Is There a Car Accident Settlement Formula?

There may not be a tried-and-true method for valuing a car accident claim, but there are common variables to consider.

If you’ve been injured in a car accident, it’s natural to wonder about the value of your injury claim. In light of the thousands of car accidents each year, and the insurance industry’s obsession with statistics, you might assume that the insurance industry has developed a standard formula to determine the value of any injury claim when it comes time for a car accident settlement. This is not necessarily the case.

The statistics the insurance companies compile allow the companies to determine average values for particular types of claims. However, it is quite rare for any given claim to fit the exact profile of an average claim. The value of a claim is dependent upon dozens, if not hundreds, of individual factors. Below we’ll examine some of the more significant variables, and how they affect the value of your car accident claim.

Special Damages in a Car Accident Case

None of the insurance companies will ever admit it, but a common tool that insurance adjusters use to value an injury claim is to multiply the “special damages” by a certain factor. What are special damages? Generally speaking, special damages encompass a person’s financial losses resulting from the accident. If you’ve incurred medical expenses, that is a financial loss. If you miss work because of your injuries, your lost wages are also a financial loss.

The Insurance Adjuster Could Use a "Multiplier"

As for the “factor” mentioned above, it is the multiplier that the insurance adjuster often uses in combination with the amount of your special damages. The purpose of using a multiplier in this manner is to obtain a rough estimate of what your total claim, including physical and mental pain and suffering, might be worth. The emphasis here is on the word “estimate.” In evaluating any personal injury claim, this is just a starting point for the adjuster, and is not determinative of any final value. There is no easy equation that always produces the correct answer.

Typically, an insurance adjuster will use a multiplier of “two or three” to determine an estimated value for your claim. To apply this to a typical scenario, let’s assume that the total of your medical expenses and lost wages from the car accident is $5,000. If the insurance adjuster multiplied that sum by a factor of two then your claim, at least in the adjuster’s opinion, would be worth approximately $10,000. If the adjuster used a factor of four, your claim would be valued roughly at $20,000.

You might ask, “Why does multiplying the special damages by a factor of two or three determine the total value of my claim? Who came up with that concept?” To answer those questions we have to turn again to the statistics.

When determining a value for your claim, what the insurance company is really trying to do is to predict what a jury might award you if your car accident case goes to trial. For decades insurance companies have compiled statistics on every single personal injury lawsuit that goes to trial in every part of the country. The companies have also kept records on the hundreds of thousands of settlements they’ve negotiated.

What Circumstances Decide Which Specific Multiplier Is Used?

Again, there is no simple answer, and it depends upon the individual facts and circumstances of your particular car accident. Generally speaking, a lower amount of medical bills will indicate that a lower multiplier should be used, such as one or one and one-half. Why? Remember, the multiplier is used to give a monetary value to your physical and mental pain and suffering. A lower amount of medical expenses -- $500 for example -- suggests to the insurance company that your injuries resolved after a single visit to your primary care physician. If you only sought one instance of medical treatment, the conclusion is that the pain and discomfort from your injury either wasn’t severe or didn’t last very long.

On the other hand, if your medical expenses are much higher -- let's say $50,000 -- the insurance company knows that this number probably represents an extended hospital stay, or maybe a treatment regimen of dozens of physical rehabilitation sessions. It takes weeks, if not months, to incur medical expenses that large. So, the conclusion drawn by the insurance company is that you experienced a great deal more pain, or at least experienced pain and discomfort for a longer time. Because of that, a higher multiplier such as three, four or five might be used to value your pain and suffering.

A number of other variables also play a role in determining the value of a personal injury claim:

  • Was your injury completely new as a result of the car accident, or did the car accident merely aggravate a condition for which you were already being treated?
  • Did you seek medical attention immediately following the car accident? Or did you complain for the first time of the symptoms to your doctor three or six months after the accident?
  • Was your treatment excessive? Insurance companies rarely attach the full value of medical expenses in the areas of chiropractic treatment or physical therapy if the adjuster believes the length of treatment might be excessive.

Many more variables also affect the value of the claim, including your age, previous medical condition, and the specific circumstances of the car accident such as vehicle speeds.

It is important to remember that once an insurance company arrives at a value for your personal injury claim, you do not have to accept it. You are free to negotiate with the insurance company, or even file a lawsuit against the negligent party as a means of contesting the value of the claim. Your best first move might be to meet with an experienced attorney to discuss your options. Learn more about How an Attorney Can Help with Your Car Accident Claim.

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