“Present Value” of Future Losses: Why and When It Matters
Published .
The basic idea
A personal-injury award is usually paid as a lump sum, even when some of the losses will occur over many years. Present value is an estimate of how much money, paid now and invested at an appropriate rate, would cover a proven stream of future losses. A dollar available today can earn a return before a future bill or lost paycheck would otherwise occur. Converting future amounts to present value can therefore help keep a lump-sum award compensatory rather than treating all future dollars as though they were already due today.
When the calculation may matter
The issue most often arises with future economic losses, such as reasonably certain future lost earnings or diminished earning capacity, and may also matter when valuing future care needs or other periodic costs under the governing law. It is distinct from simply totaling medical bills or wages already lost. Maryland requires damages to rest on reasonable probability, not speculation. A long projection—especially for a child, a young worker, or a person with permanent limitations—may involve many years of expected work, medical needs, and changing costs.
Maryland procedure and evidence
Maryland’s approach depends on the claim and the evidence. In Lewin Realty III, Inc. v. Brooks, the Appellate Court of Maryland addressed future lost earning capacity. For a simple and straightforward claim that jurors can discount using ordinary knowledge, the trial court must give a present-value instruction when requested. If the calculation involves economic variables beyond ordinary knowledge, the defendant bears the burden of producing evidence to support a discount instruction; once the proper foundation is laid, the court may instruct the jury to reduce the future earning-capacity award to present value. The plaintiff must provide economic evidence for any present-value calculation the plaintiff asks the court to put before the jury. Relevant factors include the projection’s length, the nature of the claimed benefit, and the variables affecting it over time.
What the experts must account for
A sound estimate may require evidence about expected work life, education and job history, probable earnings without the injury, probable earnings with the injury, medical prognosis, future treatment and care costs, and the timing of each loss. The discount rate reflects the return available from investing money paid now; projections may also account for wage growth, medical-cost inflation, taxes, or other appropriate factors. These assumptions interact. For example, projected future wages may rise with inflation while investment return reduces the lump sum needed today. The analysis should avoid counting the same inflation or investment effect twice.
What “present value” does not mean
A present-value adjustment is not a finding that the future loss will be smaller or less real. It translates a future stream into a current lump sum. Nor does every damages category use the same calculation: past losses are not discounted, and future noneconomic damages raise different questions from future economic losses. The trial court’s instructions and the proof admitted in the particular case control.
Settlements and structured payments
In settlement negotiations, a present-value comparison can help evaluate a proposed lump sum against a schedule of future payments. The comparison depends on timing, payment guarantees, inflation protection, and the rate used to value the future stream. A structured settlement and a present-value damages calculation are related but distinct: one sets how settlement money will be paid; the other estimates the current value of losses that will occur later.
Related Maryland Cases and Authorities
Selected authority: Lewin Realty III, Inc. v. Brooks, 138 Md. App. 244, 771 A.2d 446 (2001).