Good records should support your facts and assumptions

Create a log. Save your receipts. Start and maintain a file on the case.

“Ultimately you’re going to have to document your claim, either for insurance or litigation purposes,” says Heather Bays, senior manager and director of Gleason & Associates’ economic loss practice. “While many people and companies are legitimately harmed by another’s actions, in our experience with clients and their opposition, few take the time to document their claim to fully recoup their losses.

“It’s not enough to ‘say’ you’ve been harmed. You have to prove it,” Bays explains. “Documentation is where a case either gains strength or becomes weak.”

Consider the claim of the company that said it incurred significant monthly travel expenses over a four- year period as a result of another company’s actions. Representing the defendant, Gleason & Associates asked to analyze the documentation that substantiated the claim. Fortunately for the defendant, the 12 boxes of travel receipts produced by the plaintiff failed to prove its point.

“There were no logs showing that employees had made more trips than normal. No accounting that contrasted what the plaintiff’s travel costs might have been typically. No analysis that linked the trips or expenses to extraordinary circumstances,” notes Bays. “Had the company maintained a travel and expense log as part of the ordinary course of business, notations that identified and documented the excessive trips would have made compelling evidence.”

On the other hand, the claim by a construction company that meticulously documented the costs it incurred as a result of design changes and additional work requested by a project developer stands a great chance of winning in court. In addition to keeping a contemporaneous activity journal, the contractor required its customer to sign change order requests for the additional work, tracked its expenses for the extra work separately from the rest of the project, and saved all of the change orders, payroll summaries and related cost invoices.

“For damages to be considered reasonable, the claim must be documented, and the documentation must be mathematically correct and appropriate to the circumstances of the case,” says Bays. “Documents that aren’t specific to a claim are nothing more than estimations.”

When good records go bad
It’s also critical for documents to support your claim.

In a lost profits claim involving an alleged breach of contract, the plaintiff’s revenue calculation assumed that most of the expenses it would normally incur to fulfill the contract had already occurred, resulting in a higher-than-average profit margin on the allegedly lost revenue. But not only couldn’t the company produce detailed cost accounting records and financial statements to support its incremental cost assumption, its tax returns, which showed that the company typically earned less than 10 cents on the dollar, contradicted its profitability assertion. “Even if the judge had found evidence of a contract breach,” says Bays, “based on the tax documents, the company would have been entitled to lost profits of about 9 percent of its allegedly lost revenues instead of the 50 percent profit margin it claimed.”

Excerpted from Briefly Speaking, a complimentary newsletter published by Gleason & Associates. Subscribe