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What is the Damage Formula Insurance Companies Use In Personal Injury Claims?

court jurisdiction Do you know how insurance companies determine the amount of damages they owe to an injured party in a personal injury lawsuit? Have you heard about a secret, mystical formula that they use to determine their payouts? Or maybe you’ve heard about computer programs that determines damage payouts. However, the formula used to calculate damages is no secret. But there are problems with it’s outcome. These problems are the result of a conflict of interests between the injured party and the insurance company.

Insurance companies are known for trying to minimize their liability and payouts in personal injury claims. Insurance companies make a profit when they minimize their expenses (payouts for damages) and maximize their revenues (premiums their customers pay). To continue to grow an insurance company and payout shareholders (if publicly traded) or reinvest for continual growth, the company has to continue to increase profits. This creates a conflict of interests between the policyholder and the person who is insured.

What is Covered By Insurance Companies in a Personal Injury Lawsuit?

There are two types of compensatory damages (damages meant to compensate for your losses and return you to the state you were in before the incident): economic and non-economic. Economic damages are those that can be easily quantified like your medical expenses and lost income. Non-economic damages are those that are ambiguous like pain and suffering or lost experience. Below is a list of the damages that are covered by an insurance company.

  • property loss—Usually pretty concrete and easy to prove.
  • medical care and related expenses—Oftentimes negotiations between the insured and the insurance company have differing viewpoint and what expenses are actually related to the incident that caused the injury (similar to pre-existing conditions when trying to qualify for medical insurance).
  • lost wages and time away from work—Usually this amount is pretty concrete and can be verified by your employer. If you work for yourself, then you can calculate and average amount that you make during the time you were away or unable to work.
  • pain and physical suffering—This is where personal injury claims being to jump into ambiguous waters. We’ll explain this calculation in the formula.
  • permanent physical disability or disfigurement——again, the amount for this claim is often ambiguous and hard to pin down.
  • loss of family, social, or educational experiences—ambiguous.
  • emotional distress—related to the amount of non-economic damages described above.

Medical expenses and lost income are generally pretty concrete, fixed amounts that you can prove in a injury claim. However, there might be dispute about what medical expenses are actually related to your incident (this is when you would need a lawyer). Damages paid for physical pain and suffering, lost experience and education, or emotional loss are harder to calculate. This is where the the formula is used.

What is the Damage and Compensation Formula?

The formula is relatively simple:

  1. Add up the total amount of medical expenses “related” to the incident of injury. These are called “medical special damages” or just “special” damages.
  2. To figure out non-economic damages like pain and suffering or lost experiences, the “special” damages are multiplied by a number usually between 1.5 and 5, but this number has been known to climb as high as 10.
  3. Add the calculated number to the total “medical special damages.”
  4. Add in lost income or lost wages
  5. Add in property damages

The Formula is Just a Starting Point for Negotiation

Insurance companies do not use this formula as a take it or leave it amount. Rather, this formula is used as a way to find a good point to negotiate how much a personal injury claim is worth. You and your lawyer can do your own calculations in order to better negotiate the amount the claim is worth from your perspective and then ya’ll will either duke it out with the insurance companies through negotiations, mediations, or in trial.


You are in a car wreck that is not your fault and you suffer back and spinal injuries. The result is that you have to spend $1200 to get your car fixed, you miss two weeks of work totalling $2000 in lost wages, and medical expenses of $5000 with future expenses that your doctor and your lawyer’s experts estimate to be around another $5000. Therefore, your “medical special damages” are $10,000.

During your recovery you couldn’t leave bed for the two weeks, you couldn’t go to work because of the intense pain you felt in your lower back, you missed your nephew’s birthday party, an important meeting at work that could have landed you a huge, new client, and you missed your anniversary date with your spouse.

Taking these non-economic losses into consideration, the insurance provider for the negligent party (the driver who T-boned you) decides to multiply your special damages by the minimal 1.5 since the duration was relatively short. Thus the total amount according to the formula would be:

total payout = (medical special damages) + (1.5 x special damages) + (lost wages) + (property loss)

$10,000 + $15,000 + $2000 + $1200 = $28,200

Factors Considered During Negotiation

After the insurance company has calculated an initial amount, they begin negotiations. Other factors will come into play that determine how much the “special” damages should be multiplied by. Non-economic damages can reach stupefying amounts but these amounts are usually reasonable given the circumstances.

Other factors that will be taken into consideration include:

  • how painful the injury was that you suffered
  • how invasive and long lasting the medical treatment is
  • how clear the medical evidence is
  • how long the recovery period is
  • how serious and/or visible any permanent effect of the injury is

All of these will be taken into consideration not because they can be more easily quantified economically but because of how easy it will be for third parties (including the insurance adjusters) to see how the incident has affected your life and your future.

Negotiating Your Personal Injury Claim

The Loewy Law Firm is here to fight for you. We know how insurance companies think and we want to be there to make sure that you are taken care of to the utmost degree. As you can see, there are many factors to take into consideration when negotiating with insurance companies. Here are some of the steps we take to ensure you get the the maximum compensation you deserve and are not a victim to the inhumane ethics of insurance companies from their constant desire to increase profit:

  • We use experts and case studies to determine the extent of your injuries, how it feels to experience them, and how it changes your life.
  • We take a careful analysis of your medical treatment to ensure that no insurance company will try to claim that your injuries and treatment are unrelated to the incident that caused them.
  • We explore every insurance policy involved in your case to ensure that the funds for your claim are available.

If you have any question about negotiating or filing an insurance claim for your personal injury case, call us today for a free consultation and get help.