Is There a Car Accident Settlement Formula?

There might not be a universal settlement formula, but insurers often use a "multiplier" method to estimate the value of a car accident claim.

As with personal injury cases in general, most car accident claims will settle at some point—often through the insurance claim process, before a lawsuit is even filed in court. If you’ve been injured in a car accident, the value of your injury claim is understandably a top concern. In this article, we'll cover:

  • the use of a "multiplier" in arriving at a ballpark estimate of claim value, and
  • key factors that determine the proper "multiplier" to use.

The "Multiplier" Method

In light of the fact that around 6 million car accidents occur in the U.S. each year, and given the insurance industry’s obsession with statistics, you might assume that there's a universal formula to determine the value of any injury claim when it comes time for a car accident settlement. There isn't one, but it's common for insurance adjusters to use a so-called "multiplier" method.

In this kind of calculation, the adjuster:

  • totals up the car accident claimant's medical bills stemming from the accident (sometimes called "medical special damages")
  • multiplies that number by a certain factor (typically between 1 and 5) to arrive at the potential value of the claimant's "general" damages (which includes things like "pain and suffering" and other non-financial losses, and
  • adds the medical special damages, general damages, and any lost income/diminished earning capacity damages together to arrive at an overall estimate of car accident claim value.

To apply this to a typical scenario, let’s assume that the total of your medical bills arising from your car accident is $5,000. If the insurance adjuster decided that a multiplier of 2x your medical special damages was appropriate, then at least in the adjuster’s opinion, your general damages would be worth approximately $10,000. Let's say your lost income added up to $3,000. Adding those three numbers ($5,000 + $10,000 + $3,000) would give the adjuster a ballpark estimate of $18,000 as the value of your car accident claim. But keep in mind that the adjuster in this scenario probably isn't going to come close to that $18,000 figure when making a first offer to the claimant.

What the insurance company is really trying to do here is figure out 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?

There's no universal answer here. A lot depends on the 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 1 or 1.5). 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 those kinds of medical expenses. 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 (3 or 4) might be used.

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 after the car accident? Or did you complain for the first time of the symptoms to your doctor three 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 and your health at the time of the accident. (Learn more about how much your personal injury claim might be worth, and how long it might take to resolve.)

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 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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