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How Insurance Companies Calculate Car Accident Settlements

Insurance companies will value your claim based on their projections about how a case would come out if it were to go to trial. When a plaintiff wins a judgment at trial, the judgment will be for an amount of damages. Insurance adjustors deal with many different car accidents every day so they become quite efficient at valuing claims. The basic formula they use is special damages x (multiple reflecting general damages) + lost wages = settlement amount. Special damages are for the amounts that can be easily added up to determine an exact value. Medical bills are the most common example of special damages.

Once the adjustor can total your special damages, he or she will multiply that dollar amount by a figure depending on the severity of the accident and the injuries. This multiple represents the severity of the general damages. General damages are things like: loss of enjoyable activities, emotional damages such as stress and depression, and loss of consortium which is based on damaged relationships. For example, if there was not much property damage to the vehicle, and the medical records only report soft-tissue damage such as sprains or strains, the adjustor will likely multiply the specials by 1.5 or 2. On the other hand, if the property damage was severe, and the victim has experienced broken bones, or even worse, brain damage or disfigurement, then the adjustor will multiply the specials by more like 4 or 5.

Once the adjustor has that new number (the total of general and special damages) he or she will add any amount of lost wages that the victim may have experienced as a result of the injury. For example, if an injured party is forced to miss two weeks of work because of the pain, he or she would be entitled to two weeks of pay from the at-fault party’s insurance company. The resulting number is a general idea of what the insurance company thinks the claim is worth.

Keep in mind that this formula will end up setting a range in which the adjustor has authority to negotiate. You do not have to accept the exact amount of the first offer, in fact, that would be quite foolish. The adjustors are trained to obtain release from victims in exchange for the lowest amount of auto accident insurance settlement money that the victim will let the insurance company get away with.

It is also important to realize that most auto insurance companies today use a software system called Colossus. This system enables the adjustor to simply input all sorts of data and Colossus will spit out the exact range in which the adjustor is free to negotiate. This system gives different weight to each type of medical treatment received and it gives different dollar amounts for each exact symptom and injury notated on the medical records. Significant delays and gaps in treatment can signal Colossus to seriously devalue your case.

Also of note is the fact that Colossus gives weight to whether or not an attorney is involved, and the history of that particular attorney. For that reason, attempting to settle an auto injury claim on your own starts you out at an immediate deficit. An experienced personal injury attorney can make sure that your case receives the maximum possible value and can then negotiate for a settlement amount towards the top of the possible range of settlement amounts.


Photo by Jorge Franganillo


This article is offered only for general information and educational purposes. It is not offered as and does not constitute legal advice or legal opinion. You should not act or rely on any information contained in this article without first seeking the advice of an attorney.