Let’s face it, many lawyers are terrible at math. Hiring a lawyer who can’t do math can be a costly mistake.
For example, let’s assume someone was disabled in a car accident on December 24, 2008, such that they were not able to do their job. They would be entitled to accident benefits for their lost income, commencing on January 1, 2009. For simplicity, let’s assume they were entitled to $400 per week in lost wages, the maximum benefit, for a period of 104 weeks (at which point the disability test changes). Now, let’s say we wanted to know the value of their claim on January 1, 2013, four years after benefits were first payable (perhaps for settlement purposes). Straight arithmetic tells us that $400 x 104 = $41,600.00. In the legal field, the straight math is wrong.
Initially, it is important to note that for accidents that occurred prior to September 1, 2010, interest accrues on overdue benefits at the rate of 2% compounded monthly or 26.82% yearly, even where overdue benefits were incurred after September 1, 2010. See Federico v. State Farm Mutual Automobile Insurance Co., [2012] O.F.S.C.D. No. 20 and Subramaniam v. Wawanesa Mutual Insurance Co., [2012] O.F.S.C.D. No. 100. For accidents that occurred after September 1, 2010, the monthly rate of interest on overdue payments was reduced by the Government to 1%.
To compute the value of the overdue payments on January 1, 2013, you would use a variation of the annuity formula below:
Correcting for the fact that some months have 5 payment periods, some have only 4. So, rather than routinely struggle through complex and time consuming actuarial calculations, I had a spreadsheet programmed allowing me to instantly determine the amount of overdue benefits payable. As the below examples indicate, this can significantly affect the settlement values of my clients cases.
Using my spreadsheet, I was able to instantly determine that for a $400 benefit, payable weekly, commencing on January 1, 2009 and payable for 104 weeks, the present value on January 1, 2013 was $86,673.35, more than twice as much with interest included. While many lawyers ignore the interest component, consider the effect of this on settlement. If we assume the insurance company is willing to settle for 75% (75% is used for purposes of this example only, insurance companies typically offer closer to 30%) of the amount claimed would you rather receive $31,200 or $65,005.01?
Now, let’s look at an example where the accident occurred on December 24, 2010, such that the first payment was due on January 1, 2011. Again, we will assume a benefit amount of $400.00, and a payment period of 104 weeks. Since this example occurs after September 1, 2010 when the law changed, interest on overdue benefits is reduced to 1%, again, compounded monthly. By January 1, 2015, the present value will be $60,026.70, nearly 50% greater than the amount without interest! Clearly, it pays to hire a lawyer who knows how to do math!
To speak with Michael Lesage, founder of Michael’s Law Firm in Hamilton and Toronto ON, please call 617-495-8995 or email him at michael@michaelsfirm.ca.