“Post Hoc, Ergo Propter Hoc” Part II
Recap: All too often, the logical fallacy of post hoc, ergo propter hoc is applied to the events leading up to the loss by claimants, their experts, and their attorneys. The Latin term translates as "after this, therefore because of this." It can be stated otherwise as "since that event followed this one, that event must have been caused by this one."
The claimant and/or his economic loss expert must do more than simply value an adverse trend in the financial statements or earnings pattern after a particular date or event. It is not enough for one presenting damages to simply reference the before and after time sequence differences. Those presenting the damage model must establish a clear connection between the subject event and the calculated loss, reasonably and properly allowing for all other economic factors (intervening causes) and key variables.
It is vital to good claims analysis to make certain that the claim is based upon sufficient data and that there has been a proper segregation of alternative explanations for changes in the claimant's economic condition. This, plus the establishing of a connection of those calculated damages with the subject event, is an indispensable step in presenting a fair and reasonably certain economic loss claim at any stage.
When reviewing the claimant's economic damages claim, a significant question the claims person and/or the attorney must ask is whether the damage measurement is the product of reliable principles and methods or an extrapolation has occurred unjustifiably moving from an accepted premise to an unfounded conclusion.
For example, large-dollar personal injury claims for loss of income or earnings for many years into the future often produce large damage figures but just as often look unreasonable, irrelevant, and unreliable when compared with historical earnings and the likely path of future income or earnings had the injury not occurred.
Often these claims run afoul of most or all the guidelines, notably where the application of formulaic multiplication of even a small amount of lost earnings produces a large loss figure that is irrelevant and unreliable for its neglect of other important factors, those that have regularly occurred in the past and are likely to recur in the future.
An economic damages expert may testify as to future damages if that testimony is based on sufficient facts or data, is the product of consistent principles and methods, and shows the principles and methods have been reliably applied to the facts of the case. The testifying expert must explain how their experience led to the conclusions reached, why that experience is a sufficient basis for the opinion, and how the experience was reliably applied to the facts.
The key questions asked to test both relevance and reliability are:
• Was the opinion developed expressly for purposes of testifying or does it arrive naturally and directly out of independently conducted research?
• Has an extrapolation occurred?
• Has the expert accounted for and properly segregated alternative explanations?
• Is the expert being as careful as he would be in his regular professional work?
• Is the expert's claimed field of expertise known to reach reliable results?
Whether in the early stages of a claim submittal or in the midst of a state or federal court proceeding, there are great benefits to adjusters and defense counsel alike in employing these guidelines, asking these questions, and keeping the economic damage focus on relevance and reliability.
"For years we have been saying, without much visible effect, that people who want damages have to prove them, using methodologies that need not be intellectually sophisticated but must not insult the intelligence," said Judge Posner when he returned to the topic of the post hoc, ergo propter hoc fallacy in his decision in Schiller & Schmidt, Inc. v. Nordisco Corp.
"Post hoc, ergo propter hoc will not do; nor the ending of simplistic extrapolation and childish arithmetic with the appearance of authority by hiring a professor to mouth damages theories that make a joke of the concept of expert knowledge."
Steve Roberts, CPA/CFF, CFE, Founder of Veritas Forensic Accounting & Economics
Mr. Roberts drafted content with former Alaska Defense Lawyer, Tim Lynch
The claimant and/or his economic loss expert must do more than simply value an adverse trend in the financial statements or earnings pattern after a particular date or event. It is not enough for one presenting damages to simply reference the before and after time sequence differences. Those presenting the damage model must establish a clear connection between the subject event and the calculated loss, reasonably and properly allowing for all other economic factors (intervening causes) and key variables.
It is vital to good claims analysis to make certain that the claim is based upon sufficient data and that there has been a proper segregation of alternative explanations for changes in the claimant's economic condition. This, plus the establishing of a connection of those calculated damages with the subject event, is an indispensable step in presenting a fair and reasonably certain economic loss claim at any stage.
When reviewing the claimant's economic damages claim, a significant question the claims person and/or the attorney must ask is whether the damage measurement is the product of reliable principles and methods or an extrapolation has occurred unjustifiably moving from an accepted premise to an unfounded conclusion.
For example, large-dollar personal injury claims for loss of income or earnings for many years into the future often produce large damage figures but just as often look unreasonable, irrelevant, and unreliable when compared with historical earnings and the likely path of future income or earnings had the injury not occurred.
Often these claims run afoul of most or all the guidelines, notably where the application of formulaic multiplication of even a small amount of lost earnings produces a large loss figure that is irrelevant and unreliable for its neglect of other important factors, those that have regularly occurred in the past and are likely to recur in the future.
An economic damages expert may testify as to future damages if that testimony is based on sufficient facts or data, is the product of consistent principles and methods, and shows the principles and methods have been reliably applied to the facts of the case. The testifying expert must explain how their experience led to the conclusions reached, why that experience is a sufficient basis for the opinion, and how the experience was reliably applied to the facts.
The key questions asked to test both relevance and reliability are:
• Was the opinion developed expressly for purposes of testifying or does it arrive naturally and directly out of independently conducted research?
• Has an extrapolation occurred?
• Has the expert accounted for and properly segregated alternative explanations?
• Is the expert being as careful as he would be in his regular professional work?
• Is the expert's claimed field of expertise known to reach reliable results?
Whether in the early stages of a claim submittal or in the midst of a state or federal court proceeding, there are great benefits to adjusters and defense counsel alike in employing these guidelines, asking these questions, and keeping the economic damage focus on relevance and reliability.
"For years we have been saying, without much visible effect, that people who want damages have to prove them, using methodologies that need not be intellectually sophisticated but must not insult the intelligence," said Judge Posner when he returned to the topic of the post hoc, ergo propter hoc fallacy in his decision in Schiller & Schmidt, Inc. v. Nordisco Corp.
"Post hoc, ergo propter hoc will not do; nor the ending of simplistic extrapolation and childish arithmetic with the appearance of authority by hiring a professor to mouth damages theories that make a joke of the concept of expert knowledge."
Steve Roberts, CPA/CFF, CFE, Founder of Veritas Forensic Accounting & Economics
Mr. Roberts drafted content with former Alaska Defense Lawyer, Tim Lynch