Measuring Business Interruption Losses and Other Commercial Damages, 3rd Edition

CHAPTER 7Time Value of Money Considerations

Given that the plaintiff may incur a loss prior to and after a judgment date, the computation of a potential award needs to take into account the opportunity costs of past losses and simultaneously assign a present value to losses expected to occur in the future.¹ Whether the expert puts forward past losses inclusive of such opportunity costs depends on the position of the court on this issue. The discounting of future losses is more straightforward.

If it was established that a plaintiff lost a certain historical sum as a result of a business interruption, an award to the plaintiff of the exact sum would be an undercompensation. Had those monies been available at the time of the loss, they could have been invested, thus equaling a greater amount on the trial date. Therefore, a rate of return needs to be applied to convert the monies that are being awarded “late” to trial date terms. Similarly, the reasoning for discounting future losses is that if it is established that the plaintiff will lose certain sums in the future, then awarding the projected future amounts on the judgment date overcompensates the plaintiff. This overcompensation comes from the fact that the plaintiff is getting access to the sums earlier than it otherwise would in the normal course of business. The monies that are received early can then be invested and grow to an even greater amount in the future. To prevent overcompensation, a rate of return must be incorporated ...