In Pennsylvania, the work an individual performs around the house is recoverable in damages claims. Called a loss of household services, this blog looks at several household service losses and explains how they are calculated.
We’re all familiar with lawsuits involving loss of earnings due to an injury or death, but what about the work around the house that an individual or spouse performs after their job? Well, in Pennsylvania, this work is a valid claim of damages. These damages are called loss of household services, which, in layperson’s terms, is the work an individual performs around the house. In this blog we will look at some of the specific types of household service losses someone might incur after death or an injury and how to calculate them.
Household service is considered nonmarket work which includes activities someone could be paying someone else to do or doing themselves. According to The Dollar Value of a Day, a widely accepted publication based on U.S. government data used by most financial experts to determine a loss in household services, some of the specific household services can include the following:
- Inside housework: interior cleaning, laundry, and housework.
- Food cooking and clean-up.
- Pets, home, and vehicles: pet and animal care, interior decoration, building repair, exterior cleaning, lawn care, and vehicle repair and maintenance.
- Household management: financial management, and home security.
- Shopping.
There are different methods of calculating a loss of household services in a personal injury or wrongful death matter. Some of the methods include:
- Replacement cost: cost to hire an individual to perform the work.
- Market cost: what the individual’s hourly rate in the labor market multiplied by the time it would take them to complete the task.
- Housekeeper method: cost of hiring a housekeeper.
The loss period typically begins on the date the individual is unable to perform the services or has a restriction on the services they performed prior to the incident (surgery, death, motor vehicle accident, etc.). The loss typically continues for what is termed the individual’s healthy life expectancy, not life expectancy. Healthy life expectancy combines life expectancy and health status into a single measure and acknowledges functional capacity. The loss period can also cease as of the date of a medical or vocational report that states that the individual has recovered to baseline. The loss period will depend on the incident and the circumstances related to the reason for the loss.
When calculating the value of lost household service, a determination must be made of whether to rely on actual costs or statistical data. Actual cost estimates are expenses the plaintiff or estate incurred as the result of hiring a company or individual to perform services that the plaintiff or decedent performed prior to the incident that gives rise to the litigation (that they no longer can perform). The actual costs can be quantified based on receipts, bank transactions, or testimony regarding the amounts paid. For example, in a wrongful death case, if the decedent was known to mow the lawn prior to his death, and his wife had to hire an outside company to mow the lawn, the receipts for payments to the lawn service company could be used to quantify the loss.
In the absence of actual documentation of costs incurred, lost household services can be valued based on statistical data from time-use surveys such as The Dollar Value of a Day. These surveys provide statistical information regarding the average number of hours a person of a specific cohort spends performing specific services each week, as well as the statistical hourly value of the specific services. Combined with testimony regarding the specific services the plaintiff or decedent performed prior to the incident, a financial expert could reasonably quantify the value of their household services and the resulting loss from the incident. It is well recognized by the courts that a loss of household services can be awarded without actual amounts paid to third parties; however, there must be a factual basis for the claim of lost services established through depositions, testimony, receipts, or written statements.
A reduction to the calculation of lost household services for self-consumption is typically considered when a loss is caused by death and the loss is recoverable by the decedent’s estate (i.e., spouse, child, etc.). Self-consumption assumes that part of the services performed by the decedent would have been consumed by themselves and not the estate. For example, if one died, the workload for beneficiaries of their estate – such as cleaning up from meals – would be reduced by one person, as the decedent is no longer adding to the number of dishes. A value of self-consumption can be determined through various methods, such as dividing services proportionately based on household composition or relying on a statistical measure from The Dollar Value of a Day or other studies.
Calculating a loss of household services includes factors such as what services the plaintiff performed, the method to calculate the loss, the period of loss, and if self-consumption needs to be deducted. These are potential damages, and determining if a loss was incurred is just as important as the methodology used.
Allison Greenfield, CPA, CFE, and Jillian Layman, MS-FFE, are managers at J.S. Held LLC in Westmont, N.J. They can be reached at allison.greenfield@jsheld.com and jillian.layman@jsheld.com, respectively.
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Statements of fact and opinion are the author's responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.
