Insurance companies generally pay settlement amounts on behalf of the liable party for personal injury damages. In order to understand how an insurance company calculates a settlement offer, it is important to understand what damages are. Damages are the losses a person suffers as the result of an injury. Damages can include the costs of medical treatment, the repair or replacement of ruined property, lost income including bonus and paid vacation days, the physical pain and suffering that accompany injury, and even the anxiety and depression that can follow the trauma of injury.
Insurance companies use what is called a damages formula to calculate settlement offers. Understanding this formula will help you spot low-ball settlement offers. As a negotiation tactic, insurance companies typically do not disclose their precise formula for calculating settlement amounts. None-the-less, most damages formulas follow general rules of thumb.
First, insurance adjusters add up what are called “the medical specials damages.” Often called simply “specials,” these damages are the actual medical expenses related to the injury. Then, the insurance adjusters will decide whether the injury itself sounds relatively minor or relatively major to decide how much to multiply the specials amount by. Some insurance adjusters classify soft-tissue injuries as relatively minor and what they call hard injuries as relatively major. Soft-tissue injuries are injuries to the body’s soft tissue and include injuries to the muscles, ligaments, and tendons. Hard injuries are more serious like broken bones, face disfigurement, or the types of diseases caused by environmental pollutants.
The General Formula
Insurance adjusters multiply the specials by one and half to three for soft-tissue injuries and three to five for more serious hard injuries. Then, they add on loss of income to come up with the settlement amount.
Let’s say, for example, you were hit by a negligent driver, broke a leg, had $1000 in medical expenses, and missed a day of work that would have paid you $250. The insurance adjuster might decide your broken leg is a hard injury and multiply your medical expenses by 3 to 5 which yields a settlement offer between $3,000 and $5000 plus the $250 of income you lost. If you were offered less than $3000 you would know you clearly received a low ball offer. Even if you received an offer close to $3000, you might have a good argument to ask for more.
Visit Wilson Kehoe Winingham for a reputable law firm.