 1994). In this medical malpractice case involving a catastrophically injured child, the plaintiff’s economist testified that the plaintiff’s future economic damages totaled $173,925,775. Using the growth factor-discount rate method, the plaintiff’s economist was opined that the present value of these damages was $7,835,495. The defendant presented evidence through an annuitist that these same damages could be guaranteed through an annuity contract at a cost of $731,385 (less than 10% of plaintiff’s damage figure). The trial court excluded this annuity evidence, and the appellate court affirmed. Below are suggestions on how to build a record for a different result.

In determining future economic damages in Florida “the appropriate test is to permit the recovery of future economic damages when such damages are established with reasonable certainty.”  Miami-Dade County v. Cardoso, — So. 2d —2007 WL 225 4674 (Fla. 3rd DCA Aug. 4, 2007)(citing Auto-Owners Insurance Co. v. Tompkins, 651 So. 2d 89 (Fla. 1995)). Florida Standard Jury Instruction 6.10 provides the following guidance for the jury to calculate the “reduction of damages to present value”:

Any amount of damages which you allow for [future medical expenses], [loss of ability to earn money in the future] … Should be reduced to its present money value [and only the present money value of these future economic damages should be included in your verdict] [and both the amount of such future economic damages and their present money value should be stated in your verdict].

The present money value of future economic damages is the sum of money needed now which, together with what that sum will earn in the future, will compensate [claimant] for these losses as they are actually experienced in future years.

In adopting the model verdict form itemizing personal injury damages, the Florida Supreme Court noted that there are a variety of different methods under Florida law by which a jury can calculate the reduction of future economic damages to present value.  Appreciating that the above standard jury instruction did not provide the method for a jury to determine present value, the Florida Supreme Court commented that “the [jury instruction] committee may wish to prepare an additional instruction advising a jury on how to reduce future damages to present value.”  In Re: Standard Jury Instructions, 541 So. 2d 90 (Fla. 1989).

Responding to this directive from the Florida Supreme Court, in 1990, the Committee on Standard Jury Instructions (Civil) drafted the following comment for Standard Jury Instruction 6.10 (Reduction of Damages to Present Value):

2. The Supreme Court Opinion approving publication of basic itemized verdict forms for personal injury and wrongful death cases states:  “The committee may wish to prepare an additional Instruction advising a Jury on how to reduce future damages to present value” [citations omitted].  Designing a standard jury instruction is complicated by the fact that there are several different methods used by economists and courts to arrive  at a present value determination . . . Lumbe Yards v. Levine, 49 So. 2d 97 (Fla. 1950) (using approach similar to calculation of costs of annuity) . . . Lofton v. Wilson, 67 So. 2d 185 (Fla. 1953)

(lost stream of income approach) … Seaboard Coast Line RR v. Garrison, 336 So. 2d 423 (Fla. 2d DCA 1976) (discussing interest rate discount method and inflation/market rate discount method); and Bould v. Touchette, 349 So. 2d 1181 (Fla. 1977) (even without evidence, juries may consider the effects of inflation).

Until the Supreme Court or the Legislature adopts one approach to the exclusion of the other methods of calculating present money value, the Committee assumes that the present value of future economic damages is a finding to be made by the jury on the evidence; or, if the parties offer no evidence to control that finding, then the jury properly resorts to its own common knowledge as guided by SJI 6.10 and by argument.

As the Florida Supreme Court and the Florida Legislature have not adopted a specific method of calculating present money value of future economic damages (to the exclusion of another), then the present value of future economic damages is a finding that is to be made by the jury on the evidence at trial (see the Committee Note to SJI 6.10 above).

Guided by the above, defendants should be prepared to present competent, reliable evidence at trial to guide the jury in determining the present value of future economic damages.  There is ample support under Florida law that the cost of an annuity is an appropriate means to determine present value of future damages. For example, in Bould v. Touchette, 349 So. 2d 1181, 1185 (Fla. 1977). the Florida Supreme Court acknowledged that “courts in this country have generally approved a sum that would purchase an annuity equal to the value of the pecuniary aid which the dependents would have derived from the deceased; in other words, the present worth of such an amount as would accrue to the beneficiary based on his or her life expectancy.”

Florida law clearly supports the cost of an annuity approach to determine the present value of economic damages in a wrongful death case. Bould v. Touchette, 349 So. 2d 1181, 1185 (Fla. 1977). The same is true in determining the present value of future lost earning capacity. Cudahy Packing Co. v. Ellis, 140 So. 918 (Fla. 1930). However, for reasons that defy logic, two Florida courts have refused to reverse a trial court’s decision to exclude the same cost of annuity approach in determining future medical expenses. These two cases will be briefly summarized, with guidance on how to try for a different result.

In North Broward Hospital District v. Bates, 595 So. 2d 578 (Fla. 4th DCA 1992), the trial court refused the introduction into evidence of the cost of an annuity to fund a plaintiff’s future medical expenses.  In affirming this ruling, the Fourth District Court of Appeal noted that “evidence of the cost of an annuity to compute present value has been admitted in several Florida cases involving loss of future earning capacity, loss of support which dependents would have derived from the decedent, and in wrongful death actions.”  Id. at 578.   The Court then states “however, there is no Florida case which has authorized the jury to utilize an annuity approach in determining future medical damages, though some out-of-state decisions have so held.” Id. citing Ramrattan v. Burger King Co., 656 F.Supp. 522 (D.Md. 1987).  The Fourth District declined to follow Ramrattan, stating that “Ramrattan involved a Maryland statute which specifically directed juries to itemize the monetary award for “future medical expenses”). Id. Subsequent to the law that was controlling in Bates, Florida passed Florida Statute § 768.77 requiring personal injury and wrongful death verdicts to be itemized and therefore this prior case can be distinguished on this basis.

It is further significant to note that in the Bates decision, the Fourth District Court of Appeal specifically acknowledged “we do not address the question of what our decision would have been had the trial judge admitted the annuity evidence.”  Id. at 579.

Judge Farmer’s dissent in the Bates case is very compelling. The dissent acknowledges that Florida law “supports the admission of evidence of the cost of annuities as one way to compute the present value of future economic damages.”  The dissent opines that there is “no valid basis for allowing evidence of the cost of annuities for loss of income in the future, but not allowing annuity evidence for covering medical expenses to be incurred in the future.”  Id. at 579.  The dissent notes that the jury is faced with the identical task under both elements of future damages (calculating what sum of money awarded today will provide the injured person with the money to either replace the lost income or to pay for medical expenses needed in a distant year).  The dissent concludes:

It may well be that the cost of annuities will not be the fairest or most reasonable way of assuring future compensation.  However, that is the stuff that trials are made of.  We permit the litigants to present competent and relevant evidence on all sides of the issue, and leave it to them to convince the trier of fact of the best means of assuring that a deserving claimant is fairly compensated.  We are faced with precedent that allows annuity evidence on future economic losses, and I believe we are bound by that precedent. Bates, dissent at 579.

The issue came before the Fourth District Court of Appeal again two years later in Gold, Van & White, P.A. v. DeBerry, 639 So. 2d 47 (Fla. 4th DCA 1994).  In DeBerry, the plaintiff presented the testimony of an economist who performed the present value calculations using the growth factor-discount rate method as aforementioned. The plaintiff’s expert testified that the future value of the medical expenses was $173,925,775, and reduced to present value amounted to $7,835,495. The defendant attempted to call an expert annuitist at trial to prove that a $731,385 annuity would guarantee the payment of the future medical expenses claimed by plaintiff. The trial court made a discretionary ruling and excluded defendant annuity evidence. On appeal the plaintiff argued the annuitist’s testimony was speculative; the annuitist’s testimony was based on hearsay from underwriters; and the annuitist’s testimony was misleading. The defendant countered on appeal that the annuitist’s testimony was no more speculative than that of the plaintiff’s economist, and argued that the plaintiff’s objections concerned the weight of the evidence, rather than its admissibility. Relying upon the previous decision in Bates, the court again held that since there is “no Florida case law which authorized the jury to utilize an annuity approach in determining future medical damages;” the trial court’s discretionary ruling to exclude such evidence would be affirmed.

The reason an annuity costs less than the present value method utilized by plaintiffs is largely related to the life expectancy of the plaintiff (coupled with the better rate of return on the investment). Underwriters can determine with statistical precision the life expectancy, or rated age, of a particular plaintiff. However, for obvious strategy reasons, defendants do not want to be placed in the untenable position of arguing to the jury “the plaintiff will never live that long.” This should be done through evidence of the cost of an annuity.

As part of Florida’s 1999 tort reform effort, the legislature passed Fla. Stat.§     768.78. This statute provides the trial court discretion to permit a judgment for future economic losses exceeding $250,000 to either be satisfied by lump sum or “to be paid in whole or in part by periodic payments rather than by lump-sum payment.” This does not, however, remedy the problem. Ignoring the issue of plaintiff’s attorney’s fees on the larger figure from trial, this removes the decision from the jury and places the decision within the court’s discretion. Moreover, the jury is denied from learning the truth (i.e.: that plaintiff’s damages are really only 10% of what they are seeking), and in practice this will generally spill over into the damages beyond future economic damages (i.e.: past and future pain and suffering damages).

As evidence of the cost of an annuity to compute present value is admissible under Florida law in cases involving loss of future earning capacity, loss of support which dependents would have derived from the decedent, and in wrongful death actions, it should also be admissible to determine present value of future medical expenses. There exists no valid basis for permitting evidence of the cost of annuities for loss of income in the future, but not permitting the same evidence with respect to future medical expenses. To accomplish this goal, the defendant should be prepared to call an expert annuitist, as well as an underwriter (to overcome any hearsay objection), at trial in defense of all future economic damage claims in any personal injury or wrongful death claim.

Our team is available to discuss the topics written here and ready to provide additional information contained in this article. Contact us for more information.

About the Attorney

Daniel Kissane


Daniel J. Kissane is a partner in the Jacksonville Office. His areas of expertise include:  product liability defense litigation, personal injury defense, banking and financial, class actions, commercial litigation, construction defects, premises liability, consumer law,[...] Read more

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