General Principles Governing Recovery of Economic Damages for Personal Injury


Lost Wages

A plaintiff's recovery in a personal injury action also may include an award for wages lost because of the plaintiff's injuries. Lankford and Blaze, Law of Negligence, as § 12.2(2)(d), p, 331. Generally, lost wages are proved by establishing plaintiff's rate of pay and time lost from work. Id. Plaintiff must establish both of these items with a reasonable degree of certainty. United Verde Extension Mining Co. v. LittleJohn, 279 F. 223 (9th Cir. 1922). Plaintiff's own testimony regarding his employment history and earnings history is sufficient to make a claim for lost wages. Lewis v. N.J. Riebe Enterprises, Inc., 170 Ariz. 384, 825 P.2d 5 (1992). Gross pay, as opposed to net or "take-home" pay, is the proper basis for computing lost wages. Seely v. McEvers, 115 Ariz. 171, 174, 564 P.2d 394, 297 (App. 1977). Thus, evidence of income taxes should not be allowed for the purpose of reducing the amount of damages. Id. However, it is important to note that the gross pay rule does not appear to be applicable to wrongful death actions. In re Air Crash Disaster near Chicago, Il., 803 F.2d 304 (7th Cir. 1986) (applying Arizona law). The rationale behind this rule "is that a wrongful death action involves an award for the survivor's loss of support as opposed to replacement of a plaintiff's lost earnings." Lankford and Blaze, Law of Negligence, at § 13.2(2)(3), p. 331.

The following cases have discussed the admissibility of various types of evidence on the issue of lost wages:

1. Where plaintiff made a claim for lost wages, he is required to establish by competent evidence the value of such time lost or facts from which such a value may be estimated with reasonable accuracy. White v. Breedon, 65 Ariz. 177, 175 P.2d 201 (1947).

2. It was improper for the jury to consider what the plaintiff might have earned had he gone to another city when what he might have earned was purely hypothetical. Further, it was improper to admit in evidence what the plaintiff earned in his own business during the five and a half months he operated it prior to the accident where it did not appear that the conditions that he caused the discontinuation of his business prior to the accident had ceased to exist. Valley Transportation System v. Reinartz, 67 Ariz. 380, 197 P.2d 269 (1948).

3. Traveling salesman's testimony as to estimated loss of bonuses or commissions as a result of personal injuries he suffered was admissible where such estimate was based on the record of his previous earnings and hence was not speculative. The plaintiff was entitled to show the amount he might reasonably have earned in pursuit of his ordinary occupation during the period of his incapacitation and if his earnings or a part thereof were made through commissions or fees for personal services the average of such earnings could be shown as affording a basis for estimation

of plaintiff's damages for lost wages. Phoenix Baking Co. v. Vaught, 62 Ariz. 222, 156 P.2d 725 (1945), overruled on other grounds, Brooker v. Canny, 113 Ariz. 529, 446 P.2d 929 (1968).

4. Loss of income is often shown by evidence of what the plaintiff was earning at the time of his injury, his average earnings, and his income in the preceding year. Income tax returns are clearly relevant to proving pat earnings and any reduction thereof, and failure to file tax returns is relevant when past earnings are an issue. Martinez v. Jordan, 27 Ariz.App. 254, 553 P.2d 1239 (1976).

5. Trial court did not abuse its discretion by permitting plaintiff, who was a carpenter, from seeking personal injury compensation for lost wages where, in establishing the amount of his lost wages, the plaintiff testified that carpenters were traditionally unemployed three months out of the year, despite the fact that plaintiff had been unemployed for six months prior to being employed on the project in question where he was injured. Lewis v. N.J. Riebe Enterprises, Inc., 170 Ariz. 384, 825 P.2d 5 (1992).

Loss of Earning Capacity

Personal injury plaintiffs may also seek recovery for a decrease in their future earning capacity. Mandelbaum v. Knutson, 11 Ariz.App. 148 462 P.2d 841 (1969). Plaintiff bears the burden of establishing a loss of earning capacity by presenting some evidentiary basis which would permit recovery. Standard Oil Co. of California v. Shields, 58 Ariz. 239, 119 P.2d 116 (1941). The measure of damages for loss of earning capacity is the difference between what the injured plaintiff was capable of earning before the injury and what he is capable of earning after the injury. Rollette v. Myers, 13 Ariz.App. 72, 474 P.2d 196 (1970). Factors included in making this determination include the plaintiff's "age, life expectancy, health, habits, occupation, talents, skills, experience, training and industry." Mandelbaum, 11 Ariz.App. at 149, 462 P.2d at 842. Lankford and Blaze note that the determination of loss of earning capacity "does not necessarily turn on the difference between the plaintiff's earnings before the injury and his earnings after the injury. In some circumstances, the plaintiff may have a diminished earning capacity even though his earnings have increased as of the time of trial." Lankford and Blaze, Law of Negligence, § 13.2(2)(e), p. 332. However, the fact that the injured plaintiff at the time of trial is able to make more money than he did prior to his injury is a material fact for the jury to consider as to the extent of plaintiff's damages for loss of earning capacity. Rollette, 13 Ariz.App. at 75, 474 P.2d at 199 (1970).

Loss of earning capacity is often shown by evidence of what the plaintiff was earning at the time of his injury, his average earnings, and his income in the preceding year. Martinez v. Jordan, 27 Ariz.App. 254, 553 P.2d 1239 (1976). However, prior earnings and/or the fact of prior employment need not be established to sustain an award for impairment of earning capacity. Mandelbaum, 11 Ariz.App. 148, 462 P.2d 841. The court in Mandelbaum noted that there are numerous classes of people "for whom there could be no proof as to the actual dollars' worth of their [earning] capacity. College students, children, retirees, those working without wages in a

family business, all have a capacity to earn; none could state its value." Mandelbaum, 11 Ariz.App. at 151, 462 P.2d at 844. The Mandelbaum court went on to state, however, that a plaintiff "must show that potentially, at least, he has an ability to acquire money." Id.

Lost Profits

Where plaintiff owns his own business, he may, under certain circumstances, use lost profits to establish the amount of his loss of earning capacity. However, a plaintiff may only assert a claim for lost profits if he establishes that his own services, efforts and initiative, rather than the capital invested in the business or the labors of others, is the predominant factor in producing the profits of the business. Rollette v. Myers, 13 Ariz.App. at 76, 474 P.2d at 200. In essence, the profits must be so allied to the personal efforts of the injured plaintiffs that the profits are a reflection of the plaintiff's earning capacity. Id.

Reduction of Award to Present Value

Because damages for loss of earning capacity represent compensation for a future economic benefit the award must be reduced to its "present value". Lankford and Blaze, Law of Negligence, at § 13.02(2)(e), pp. 332-333; Downs v. Sulphur Springs Valley Elec. Coop., 80 Ariz. 286, 297 P.2d 339 (1956); See also Restatement (Second) of Torts § 913A. To meet this showing, a plaintiff is required to present testimony from an expert economist to "calculate the current equivalent of money to be received in the future based on consideration of a discount rates, inflation, and available return on investments." Lankford and Blaze, Law of Negligence, Id.

The following cases and authorities have discussed the issue of damages for loss of earning capacity:

1. Prior employment does not need to be established to sustain an award for an impairment of earning capacity. However, to recover for loss of earning capacity, a plaintiff must show that, potentially at least, he has an ability to acquire money. Mandelbaum, 11 Ariz.App. at 151, 462 P.2d at 844.

2. A plaintiff, who had never been employed outside her home, was not required to present testimony that she desired to enter the labor market in order to receive compensation for her loss of earning capacity resulting from her injuries. Ball Corp. v. George, 27 Ariz.App. 540, 556 P.2d 1143 (1976).

3. Use of mortality tables is generally relevant proof in determining the amount of a plaintiff's damages for loss of earning capacity based upon the plaintiff's bodily injuries. Rogers v. Bryan, 82 Ariz. 143, 309 P.2d 773 (1957).

4. Income tax returns are clearly relevant to prove loss of earning capacity. Martinez

v. Jordan, 27 Ariz.App. 254, 553 P.2d 1239 (1976).

5. Evidence of income taxes or other deductions should not be admitted for the purpose of reducing the amount of plaintiff's damages for loss of earning capacity. Seely v. McEvers, 115 Ariz. 171, 564 P.2d 394 (App. 1977).

6. Evidence of income taxes or other deductions should be admitted for purposes of reducing the amount of plaintiff's damages for loss of earning capacity in a wrongful death action. In re Air Crash Disaster near Chicago, IL., 803 F.2d 304 (7th Cir. 1986) (applying Arizona law); Felder v. United States, 543 F.2d 657 (9th Cir. 1976).

7. The rule that a plaintiff's damages for loss of earning capacity should not be reduced by evidence of income taxes or other deductions is subject to strong and justified criticism. Because the purpose of the damage award is compensation (i.e., to place the plaintiff in the same position he would have occupied had the tort not occurred), a reduction reflecting tax deductions is necessary to accurately reflect the actual loss. The opposing rationale is that such a reduction would be speculative at best. Any problem of speculation can be mitigated significantly, however, by expert testimony on the issue presented through the same expert necessary to establish the present value of plaintiff's damages for loss of earning capacity. Lankford and Blaze, Law of Negligence, § 13.2(2)(f), p. 333.

8. In a personal injury action, the trial court committed reversible error in admitting into evidence, on the theory that such evidence tended to show plaintiff's damages for loss of earning capacity, testimony as to plaintiff's royal birth and his social and political stature in the absence of any showing as to the bearing of such evidence on plaintiff's ability to earn money. The court further held that the testimony of a witness that he was writing a biography of the life of plaintiff which he proposed to publish and sell and that plaintiff would share in the profits of this venture fell into the category of speculation and was not a proper basis for a damages award, since the book might never be published and even if it was published it was speculative as to whether it would ever produce a profit. The court further found that evidence of what persons in similar vocations commonly earn is admissible on the issue of damages for loss of earning capacity. City of Phoenix v. Mubarek Ali Khan, 72 Ariz. 1, 229 P.2d 949 (1951).

9. The fact that the injured plaintiff at the time of trial is able to make more money than he did prior to his injury is a material fact as to the extent of plaintiff's damages for loss of earning capacity. In addition, evidence of profits of a corporation started partly by plaintiff after his injuries through the introduction of the corporation's income tax returns and financial statements on the issue of plaintiff's loss of earning capacity was prejudicial and reversible error where defendant's proof of the relationship between plaintiff and the corporate entity did not show that the plaintiff's personal efforts were the predominant factor producing the profits of the corporation. Rollette v. Myers, 13 Ariz.App. 72, 474 P.2d 196 (1970).

10. Verdict making allowance to plaintiff for loss of earning capacity was not improper on the ground that it was not supported by the record, in view of evidence that plaintiff's injuries were such as to make it unlikely that her earnings would increase as they otherwise might due to her injuries and it was likely that her earnings might decrease. Barzelis v. Kulikowski, 418 F.2d 869 (9th Cir. 1969).

11. In a servant's action for personal injuries, evidence held to show that the loss of plaintiff's eye had reduced his earning capacity. United Verde Copper Co. v. Wiley, 20 Ariz. 525, 183 P. 737 (1919).

12. Shooting victim and passenger of vehicle he was driving at the time of the shooting were not entitled to an award of damages for lost profits from real estate speculation for six to eight month period after shooting when parties were indisposed to return to their business. The evidence that the parties had made several advantageous real estate transactions before the shooting, that several other people had made advantageous transactions in the month after the shooting and that the plaintiffs had resources to have made similar transactions had they been disposed to do so was speculative and insufficient to support an award of damages. Weiner v. Ash, 157 Ariz. 232, 756 P.2d 329, appeal after remand, 162 Ariz. 214, 782 P.2d 332 (App. 1989).

13. To prove lost profits, a plaintiff must establish a reasonably certain factual basis for computation of lost profits. Existence of profits cannot be nebulous although there can be some uncertainty in fixing the amount of lost profits. Rhue v. Dawson, 173 Ariz. 220, 841 P.2d 215 (App. 1992).

14. Evidence that injury to a 44-year-old truck driver would cause permanent disability of his foot resulting in a decrease of agility, poor balance, and coordination, as well as a loss of ability to tolerate jumping on his foot and a loss of normal gait warranted an instruction on plaintiff's claim for permanent loss of earning capacity. Atchison, Topeka & Santa Fe Ry. Co. v. Parr, 96 Ariz. 13, 391 P.2d 575 (1964).

15. Court held it was improper to instruct jury on loss of future earnings in the absence of sufficient proof of plaintiff's past earnings. Hirsh v. Manley, 81 Ariz. 94, 300 P.2d 588 (1956).

16. Where plaintiff presented evidence that the accident caused a permanent neurological defect in her left arm and hand and that she had the capacity to earn money, there was sufficient evidence to support a jury instruction on plaintiff's loss of earning capacity. Mandelbaum v. Knutson, 11 Ariz.App. 148, 462 P.2d 841 (1969).

17. An instruction on damages for loss of earning capacity was justified where injuries suffered by plaintiff would leave her with a permanent limp and evidence established that plaintiff was trained as a sales clerk in retail stores and that the impairment in question would seriously handicap her in doing stock work and in otherwise carrying on her normal job duties. City of Tucson v. Holliday, 3 Ariz.App. 10, 411 P.2d 183 (1966).

18. Plaintiff was entitled to instruction on permanent loss of earning power, in view of medical testimony that there was not a good union of her ulnar styloid and that she could expect pain with weather changes, as well as her statement that she was unable to perform many routine tasks without some pain and difficulty and that she was unable to adequately engage in her former work as a switchboard operator. Safeway Stores, Inc. v. Cone, 2 Ariz.App. 151, 406 P.2d 869 (1965).