Claims for Lost Earnings of Business Owners Tricky
The ways in which the claim arises are many and varied, but often, plaintiffs will seek to recover allegedly lost earnings of a self-employed business owner by proving the lost profits of the business. This claim and the defenses against it can be somewhat complicated.
The first inquiry, where the injured party is self-employed and derives his income from the profits of a business, is to determine whether the profits of the business measure the injured plaintiff’s earning capacity, or the earning capacity of the business itself. Featherly v. Continental Ins. Co., 73 Wis.2d 273, 276-77, 243 N.W.2d 806 (1976). If the profits arise entirely or substantially out of the personal endeavors of the injured plaintiff, evidence of the diminution of profits may be received as bearing on the plaintiff’s lost earning capacity. If, however, the income of the business is chiefly the result of the services of others or investments, the profits obtained by the business are inadmissible as evidence of the injured party’s earning ability.
A plaintiff seeking to establish business profits as evidence relating to a claim of loss of personal earning capacity must clearly connect the plaintiff’s injury with the lost profits of the plaintiff’s business. Such foundational evidence includes the character and magnitude of the business including the number and value of other employees, fluctuations in value of the product and the market, the capital and assistance employed in the business, fluctuations in costs of labor and materials, the quality and value of the plaintiff’s services in the business before the accident, and the amount of profits of the business.
The idea is to prove the value of the plaintiff’s services before the injury, thus throwing light on the plaintiff’s earning earning capacity as connected to the profits of the business. Evidence of the amount of profits should not be received until all the other necessary elements are shown. The case law requires a clear causal relationship between the injury and the value of the lost earning capacity in order to compensate an injured plaintiff.
Businessman photo courtesy vandelizer’s flickr account via this creative commons license.
