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How Insurers Calculate Damages and Compensation in an Injury Claim

If you or someone you love has been in a serious accident and you’re facing the reality of a catastrophic injury, the last thing you want to worry about is how you’re going to pay for medical treatment, physical therapy, and other necessary services. 

Unfortunately, whether you need short- or long-term care, the costs of a critical injury can add up fast, and for many victims, worrying about these costs prevents them from focusing fully on their physical and mental well-being. 

While coverage from the other involved party’s insurance company might pay for some of your care, it’s unlikely to cover all your costs. That’s because insurance companies calculate compensation for catastrophic injury victims in a way that has major limitations and is based on the insurance company’s best interests — not yours. 

In this article, we’ll break down how insurance adjusters determine compensation figures in catastrophic injury claims and talk about how to determine whether the insurance company’s settlement offer might be enough to pay for the total cost of care and recovery in your case. 

What Types of Damages Exist in Personal Injury Law?

To make an informed decision about an insurance company’s settlement offer, you need to know the types of damages that the law establishes for injury victims. Usually, the liable party in a personal injury case (and, by extension, that party’s insurance company) is required to pay the victim for: 

  • Medical care and related expenses 
  • Lost income (either because the victim is unable to work or due to missed work time spent in medical treatment) 
  • Missing out on family, social, and educational activities 
  • Permanent physical disability or disfigurement 
  • Pain and suffering, both physical and emotional 
  • Property damage 

With an understanding of the typical kinds of compensation, it’s easier to understand how insurance companies try to process an initial settlement offer and why that offer rarely meets victims’ real financial needs. 

Damages Formulas and Other Factors That Insurers Consider

Insurance adjusters use a mathematical tool called a “damages formula” to begin the process of determining how much they should pay a victim for an injury. (It might sound harsh to evaluate someone’s injuries and pain based on a formula, but that’s the reality of the insurance business.) 

First, an insurance adjuster adds up the victim’s total medical expenses. Then, to account for damages that are hard to put an exact dollar figure on (like pain and suffering or missed activities), they multiply the victim’s total medical expenses by a number that’s usually between 1.5 and 5. The exact value depends on how badly the victim is injured; if the victim received only minor injuries, the multiplier number might be only 1.5 or 2, while if the injuries are especially painful and have long-term consequences, the number might be 5 or even higher. 

Finally, after deciding on the multiplier and applying it to the victim’s medical expenses, the insurance adjuster adds in the victim’s lost wages. The number that the adjuster comes up with at this point is the base figure that the insurance company generally uses to determine their initial settlement offer. 

Why the Insurance Company’s Settlement Offer Is Usually Too Low

While it’s possible that the insurance company’s first offer will give you enough money to cover all the costs of your injury without worrying about your financial situation, it’s important to remember that the insurance company’s main goal — and the insurance adjuster’s job — is to make your case go away while paying you as little money as possible. Their settlement offer has nothing to do with your physical, emotional, or financial well-being — only their own bottom line. 

Consider the fact that, according to a 2010 report from the National Traffic Highway Administration, nearly 25% of costs related to auto accidents (one of the most common sources of personal injury claims) are paid by individuals as opposed to insurers or the government. Paying 25% of the total costs can be excruciating for individuals and families when those costs rise into the hundreds of thousands of dollars, as they often do in catastrophic injury cases. 

Not only that, but catastrophic injuries tend to be complex, and they often have lots of unforeseen consequences over time. The insurance company’s calculation of your past medical bills may be accurate, but estimating your future medical bills requires an educated guess — and you can bet that the insurance adjuster’s guess will be based on saving money for their company. 

Additionally, the other involved party’s insurance company probably won’t be very transparent about the specific formula they use to determine your compensation — or the fact that they use a formula at all.

And remember, you’re under no obligation to tell the insurance company exactly how much you think you’ll need in compensation before they make you an offer. 

How Much Will You Need for Complete Care After a Catastrophic Injury?

So, if the insurance company’s formula leads to an offer that’s too low, then what is the best way for figuring out damages in a catastrophic injury case? 

Unfortunately, there is no perfect equation you can use to figure out how much your case is worth. No two catastrophic injury cases — and no two victims, and no two recoveries — are the same. That’s why calculating damages in a catastrophic injury case is a very complex process, and one that takes up a lot of time and effort during negotiations and litigation. 

There are a few general guidelines you can use, though, when you’re evaluating a settlement offer. When negotiating with an insurance company — especially as you discuss the less tangible types of damages, like pain and suffering and missed experiences — remember to think long-term. Are your injuries causing you to miss more than just one upcoming vacation? What about that semester of school that was going to bump up your pay grade? What activities have you avoided due to pain, anxiety, or physical disfigurement?  

Even though it’s difficult to estimate damages in your case without help from an expert, you can improve your chances of receiving adequate compensation by approaching the insurance company’s settlement offer with a healthy dose of skepticism. The insurance company won’t look out for your interests when calculating damages, which means that you — preferably with help from an experienced personal injury attorney — need to. 

Perry Charnoff: Advocates for Catastrophic Injury Victims in Virginia, Maryland, and Washington, D.C. 

If you or someone you love has suffered a catastrophic injury as the result of another person’s negligence, the attorneys at Perry Charnoff PLLC are here to help. Individuals living in Virginia, Washington, D.C., or Maryland can turn to us for guidance and advocacy throughout the complex process of a personal injury claim, including the time-consuming work of gathering and organizing evidence for your case. 

We use our years of trial experience and our extensive network of medical experts to advocate for victims and hold the negligent parties who caused their injuries accountable. Call us today at (703) 291-6650 or fill out our online contact form so we can schedule your free initial consultation and listen to the details of your story. 


Blincoe, L. J., Miller, T. R., Zaloshnja, E., & Lawrence, B. A. (2015, May). The economic and societal impact of motor vehicle crashes, 2010 (Revised). (Report No. DOT HS 812 013). Washington, DC: National Highway Traffic Safety Administration. Retrieved from  

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.