Lost Earnings Review for Medical Practice
In this case, we were engaged to analyze the Insured’s claim for lost earnings resulting from an automobile accident that occurred in late 2024. The Insured is a medical doctor specializing in women’s healthcare.
To analyze the Insured’s claim for lost earnings and calculate average daily gross earnings prior to the date of loss, we were provided with their 2022 and 2023 personal and business income tax returns, as well as monthly business bank statements from the beginning of 2024 through the loss period and the Insured’s return to work on a full-time basis. Our review of the 2022 and 2023 business income tax returns indicated that the Insured possesses a 100% ownership interest in a medical practice and reports their income on a cash basis of accounting. The 2022 and 2023 returns reflect marginal growth in gross income; however, the 2024 business bank statements from the beginning of the year through the day prior to the loss reflected a decrease in the average daily gross income relative to 2022 and 2023. Accordingly, the average daily gross earnings were calculated using the 2024 earnings, as they more accurately reflected the practice’s earnings capacity prior to the date of loss.
The Insured’s average daily gross earnings by dividing actual gross earnings reflected in the business back statements from the beginning of the year through the day prior to the loss event by the number of days in that period. Expected gross earnings for the loss period were then calculated by multiplying the average gross earnings by the number of days the Insured reported being unable to work.
In addition to the earnings deposited prior to the date of loss, the statements continued to reflect deposits during the loss period. Given that the practice operates on a cash basis of accounting, the practice continued to operate on a part-time basis during the Insured’s absence. Our analysis further indicated that the actual gross earnings received during the loss period exceeded the calculated expected gross earnings.
Accordingly, we issued a report stating our opinion that the Insured did not suffer a loss of earnings, as actual gross earnings exceeded expected gross earnings during the loss period.
In response to our report, the Insured stated that they did not pay themselves wages during the loss period due to their inability to work. Despite the new information received, we maintained our opinion, as the Insured is the sole owner of the practice and the documentation shows that the practice continued to receive income exceeding the calculated expected gross earnings during the loss period.