Disputes and Investigations:  Understanding the Causal Link in Economic Damages

By Jason Ruchaber, CFA, ASA

Healthcare valuation experts are often called upon to calculate economic damages in disputes.  This may include analysis of lost earnings (or lost profits) in cases involving a breach of contract, business interruption, wrongful termination, etc.   When developing these calculations the damages expert will commonly use an economic model that compares the income (or other measure of economic benefit) that would have been earned by the claimant, to the income that was (or will now be) earned following the alleged action(s) of the defendants.  This model, referred to as a “but/for” analysis, is simple in concept and measures economic damage as the reduction in earnings suffered by plaintiff as a result of the alleged damaging act(s).


Implicit within this model is the assumption that the reduction in earnings is caused by the action(s) of the defendant.   This connection between the alleged actions and the injury is referred to as the causal link.  It is the responsibility of the trier of fact (or jury) to determine liability, but even after liability is established, the plaintiff must show that the economic injury resulted from the defendant’s actions, and that the resulting damages can be calculated with reasonable certainty.

This means that the damages expert must conduct their analysis in a manner that shows how the economic injury is reasonably related to the actions of the defendant, and not due to unrelated factors outside the claims being brought.  Damages experts are generally asked to assume liability, as their testimony is typically given prior to the ruling on liability, but this assumption does give them license to ignore an analysis of the causal link in arriving at their calculation of damages.

By way of an overly simplified example, a physician who historically earned $400,000 per year is terminated.  The physician sues for wrongful termination and claims lost wages.  During the year following termination the physician was able only to find part-time employment earning $150,000.  The physician’s damages expert is asked by physician’s attorney to assume liability for purposes of the calculation and concludes economic damages of $250,000.  This amount was calculated as the entire difference between what the physician would have earned ($400,000) and what she actually earned ($150,000) following the termination.   If it also happens that the physician was in a car accident following their termination, and that accident resulted in their inability to work for six of the months in question, then this expert’s calculation may overstate damages by inappropriately ascribing lost wages solely to the defendant’s actions.  In reality, at least some portion of the loss was likely related to the accident (and not the defendant’s actions).  An analysis of the causal link would have brought these facts to bear on the calculation of damages.

When preparing a damages model, it is important that the damages expert develop a logical framework to connect the alleged wrongful conduct to the resulting injury, while thoughtfully examining extraneous forces unrelated to the question of liability.   In doing so, the damages expert should be prepared to answer the following questions:

  • Absent any action(s) on the part of the defendant, is it reasonable to expect that the plaintiff would have continued to earn at the same levels experienced previously? Some examples of why this may not be true might include:
    1. Changes in reimbursement or payor contracts;
    2. Changes in practice cost structure or staffing model;
    3. Changes in competitive forces;
    4. Demographic or population health impacts (e.g., COVID-19); and/or
    5. Other business interruptions (weather, construction/repairs, data breach, etc).
  • Is there a reasonable basis to believe that there is a positive correlation between the alleged actions of the defendant and the alleged damages of the plaintiff?
  • Are there any external factors that may have contributed to the economic injury experienced by Plaintiff? Examples may include:
    1. Changes in health or physical condition of the provider;
    2. Changes in licensure or medical privileges;
    3. Other lawsuits;
    4. Family matters;
    5. Sabbatical or vacation time;
    6. Personal finances; and/or
    7. Form and manner of mitigation efforts (e.g., trying to start a company instead of taking a new job).
  • Over what period of time is it reasonable for the economic injury to be sustained, and what factors might support an argument for a longer or shorter period of time?

While not an exhaustive list of questions/factors that may be specific to a given case, these questions can be helpful to counsel and to the trier of fact in helping to establish the causal link and evaluating the merits of the damages calculation.  And even when assuming liability, failure to analyze the causal link can undermine the expert’s testimony and be fatal to the case.