Page 22 - Acertaining Economic Damages Calculation

Manpower, Inc. v. Insurance Co. of Pa., 732 F.3d 796 (7th Cir. 2013)

Manpower, Inc. (Manpower) is the parent company of Right Management, Inc. (Right). A portion of a
building in which Right leased office space collapsed, leaving Right with no access to the building.
Right eventually relocated the office but asserted that it lost income and incurred additional expenses re-
lated to the interruption of its business. Manpower made a claim for its business interruption losses, as
well as loss of property and betterments to its previous office space. In support of its claim, Manpower
retained a forensic accounting expert to quantify the business interruption losses. The insurance carrier
filed a motion in limine to exclude the expert’s opinion, arguing that it was not the product of a reliable
methodology. In evaluating the motion in limine, the district court explained that whether the calcula-
tions were reliable "turns on whether [Expert] used reliable methods when selecting the numbers used in
his calculations — specifically, projected total revenues and projected total expenses." fn 9

The district court concluded that the expert’s analysis was not reliable, specifically citing the expert’s
use of a growth rate of 7.76% to project total revenues. In deriving this growth rate, the expert compared
the total revenue for a five-month period preceding the collapse to the same five-month period in the
prior year, with the results of the comparison demonstrating that the revenues were 7.76% higher in the
prior-year period.

The carrier argued, and the district court agreed, that the chosen growth rate was not representative of
historical performance, which included negative growth for a 6-year period and a 3.8% growth rate in
the 17-month period preceding the collapse. The expert countered that he used the growth rate derived
from a shorter period because Right had recently been acquired by Manpower, and new policies and
management were instituted, which turned the company around.

In reaching its conclusion, the district court did not find fault with the methodology employed, acknowl-
edging that it was a basic growth-rate extrapolation, which a treatise cited by the court deemed to be the
simplest and most frequently used revenue-forecasting method. However, despite the use of an accepted
methodology to project growth, the district court concluded that, "[Expert’s] analysis [broke] down" at
his choice of growth rate — "one of the most important parts of the business-interruption calculation." fn
10

Further, citing the expert’s deposition testimony, the district court concluded that the expert "did little
more than assume that the growth that Right had experienced during the five months before the collapse
was the result of new management and thus would continue unabated for the next fourteen months." fn 11
The district court concluded that the expert was not entitled to uncritically accept the word of Right's
managers: "[Expert] is not an expert on business management, and thus [Expert's] conversations with
Right's managers cannot be considered a reliable basis for a revenue forecast." fn 12 Moreover, the dis-
trict court identified that the expert had not performed an economic analysis of the factors that affected

fn 9 Manpower, 732 F.2d at 801.

fn 10 Id. at 802.

fn 11 Id.

fn 12 Id.

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