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CPAs practicing in the field of personal injury and wrongful death damages face the challenge of a new type of damages. They are called "hedonic damages" and are named as such because the plaintiff is seeking compensation for the loss of enjoyment of life.
A discussion of hedonic damages is timely because:
1. Plaintiffs appear to be claiming this kind of loss more frequently;
2. Awards for the loss of enjoyment of life are so large that some believe they could threaten the stability of the insurance industry; and
3. Although hedonic damages have no basis in economic or accounting theory, they have been erroneously accepted as valid in some jurisdictions.
When you hear the word "hedonism," you might think of "eat, drink, and be merry." Originally, hedonism was one of the ancient Greek schools of philosophy which extolled the virtues of pursuing life's pleasures.
Today, when applied to litigation, the definition of hedonic damages is the loss of the enjoyment or value of life. Some also call it the lost intangible value of life. Those who advocate hedonics state that life is inherently worth more than just the amount of money an individual can earn. Accordingly, they believe that court awards for lost pay and for pain and suffering fall short of making the plaintiff whole.
Although musings on the value of life have historically been the domain of poets, philosophers, and theologians, more recently economists and accountants have tried to put a value on human life. On the economic front, there were early attempts in the first half of this century to evaluate human life for economic policy making and for life-insurance purposes. From the 1960s through the 80s academic accountants have tried to develop ways to add the value of human assets to a company's balance sheet.
In the early 1980s, Ronald Regan issued a presidential executive order which required Federal regulators to do cost/benefit studies to justify government...