O'Shea v. Riverway Towing Co.
677 F.2d 1194 (1982)
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Rule of Law:
When calculating damages for lost future wages, a court must treat inflation consistently. It must either account for inflation in both the projection of future earnings and the discount rate used to determine present value, or it must exclude inflation from both calculations.
Facts:
- Margaret O’Shea was a 57-year-old cook on a towboat operated by Riverway Towing Company.
- While disembarking from a harbor boat, she faced a seawall several feet higher than the boat's deck with no ladder.
- A Riverway deckhand instructed O’Shea, who weighed 200 pounds, to climb to a catwalk three feet above the seawall and jump down.
- The deckhand assured her that seamen already on the shore would help her land safely.
- Following the instructions, O'Shea jumped, fell, and sustained a severe leg fracture.
- The injury resulted in a permanent disability, including an unstable leg and constant pain, which prevented her from returning to work as a cook.
- Prior to the accident, O'Shea earned $40 per day and testified she was about to start a new job paying $60 per day.
- She intended to continue working until age 70.
Procedural Posture:
- Margaret O’Shea sued Riverway Towing Company in U.S. District Court under federal admiralty jurisdiction.
- After a bench trial, the district court found Riverway negligent and O’Shea not contributorily negligent.
- The district court awarded O’Shea damages exceeding $150,000, including $86,033 for lost future wages.
- Riverway Towing Company, as appellant, appealed the judgment to the U.S. Court of Appeals for the Seventh Circuit, challenging the findings on contributory negligence and the calculation of lost future wages.
- Margaret O'Shea is the appellee in the appeal.
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Issue:
In calculating an award for lost future wages, must a court account for inflation consistently by either incorporating it into both the projected future wage growth and the discount rate, or by excluding it from both?
Opinions:
Majority - Posner, Circuit Judge.
Yes. A court must account for inflation consistently when calculating damages for lost future earnings. It is illogical and indefensible to build inflation into the discount rate while ignoring it in the calculation of the lost future wages that are to be discounted, as this practice results in the systematic undercompensation of plaintiffs. The court outlined two acceptable and equivalent methods for this calculation. First, a court can remove inflation from the entire calculation by estimating future wage increases based on real factors (productivity, experience) and discounting this amount by a 'real' interest rate (1-3%) that excludes inflation. Second, a court can include inflation on both sides of the calculation by estimating future wages with an inflationary component and discounting that sum by a market interest rate that also includes an inflationary premium. The court also held that the district court's finding that O'Shea was not contributorily negligent was not clearly erroneous, as it was reasonable for her to rely on the deckhand's instructions and expertise in the absence of a safe alternative for disembarking.
Analysis:
This decision establishes the governing framework in the Seventh Circuit for calculating damages for lost future earnings, mandating a consistent and logical economic approach to inflation. By rejecting the practice of using a high, market-based discount rate while freezing future wages without an inflation adjustment, the court aligned itself with a growing majority of circuits favoring economic rationality. The opinion provides a clear methodology for future tort cases, requiring that damage calculations be an analytical undertaking rather than an intuitive one. It also places a new procedural burden on district judges in the circuit to explicitly detail the steps taken to arrive at a lost-wages award to facilitate appellate review.
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