Scott D. Gilbert - Business Liability and Economic Damages, Second Edition

Business Liability and Economic Damages

Business Liability and Economic Damages

Second Edition

Scott D. Gilbert

Business Liability and Economic Damages, Second Edition

Copyright Business Expert Press, LLC, 2020.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any meanselectronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 250 words, without the prior permission of the publisher.

First published in 2020 by

Business Expert Press, LLC

222 East 46th Street, New York, NY 10017

www.businessexpertpress.com

ISBN-13: 978-1-94944-317-2 (paperback)

ISBN-13: 978-1-94944-318-9 (e-book)

Business Expert Press Economics and Public Policy Collection

Collection ISSN: 2163-761X (print)

Collection ISSN: 2163-7628 (electronic)

Cover image licensed by Ingram Image, StockPhotoSecrets.com

Cover and interior design by S4Carlisle Publishing Services Private Ltd., Chennai, India

First edition: 2016

Second edition: 2020

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.

Abstract

Businesses exist to provide goods and services to customers, and in doing so they take risks. Among these risks is the chance of losing money in lawsuits filed by customers, employees, and others negatively impacted by the business. Insurance provides some protection against these liabilities, but lawsuits still take their toll. This book covers the subject of economic damages and its role in insurance claims, lawsuits, and injunctions against businesses. After reading and understanding this book, the reader will be able to identify economic damages as a component of business liability, describe the business risk posed by economic damages, explain some key determinants of economic damages, and estimate economic damages and business loss in a variety of cases.

Keywords

business dispute; business liability; economic damages; economic model; insurance claim; lawsuit; personal injury; present value; risk; wrongful death; antitrust

Contents

Lets be honest. Theres not a business anywhere that is without problems. Business is complicated and imperfect. Every business everywhere is staffed with imperfect human beings and exists by providing a product or service to other imperfect human beings.

Bob Parsons (Go Daddy founder)

Businesses exist to provide goods and services to customers, and in doing so they take risks. Among these risks is the chance of losing money in lawsuits filed by customers, employees, and others negatively impacted by the business. Insurance provides some protection against these liabilities, but lawsuits still take their toll. This book covers the subject of economic damages and its role in insurance claims and lawsuits against businesses.

Economic damages are a loss to society that can be usually valued in terms of some market equivalent. As such, economic damages are a reasonably objective and predictable component of liability risk. Business managers and students working toward a business degree can and should get a handle on economic damages as a business liability. This book shows you how, by introducing the relevant economic fundamentals and applying them to a range of lawsuit examples, including business interruption, contract disputes, wrongful employment practices, and claims of personal injury and wrongful death.

My goal is for you to be able to do the following, by the end of this book.

1. 1.Identify economic damages as a component of business liability.
2. 2.Describe the business risk posed by economic damages.
3. 3.Explain the key determinants of economic damages.
4. 4.Estimate economic damages and business loss in a variety of cases.

To accomplish these goals, we apply economic principles and some understanding of financial, insurance, and labor markets. We identify roles for statistics and probability to clarify issues of economic damages. Also, the idea of economic damages is part economics and part law, so we need some understanding of legal principles and institutions. It is common these days for economists to discuss legal principles and for legal scholars to discuss economics principles, the confluence of which is the research field known as law and economics. There is even talk of having an economist serve on the U.S. Supreme Court! But I am no lawyer and nothing in this book constitutes legal advice. If you need legal advice, consult a lawyer. Also, the book discusses business decisions as they generally relate to economic damages, but does not contain advice for any specific business faced with a particular liability issue.

This book took much longer to finish than I had intended, and for their great patience and support I thank the folks at Business Expert Press, including Executive Acquisitions Editor Scott Isenberg. I also thank my family (Barbara and Sydney) for their support and forgiveness for stolen nights and weekends devoted to this project.

I am delighted to have the opportunity to prepare this second edition. Since writing the first edition, I completed another book Multi-Market Antitrust Economics that focused on some themes important for businesses worried about liability and economic damages. This edition of Business Liability and Economic Damages includes a new chapter on this topic. Also, some topics in the first edition have expanded discussion in this edition, reflecting recent research and published works. These expanded topics include worklife expectancy and hedonic damages.

I am grateful to Business Expert Press for this opportunity, and for detailed comments on the first edition, I thank David Schap, who also published a review of the book in the Journal of Legal Economics .

Business Liability

Liability does apply with respect to the amount of the oil spill.

Ken Salazar, U.S. Secretary of the Interior,
addressing the Gulf Oil Spill in 2010

Learning Objectives

1. 1.Describe the concept and scope of business liability.
2. 2.Summarize the effects of insurance and business organization on liability.
3. 3.Explain the role of courts, mediation, and arbitration in addressing liability claims.

What Is Business Liability?

For business owners, opportunities to sell goods and services are exciting. But revenue and profit usually require significant resources, and many businesses incur liabilities debts or other obligations owed to others along the way. Liability includes loans borrowed to finance the business and other obligations spelled out in business contracts. If a business fails to meet its contractual obligations, a liability remains and those owed will seek compensation so long as it remains profitable to do so.

Sometimes the consequences of business liability are easy to predict and plan for; other times not. For a business loan backed by equity in the business, the lender goes after the equity if the loan goes unpaida predictable outcome. Actual debt recovery may take considerable time and expense, but this contingency is relatively easy to plan for. Many other standard business contracts entail liabilities that are fairly easy to foresee, but not all. Furthermore, the scope of business liability extends beyond contracts, and the great reach of potential liability makes it even harder to foresee. This book focuses on business liabilities whose consequences are relatively hard to predict, but can nevertheless be identified and prepared for in some way.