TEA.14.1

Description

In most venues, an award for future pecuniary damages must be reduced to present value when the court finds a Defendant liable for those losses. The Defendant’s liability is transferred from Defendant to Plaintiff when reduced to judgment at trial.  The Damages Expert must assess the proper compensation for that transfer. In doing so, one must (1) understand the risk characteristics inherent in the financial instruments on which the discount rate is based, and (2) evaluate how those risks compare to the risk characteristics of the underlying loss.  This article focuses on the evaluation of inflation risk and market risk in assessing the appropriate transfer price.  There are two primary schools of thought regarding the appropriate discount rate to apply to future losses based, in part, on guidelines expressed by the U.S. Supreme Court in Jones & Laughlin Steel Corp. v. Pfeifer.  This article evaluates those discounting approaches, and concludes that the “Short Term Rollover Method” is more effective than the “Dedicated Portfolio Method” in the matching of inflation and market risks of the damage compensation with those of the underlying losses that are being assessed.