O’Shea v. Riverway Towing Co

Brief Fact Summary. O’Shea (Plaintiff) was injured when she fell getting off a boat operated by Defendant. Plaintiff was awarded money damages, which included a sum for inflation of lost future wages.

Synopsis of Rule of Law. It is appropriate to take inflation into account when determining damages for lost future wages.

Facts. Plaintiff was a cook on a towboat. She was coming off duty, and was brought to shore by a harbor boat operated by Riverway Towing Co. (Defendant). While getting off the boat, Plaintiff fell, suffering injuries. Plaintiff sued Defendant for damages. The district judge found Defendant negligent and Plaintiff free from contributory negligence, and awarded Plaintiff damages in excess of $150,000.00. Defendant appealed; disputing the amount awarded Plaintiff for lost future wages. The amount awarded Plaintiff took inflation into account, assuming an annual increase. An economist totaled up Plaintiff’s future earnings, including inflation, up to the end of Plaintiff’s estimated working career, then discounted it to reflect the present value of the award. Defendant claimed that inflation should not have been used in this calculation.

Issue. In determining damages for lost future wages, is it appropriate to adjust for inflation?

Held. Yes. Judgment affirmed.
* There is no doubt that the accident disabled Plaintiff from working as a cook on a boat. Because of her condition, age, and mental abilities, and from the fact that Plaintiff was in constant pain, it would seem unlikely that she could find gainful employment even at minimum wage to offset the losses from her job as a cook on a boat.
* Plaintiff never earned over $3,600.00 per year and in the previous year had only earned $900.00. However, previous wages do not put a cap on an award of lost future wages.
* It is appropriate to take inflation into account when determining damages for lost future wages. There are at least two ways to deal with inflation with respect to present value computations. We can assume zero inflation and then assume an interest rate on investment that could be had for zero inflation. At a two-percent real interest that would amount to $5,906.00 as the compensation for lost earnings in 1990 on a present income of $7,200.00. An alternative approach would be to use a higher discount rate based on the current ten-year interest rate and then deduct the real interest rate and then assume what is left as the expected inflation rate. Either approach is acceptable.
* The court will not reverse an award for damages for lost wages because of questionable assumptions unless it yields an unreasonable result. Defendant did not offer any economic evidence and does not object to the questionable steps in Plaintiff’s economic analysis. The court cannot say that this result was unreasonable.

Discussion. Awards of future wages must be discounted to reflect their present value. The present value amount will always be a number smaller than the total of the sum of future wages. Present value is basically the current value of a payment or payments to be made in the future. The courts must also consider inflation when awarding money damages. Inflation means that it will take more dollars tomorrow to purchase goods than it would take to purchase the same goods today. Inflation will increase Plaintiff’s award to offset the decreased future spending power of the award of money damages she receives today.