The basic formula insurance companies use to calculate auto accident settlements is:
special damages x (multiple reflecting general damages) + lost wages = settlement amount.
What Are Special Damages?
Special damages are losses caused by the defendant's actions that can be assigned a monetary value. The cost of these losses can easily be added up to an exact dollar amount. Common General Damages include:
- Loss of wages
- Medical Expenses
- Property damage
Once the adjuster 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 will then be used to reflect the severity of general damages.
What Are General Damages?
General damages are losses that are a direct result of the defendant’s wrongdoing but can not be assigned a specific monetary value. Examples of this include:
- Loss of enjoyable activities
- Emotional damages such as stress and depression
- Loss of consortium which is based on damaged relationships
Because there is now evidence such as bills or receipts that can help assign a specific value to general damages, they are calculated a little bit differently.
As mentioned in our previous section, adjusters assign a multiplier to the sum total of all special damages. This multiplier is what represents general damages in the auto accident settlement formula and is often referred to as the multiplier method.
The Multiplier Method
The multiplier method is essentially assigning a value on a scale of up to 5 based on the severity of your special damages and how significantly you have been impacted by the accident. In other words: the more serious the accident and injuries are, the higher the multiplier will be.
Let’s say you got into an accident where there was not much property damage to the vehicle, and your medical records only reported soft-tissue damage such as a sprain or strain. In this case, the adjuster would likely assign a multiplier of 1.5 or 2.
On the other hand, let’s say you got into an accident where the property damage was severe, and you experienced broken bones, or even worse brain damage or disfigurement. In this case, the adjuster would likely assign a multiplier of 4 or 5.
What are Lost Wages?
Once the adjuster 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 of their injury, 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 adjuster has the authority to negotiate your claim.