Causation: A Critical Link in Commercial Damage Opinions

A commercial damages expert may be asked to quantify the economic harm sustained by one party because of the actions of another. As a forensic accountant responsible for quantifying damages, it is also our job to keep things simple — explain complex situations in a not so complex way. Don’t confuse a judge or jury by making a tangled web even more tangled. But when it comes to performing the actual damages analysis, simplicity should never come at the expense of rigor, particularly when assessing whether the alleged misconduct was causally related to the economic harm being claimed.

This article addresses a common misconception, unfortunately sometimes held by damages experts: that an expert may simply assume liability and proceed directly to quantifying claimed damages without considering whether the alleged misconduct had any causal connection to the financial harm being quantified. Although experts are often asked to assume liability for purposes of their analysis, it is important to distinguish the difference between assuming liability and assuming causation.

Attorneys often instruct damages experts to assume liability. For example, the expert may be asked to assume that a breach of contract, tortious act, or other wrongful conduct occurred and will be proven at trial. However, assuming liability for an act is not the same as assuming causation when considering your methodology to capture the economic impact. Even if wrongdoing occurred, the expert must still evaluate whether that conduct caused the specific economic harm being claimed and whether other factors contributed to the outcome.

Why Causation Is Critical

Establishing a causal connection between the alleged wrongful conduct and the claimed damages serves several important purposes, including the choice of methods used to quantify the alleged losses.

First, it demonstrates that the damage analysis is grounded in facts and economic reality rather than speculation. A well-supported causal analysis strengthens the overall reliability and credibility of the expert’s opinions.

Second, evaluating causation helps ensure that the methodology only captures damages attributable to the alleged misconduct. Failure to account for other factors affecting performance can result in unreliable or speculative damages.

Finally, opinions that fail to address causation may be vulnerable to Daubert challenges or other attacks on admissibility, potentially leading to limitations on, or exclusion of, expert testimony.

A Simple Example

Consider a retailer and supplier have a contractual agreement that requires the supplier to deliver a minimum number of product units to the retailer each month (we’ll call the parties Retailer, Inc. and Supplier Co.). Supplier Co. fails to deliver the minimum quantity of product for several consecutive months, leaving Retailer, Inc.’s shelves less stocked with this popular product at a time when total sales and profits of Retailer, Inc. also declined.

Let’s say the damages expert retained by Retailer, Inc. is asked to assume liability (i.e., that Supplier Co. breached its contract by failing to deliver the minimum number of products) and to quantify the economic harm it sustained as a result of Supplier Co.’s actions.

A damages expert not focusing on the question of causation may incorrectly assume that a drop in Retailer, Inc.’s sales, which coincided with the alleged breach period, was caused by Supplier Co.’s failure to deliver product. The damages expert may begin building a lost profit model using Retailer, Inc.’s historical sales volume as a benchmark for the would-be anticipated sales revenue that Retailer, Inc. would have earned had Supplier Co. not breached its contract and supplied the minimum quantities.

If the expert stops there, however, the analysis would be incomplete.

What if other relevant events occurred during the year that may have also impacted Retailer, Inc.’s sales, such as a local competitor entering the market, a downward shift in consumer demand across the industry, or the company implementing new marketing strategies that didn’t resonate with consumers the way they envisioned?

Accordingly, each of these factors could have contributed to the decline in Retailer, Inc.’s sales independent of the alleged breach.

Economic conditions, competitive dynamics, and strategic business decisions are only a few examples of factors unrelated to the alleged misconduct that may affect performance. Because every case is different, damages experts must evaluate the specific facts and circumstances to determine whether and to what extent such factors influenced the claimed losses.

The expert should identify these other considerations directly, explaining how they were considered in the damages model. The analysis should demonstrate how the economic harm attributable to unrelated factors was distinguished from the harm allegedly caused by the wrongful conduct.

Consequences of Ignoring Causation

Courts have repeatedly scrutinized damages opinions that fail to address causation adequately.

In Education Logistics, Inc. v. Laidlaw Transit, Inc., Laidlaw agreed to use its best efforts to promote Education Logistics’ bus-routing software and to pay royalties for each bus on which the software was installed. Education Logistics alleged that Laidlaw breached both obligations. However, the plaintiff’s damages expert admitted that he had not considered any factors other than the alleged misconduct that might have contributed to the decline in sales and could not attribute the claimed lost profits specifically to the alleged wrongdoing. As a result, the court precluded the expert’s testimony.^[1]

Even where alternative causes are not readily apparent, simply assuming causation without providing supporting analysis can be problematic.

For example, in Snac Lite, LLC v. Nuts ‘N More, LLC, the plaintiff alleged that the defendant falsely advertised the protein content of its products, causing the plaintiff to lose profits. The court excluded the damages expert’s opinion because the expert assumed the defendant’s conduct caused the plaintiff’s damages but failed to provide supporting evidence or analysis establishing that connection.^[2]

These cases illustrate an important principle: assuming liability as alleged, and assuming it will be proven at trial, does not relieve a damages expert of the responsibility to causally connect the alleged acts to the methodology used to determine damages.

Best Practices

Attorneys and damages experts can take several steps to ensure that causation is adequately addressed.

1. Develop a clear understanding of the factual narrative. Counsel should ensure that the expert understands the alleged misconduct, the relevant facts, the liability assumptions underlying the engagement, and how they impacted the operations of the company.
2. Facilitate direct discussions with the client. Conversations with management and operational personnel often provide critical context that helps the expert identify potential alternative causes and frame the appropriate damages analysis.
3. Address causation explicitly in the report. The expert should explain the causal relationship between the alleged misconduct and the claimed damages, identify other factors that may have affected performance, and discuss how those factors were considered in the analysis. Supporting and contradictory evidence should be evaluated objectively.

Conclusion

Assuming liability does not mean assuming causation. A reliable damages analysis requires more than measuring a decline in financial performance; it requires determining whether the alleged wrongful conduct actually caused that decline.

When experts fail to examine causation, damages opinions risk becoming speculative mathematical exercises rather than objective economic analyses. By carefully evaluating alternative explanations and clearly articulating the causal connection between the alleged misconduct and the claimed losses, damages experts can produce more reliable, defensible, and persuasive opinions.

Reprinted with permission from the Aug. 31, 2026 edition of the “Legal Intelligencer” © 2026 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited; contact 877-256-2472 or [email protected].