Economic losses are monetary losses that can be quantified with a reasonable degree of economic certainty and that are suffered due to the inaction or action of another party in litigation.
Economic losses can also be economic damages in litigation. If such losses are calculated with a reasonable degree of economic certainty by a qualified expert using a scientifically acceptable methodology.
Types of Economic Loss
Types of economic losses include:
- Consequential economic losses
- Pure (or Direct) economic losses
Consequential Economic Losses
Consequential losses are losses that occur as a consequence of another’s actions or negligence.
For example, if construction near a store results in damages to that store and thus the need to shut down the store for repairs, the owner has suffered consequential losses due to the inability to sell goods and earn a profit while the store is under repair.
Pure Economic Losses
Pure economic losses are direct losses that occur as a consequence of another’s actions or negligence.
For example, if construction near a store results in damages to that store and thus the need to shut down the store for repairs, the owner has suffered pure or direct losses associated with the cost to repair the store.
How are Economic Damages Recovered?
Economic damages can be recovered through negotiation and ultimate settlement between the aggrieved party and the party who caused the damages.
If no settlement between the parties is reached then the next avenue for resolution is legal. Through mediation, arbitration, or litigation a third party trier-of-fact is involved in determining the damages that will be awarded, if any, to the aggrieved party.
Calculating Economic Losses and Damage
A lost profit analysis based on historic sales or another appropriate yardstick can be used to determine lost profits (consequential losses) from the store closing in the construction example above.
To calculate consequential losses or damages, an economic expert well versed in finance economics, accounting as well as statistical analysis and research methods will be critical for accurate calculation of such losses.
An accurate accounting of the costs associated with, for example, repairs to the store along with verifiable documentation of such costs will be necessary to calculate pure losses.
To calculate pure losses or damages an economic expert well versed in forensic accounting techniques will be critical for accurate calculation of such losses.
DMA Economics is a leader in providing damage calculations including consequential and pure losses using rigorous analyses that are clearly communicated to triers-of-fact. For more information on how we can help you, contact us today.