Calculation of Economic Damages
The science and art of determining the “but-for”
While forensic accounting and business valuation can be used in either litigious or non-litigious matters, calculations of economic damages are exclusively undertaken within the context of litigation. This area of financial analysis, sometimes referred to as determinations of “lost profits”, often require an understanding of how businesses operate and how they might be impaired.
Calculations of economic damages are generally necessary in cases involving personal injury, wrongful termination, wrongful death, and contract disputes, although in some cases there need be no existing or prior relationship between the litigating parties in order for economic damages to have been incurred.
In economic damages cases it is imperative that a financial expert assess financial causation (the financial link between alleged damaging actions and claimed dollar-value damages), mitigation (the extent to which plaintiff might or should have reduced the claimed dollar-value damages), and mutual exclusivity (the extent to which plaintiff’s disparate claims for dollar-value damages avoid double-dipping or double-recovery).
Contract disputes, which comprise the majority of our economic damages cases, usually require that we assess the profits that might have been achieved by the plaintiff but for the alleged actions of the defendant. We will often work with experts in certain industries (such as real estate) or experts in other disciplines (such as economics) to complete our analyses.