After an auto collision, victims tend to be curious about how much they can claim. Insurance providers have specific calculations and formulas in settlements they use to calculate compensation for damages, medical bills, lost wages, and pain and suffering. Although there is no one-size-fits-all formula to give a certain amount, knowing how to calculate settlements by insurance adjusters and lawyers will assist you in going through the claims process successfully.
This manual describes how settlements are calculated, how they are affected by various factors, typical insurance company strategies, and how a personal injury lawyer can assist to secure more.
How Auto Accident Settlements Are Calculated
Insurance companies use a structured formula to estimate settlement values. The general formula looks like this:
Total Compensation=(Medical Expenses+Lost Wages+Property Damage)+Pain and Suffering Multiplier
Each case is unique, and settlement amounts vary based on injury severity, liability, and long-term impact on the victim’s life.
Key Factors That Influence Settlement Amounts
1. Medical Expenses (Economic Damages)
Medical costs are one of the most critical factors in settlement calculations. This includes:
- Emergency room visits
- Hospitalization and surgeries
- Physical therapy and rehabilitation
- Prescription medications
- Assistive devices (e.g., crutches, wheelchairs)
- Future medical costs for long-term injuries
The higher your medical expenses, the larger your potential settlement. Insurance adjusters often use medical bills as a baseline for evaluating the severity of injuries.
2. Lost Wages and Future Earnings
If you had to miss work due to your injuries, you could be compensated for:
- Wages lost during recovery
- Future loss of income if your injuries prevent you from working
- Diminished earning capacity if you can no longer perform your previous job
For severe injuries resulting in permanent disability, settlements may include lifetime earnings losses.
3. Property Damage
Your settlement should cover:
- Vehicle repair or replacement
- Damage to personal property (phones, laptops, or valuables inside the car)
- Rental car costs while your vehicle is being repaired
If your car is deemed totaled, the insurer typically compensates based on fair market value rather than the price you paid for the vehicle.
4. Pain and Suffering (Non-Economic Damages)
Pain and suffering damages compensate victims for:
- Physical pain caused by injuries
- Emotional distress, such as anxiety, depression, or PTSD
- Loss of enjoyment of life, if injuries prevent you from engaging in hobbies or daily activities
- Permanent disfigurement or disability
Since these damages do not have a clear monetary value, insurance adjusters use a multiplier or per diem method to calculate compensation.
The Multiplier Method
The insurer assigns a multiplier (1.5 to 5) based on injury severity:
- 1.5 to 2 – Minor injuries (e.g., soft tissue damage, mild whiplash)
- 3 to 4 – Moderate injuries (e.g., broken bones, long recovery time)
- 4.5 to 5+ – Severe injuries (e.g., brain injuries, paralysis, chronic pain)
Example calculation:
- Medical expenses: $30,000
- Multiplier: 3 (moderate injuries)
- Pain and suffering damages: $90,000
Total settlement: $30,000 (medical bills) + $90,000 (pain and suffering) + lost wages + property damage
The Per Diem Method
This method assigns a daily rate for pain and suffering based on the number of days the victim experiences pain.
If the daily rate is $200 and the victim takes 180 days to recover, pain and suffering compensation would be $36,000.
How Comparative Negligence Affects Settlement Amounts
California follows a pure comparative negligence system, meaning if the victim is partially at fault for the accident, their settlement is reduced by their percentage of fault.
For example:
- If a driver is 20% at fault and their total damages are $100,000, their compensation is reduced by 20%, meaning they receive $80,000.
Even if a driver is 90% at fault, they can still recover 10% of their damages.
How Insurance Companies Try to Reduce Payouts
Insurance companies use several strategies to minimize settlements:
Dealing with Insurance Companies
Insurance companies are profit-driven businesses that may:
- Deny your claim by disputing liability.
- Offer a low settlement that does not cover all your damages.
- Delay payments in hopes you will accept less money.
A lawyer can handle negotiations and ensure you receive the compensation you deserve.
1. Offering Low Initial Settlements
Insurance adjusters often make low initial offers, hoping victims will accept a smaller payout before realizing the full extent of their damages.
2. Disputing Medical Treatment
Insurers may claim:
- Certain treatments were unnecessary.
- Injuries were not as serious as claimed.
- Pre-existing conditions contributed to injuries.
3. Blaming the Victim
Adjusters might argue that you were partially at fault, reducing the insurer’s liability.
4. Delaying the Claim Process
Insurance companies may drag out the claims process, pressuring victims into accepting lower settlements due to financial hardship.
How to Maximize Your Settlement
To ensure you receive fair compensation, consider the following steps:
1. Gather Strong Evidence
- Medical records detailing your injuries
- Police reports proving liability
- Witness statements
- Photographs/videos of the accident scene
2. Document Your Losses
Keep records of:
- Lost wages and work absences
- Out-of-pocket expenses
- Daily pain and suffering journal
3. Do Not Accept the First Offer
Insurance adjusters expect negotiation. Consulting with an attorney can help you understand the true value of your claim before accepting an offer.
4. Work With a Personal Injury Lawyer
An experienced auto accident attorney can:
- Accurately calculate your damages
- Negotiate with insurance companies
- Handle legal paperwork and deadlines
- File a lawsuit if necessary
Many personal injury lawyers work on a contingency fee basis, meaning they only get paid if you win your case.
When to Consider Filing a Lawsuit
If the insurance company refuses to offer a fair settlement, filing a lawsuit may be necessary. A court case allows you to:
- Present evidence and expert testimony.
- Seek compensation for all damages, including emotional suffering.
Hold the at-fault driver fully accountable.
Legal References:
- Espejo v. The Copley Press, Inc. (2017) 13 Cal.App.5th 329. See also ABC Test, California Department of Labor.
- California Labor Code 2775 LAB. See also California Civil Jury Instructions (CACI) No. 2705. See also, for example, Bowen v. Burns & McDonnell Engineering Co., Inc. (Cal.App. 2024) .
- California Labor Code 2775 LAB.
- California Labor Code 2775(b)(1)(A) LAB.
- Dynamex Operations West, Inc. v. Superior Court of Los Angeles County (2018) 4 Cal.5th 903, 958. See also Vazquez v. Jan-Pro Franchising Internat. (2021) 10 Cal. 5th 944.
- Dynamex, supra note 5, citing Western Ports v. Employment Security Department (2002) 41 P.3d 510.
- Dynamex, supra note 5, citing Fleece on Earth v. Department of Employment & Training (2007) 181 Vt. 458.
- Dynamex, supra note 5, citing Great Northern Construction, Inc. v. Dept. of Labor (2016) 161 A.3d 1207.
- Dynamex, supra note 5, at 959-961.
- Dynamex, supra note 5, citing Dole v. Snell (10th Cir. 1989) 875 F.2d 802.
- Dynamex, supra note 5, at 959.
- Alamo Foundation v. Secretary of Labor (1985) 471 U.S. 290.
- Dynamex, supra note 5, at 961-3.
- Dynamex, supra note 5, at 962. Going into business for oneself often involves taking the following steps: incorporating as a business, advertising, obtaining any necessary business licenses, and making offers to provide business services to the public.
- Dynamex, supra note 5, citing Brothers Construction Co. v. Virginia Employment Commission (1998) 494 S.E.2d 478.
- Dynamex, supra note 5, citing Southwest Appraisal Group, LLC v. Administrator, Unemployment Comp. Act (2017) 155 A.3d 738.
- California Labor Code 2780 LAB. Examples include recording artists or their managers, songwriters, lyricists, composers, or proofers, record producers and directors, musical engineers and mixers, musicians and musical groups, vocalists, and photographers working in the music industry.
- California Labor Code 2782 LAB.
- California Labor Code 2783 LAB.
- Same.
- Same. The licensed professionals include lawyers, architects and landscape architects, engineers, accountants, and private investigators.
- Same.
- Same.
- Same.
- California Labor Code 2778 LAB.
- Same.
- Same.
- Same.
- Same.
- Same.
- California Labor Code 2776 LAB.
- California Labor Code 2777 LAB.
- California Labor Code 2778 LAB.
- California Labor Code 2779 LAB.
- California Labor Code 2781 LAB.
- S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341. Some of those factors of the Borello test are:
- whether the worker is in a distinct occupation or business,
- whether the type of work normally happens under the direction of the employer or by a specialist without supervision,
- how much skill is necessary for the work,
- who supplies the tools and workspace,
- whether or how much the worker invested in their tools or helpers,
- how long the services will be performed,
- whether the worker is compensable based on time spent on the job or upon the job’s completion,
- whether the work is within the purported employer’s regular business,
- whether the parties believe that they are creating an employer-employee relationship, and
- whether the worker can profit or lose from the work based on their managerial skill.
None of these factors are dispositive. - Same.
- Dynamex, supra note 5, at 954.
- Dynamex, supra note 5, at 956, footnote 23. Because the Dynamex decision changed independent contractor misclassification law, it had a huge impact on ridesharing companies like Uber and Lyft that rely on delivery drivers and taxi-like drivers.
- California Labor Code 2785 LAB.
- Daniel Wiessner, 9th Circuit weighs claims that Uber was targeted by Calif. contractor law, Reuters (March 20, 2024).
- California Code of Civil Procedure 338 CCP; California Code of Civil Procedure 337 CCP. While independent contractors do not enjoy these legal and financial benefits, they have more control in how they work. True independent contractors can: choose which days and hours to work, choose and use their own equipment, and take breaks whenever they want. Actual independent contractors only have to satisfy the companies that they contract with in the products and services that they provide. True independent contractors cannot be told how to provide them. They are central to the current gig economy. This is why independent contractor misclassification is a problem in employment law: Employers classify workers as independent contractors but treat them as employees. By doing so, they can control the work that is provided while also avoiding the legal obligations that are owed to employees.
- California Labor Code 226.8 LAB.
About the Author
Neil Bhartia
Neil Bhartia isn’t your typical, stuffy attorney that you see on TV. While some have their sights exclusively on money and treat their clients like a number, Neil takes a personal interest in every single client he has. As an empath, Neil understands that people that seek legal help are typically in an involuntary, and stressful situation, and he goes out of his way to diffuse the stress and educate clients on each every detail of the legal process.
