To prevail in a civil lawsuit, a plaintiff must be able to establish that the defendant perpetrated a wrongful act. Moreover, to make it more than a pyrrhic victory, the plaintiff must also demonstrate that the wrongful act resulted in economic damages, such as lost profits. To do so, the plaintiff must establish the causal linkage between the defendant’s behavior and the economic harm that was sustained.
While the plaintiff’s burden to establish causation is clear, the role of the damages expert in evaluating causation in the context of the quantification of damages is not so clear. In many matters, the damages expert may be asked to assume that a causal linkage between the liability issues and damages exists. This often happens, for example, in personal injury and wrongful death matters where the claim for damages flows from a medical prognosis or injury, and there would typically be no expectation that the damage expert would offer testimony on causation.
In contrast, there are other circumstances in which the damages expert will be engaged to opine directly on causation. For example, accounting experts are often retained in professional liability matters involving accounting issues, and are expected to offer testimony related to both liability and financial harm.
In instances where the damages expert is asked to assume causation, does the damages expert need to consider the issue further, or is it adequate for the expert to assert that he/she was asked to assume causation? Again, the answer is not always clear, particularly where it may be argued that the damages are attributable to factors having nothing to do with the purported bad acts. For example, consider a breach of contract claim where a defense against the damage claim may be that manufacturing or financing issues would have precluded the plaintiff from fulfilling the contract that was breached by the defendant.
What the case law demonstrates
Not unexpectedly, expert testimony regarding damages is often challenged on the basis that the expert has failed to properly consider causation. As reflected in the case research, the outcome of challenges to that testimony varies. In some cases, the courts have ruled that the damage expert is allowed to assume causation, and does not have to do further work to evaluate the linkage between the alleged harm and the asserted damages. However in other matters, the courts have ruled that expert opinions should be excluded for failing to consider how causal issues impacted the asserted damages.
Much like the use of management supplied information, which is the subject of the first Insight in this series, there is no bright line test set by the courts with respect to expert consideration of the causal link between the liability issues and damages. There are, however, certain factors that can be gleaned from the case law that may merit consideration, whether a damages expert assumes causation, or performs formal analyses surrounding the causal link. For example, with respect to the assumption of causation, the courts appear more willing to allow expert testimony on damages when:
- The damages are most directly linked to the liability issues, such as in personal injury, wrongful death and business interruption matters.
- The expert has applied accepted methodologies to calculate the amount of damages.
- The analysis of damages does not rely on speculative assumptions, nor does it involve significant complexities that raise questions about alternative explanations of loss.
- No other obvious unaccounted-for causes of the damages are evident; and
- Multiple experts have been retained, including an expert providing reliable opinions on causation.
In situations where a damages expert has specifically opined on causation, and was challenged, the courts appear to be inclined to allow testimony when:
- The damages expert has sufficient experience with the issues presented or relies on the expertise of others with sufficient, relevant experience.
- The damages expert analyzes the damages using multiple approaches and/or methodologies and then reconciles the methodologies to evaluate whether the causation theory is supported.
- The damages expert evaluates alternative causes of loss, and either rules out other causes, or accounts for other causes in the analysis. Alternative causes of loss may include, but are not limited to:
- Economic conditions;
- Product quality issues unrelated to the alleged conduct of the defendant;
- Changes in technology such as the loss of intellectual property;
- Changes in the market such as the development or acquisition of technology by a competitor;
- Reputational harm for any reason other than the conduct of the defendant;
- A loss of key personnel; and
- Environmental issues, such as natural disasters.
As evidenced by the case law, the issue of the admissibility and reliance on expert opinions that are either based on an assumption of causation, or which reflect at least some analysis of the causal linkage between the allegations and damages often turns on the facts and circumstances of the case at hand. There is no bright line test. The courts appear to be more inclined to allow expert testimony that is premised on an assumption regarding causation when there is a ready link between the liability and damage issues, and alternative causes of loss are not evident. Similarly, the courts appear to be more inclined to admit expert testimony on the causal linkage between the allegations and damages when the damages expert demonstrates that he/she has applied the requisite expertise to the analysis, and has considered other potential causal factors in evaluating the damages.
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