Conclusion

Pre-settlement lawsuit funding should be considered as a last resort, after all other funding options are exhausted. Due to the high cost of this type of funding,

Legal Issues

In order to avoid usury laws (laws against charging excessive rates of interest), the funds you receive from a pre-settlement funding company will not be described as a "loan". For example, the advance might be described as a "cash advance", 'investment", or as "venture capital". Technically, as the contract is not to repay the amount received but is instead a promise to pay a portion of any eventual verdict or settlement (which may never occur), these amounts are not loans. No matter what happens, a person who receives pre-settlement funding keeps the full amount of the advance.
A Michigan court recently held invalid a lawsuit funding contract where the defendant's liability had been established, holding that as the plaintiff was certain to recover some amount of money the funding company's advance was no longer contingent, and thus that the plaintiff only had to repay the principal (without interest) under Michigan's usury laws. While other states may draw different conclusions from similar facts, it remains necessary that the amount be in some manner contingent - otherwise, it is a high interest loan.
An Ohio court similarly discharged a plaintiff's obligation under a lawsuit funding contract on the basis of a common law doctrine called "champertry" - a prohibition against the sale of a party's interest in a lawsuit. The court's rationale was that lawsuit funding company sought to profit from the injured woman's case, that lawsuit funding could create a disincentive to settle a case, where the plaintiff would have to pay the entire amount of the settlement to the finance company. A response to the first argument is that if it is acceptable for an attorney to profit from an injured person's case, why should it not be permissible for a finance company? A response to the second argument is that had the woman not received the funding, she may have been forced to settle the case for far less than its value.
Another concern might be that lawsuit funding might encourage plaintiffs to file frivolous lawsuits. This, however, does not consider the fact that lawsuit funding companies want to be repaid, and thus aren't likely to offer funds to plaintiffs who don't have strong cases justifying substantial awards. Similarly, it will often be in the strongest cases that a plaintiff is most in need of money before the conclusion of a lawsuit, and the absence of sources of funding can force premature and inadequate settlements.

Ethical Issues

A question that perhaps seems obvious is, why can't injured people simply borrow money from their lawyers? The answer is that state bar associations recognize that when a lawyer becomes a creditor to a client, a conflict of interest is created that may interfere with the attorney-client relationship.
Sometimes an attorney won't want to sign any contract with a settlement financing company, and some states prohibit lawyers from signing onto liens of the type necessary to secure this type of funding. As a result, typically companies require that the injured person sign the contract, and that the attorney sign an acknowledgement of the client's instruction that the loan and associated fees be repaid from any eventual verdict or settlement.
At least one state (Florida) prohibits lawyers from participating in the settlement funding company's evalaution process. Absent lawyer invovlement, it is unlikely that a finance company would be able to obtain enough information about a case to risk issuing non-recourse funding.

When Is Pre-Settlement Funding Appropriate?

Litigation can take a very long time. Sometimes, cases drag on for years. While cases are pending, even where an injured person's attorney is paying all of the legal expenses associated with the litigation, the injured person has to have enough money to get by. If the injured person is unable to work, has reduced income, or has expenses associated with care or disability, it may not be possible to wait until the end of the lawsuit before obtaining funds.
Given the fees involved in pre-settlement funding, it is important for injured people to consider any available alternatives. This type of financing should ordinarily be the last resort. The fees are premised upon the risk to the lender associated with non-recourse lending, but keep in mind that these companies choose their cases carefully in order to minimize risks, and if they offer you an advance they believe that you will receive money from your lawsuit. If you decide to obtain pre-settlement funding you should check with several companies, in order to obtain the most favorable terms.

How Pre-Settlement Lawsuit Funding Works

An injured person contacts a company that offers pre-settlement lawsuit funding, sometimes at the suggestion of an attorney. The finance company contacts the lawyer who is handling the case, and obtains information about the case. Based upon that information provided, the loan company estimates the value of the likely eventual settlement or verdict, and offers a cash advance to the injured person based upon that estimate. The fee may be a flat fee, or a monthly fee that accrues each month the loan is outstanding. When the case settles, or the defendant pays after losing in court, the loan and associated fees are paid to the finance company.
These advances are offered as non-recourse funding, which means that an injured person has no obligation to repay if the lawsuit is lost. Similarly, if the ultimate settlement or verdict is smaller than anticipated, the amount that must be repaid never exceeds the amount of the injured person's share of that verdict or settlement. For legal reasons, these advances are not characterized as loans.
Amounts available vary significantly, depending upon the nature of the case and the company involved. Many companies offer pre-settlement funding amounts between $500 and $25,000. A few offer amounts up to $100,000. Fees also vary depending upon the company and the type of case. Some companies will fix the fee for the advance up front. Others will charge a monthly fee for each month between the time the funding is issued and when it is repaid, sometimes as high as 15% per month.

Overview

Pre-settlement lawsuit funding usually comes in the form of non-recourse cash advances, provided to the injured person in return for a promise to repay the advance after the lawsuit settles or a victory in court. As this is "non-recourse" funding, an injured person does not have to repay the advance if they are unsuccessful in the lawsuit, and only has to repay up to the amount of their share of the settlement in the event that the settlement is smaller than anticipated. Due to the risk involved in issuing a non-recourse funding, the fees associated with pre-settlement funding can be significant. There are legal, ethical, and practical issues which should be taken into consideration, if you are considering applying for pre-settlement fun

Get Medical Care (See a Doctor)

If you are in a state such as Michigan, where no fault insurance law covers medical treatment necessitated by an automobile accident, and don't seek medical care, you may later find that you are unable to obtain "no fault" benefits for your injuries - your insurance company may argue that your injuries arose from something that happened after the accident.
If you are injured in the accident and sue the other driver, you may similarly find that the other driver argues that your injuries were not related to the accident.
Also, the "adrenaline rush" from the accident can mask your symptoms -- a physical examination may reveal an injury that you do not yet feel.Tell the doctor if you have any loss of memory, headache, blood or fluid in your ear, dizziness, tinnitis (ringing in the ears), disorientation, nausea, confusion, or any other unusual physical or mental feeling. Many people hit their heads, or suffer brain injuries in automobile accidents, and don't realize that they are injured -- it is best to be safe, by reporting your symptoms so that the doctor can rule out the possibility of a concussion If you wish to hire a personal injury lawyer, you may find ..

Do Not Admit Fault

Even if you think you are at fault, do not admit liability. There may be factors which you don't know, which played a role in the accident, and it may turn out that the other driver was more at fault than you.
Do not make statements to anybody at the accident scene, except for the police. When you speak to the police, tell them only the facts of what happened. Let the officers draw their own conclusion from the facts.

Obtain Information

In any accident, you should obtain the following information about:
The other driver: Name, address, driver's license number, insurance information, and license plate number.
Witnesses: Name, address, and telephone number.
Police officers: Ask the police officer's who investigate the traffic scene to provide you with a business card, with the "incident number," so that you can obtain an accident report. Most officers will provide this information to you, even if you don't ask.
The location: You may wish to take notes about where the accident occurred, the road conditions, speed limits, traffic control devices, the weather, and the lighting.
The accident: You may wish to take notes about how the accident occurred, such as the direction of travel of the vehicles involved in the accident, and what the cars were doing at the time of the collision.
Be aware that if litigation results from the accident, you may have to share your notes with somebody that you are suing, or somebody who is suing you

Safeguard The Injured

If somebody is injured, and you are trained in administering first aid, try to help. Do not move an injured person. Have somebody call the police to report the accident. The person who contacts the police should tell the police that people are injured, if possible also providing the number of injured persons, so that enough emergency personnel respond to the scene. If you are on the roadway, turn your flashers on, or use flares to warn approaching traffic of the accident

Stay At The Scene

If you are involved in an accident involving injury, or substantial damage to property, stay at the accident scene until the police tell you that you can leave. If you have any question about whether the damage caused by the accident is substantial, err on the side of caution -- when the law requires you to wait for the police, leaving the scene of an accident can result in driver's license sanctions and even criminal charges

Automobile Accident Law

Unfortunately, at some time in our lives, most of us will experience an automobile accident. When you are in a car accident, even if you are not injured, there are certain things that you should and should not do.
If you are involved in personal injury litigation arising from a car accident, you will benefit from consulting a personal...

Product Liability Law

Decribing product liability law and theories of liability for defective product litigation.
Discusson of lung injuries allegedly caused by artificial butter flavoring.
Introducing the important concepts of litigation and lawsuits involving defective drugs and medical devices.

The Statute of Limitations - A State-By-State Overview

Notice: The following overview of state statutory limitations periods (statutes of limitation) is presented on an as-is basis. This information is believed accurate as of the date of authorship, but is not intended to provide a complete analysis analysis of statutory limitations on the right to sue and may not reflect subsequent changes in the law. For a full review of the statute of limitations of any given state, or for a determination of how the law applies to a specific incident or injury, please consult an attorney licensed to practice in the jurisdiction at issue.

Negligence

Causes of action arise from "negligence" when the person who causes the harm does not intend the injury, but is careless with the safety of other people. Most litigation arising out of motor vehicle accidents charges a driver with being "negligent."
To win a "negligence" case, an injured person must show that the defendant owed him a duty to exercise reasonable care, that the defendant violated that duty, that his injuries resulted from the breach of duty, and that the injuries were a reasonably foreseeable result of the violation. In the context of an automobile accident, the driver of a car owes other drivers the duty to drive safely and to keep his car under control at all times. It is foreseeable that mistakes made while driving can result in accidents which may cause serious injuries to other people. Thus, a person injured in a car accident is in a good position to argue that the driver who caused the accident was legally "negligent" and thus should pay compensation for the injuries caused by the accident.
Common negligence actions include

Personal Injury Law and Litigation

For the purpose of this article, personal injury litigation can be broken into two general categories: negligence cases and intentional acts or "torts." (The word "tort" is a fancy word, which refers to a legal cause of action -- the wrongful act of another person which entitled an injured party to seek damages through the courts.)

Statute of Limitations

- Similar to the uninsured driver, some drivers carry inadequate insurance coverage, often at the minimum level required by state law. Many states have very low insurance requirements, which unfortunately means that some of the worst drivers on the road carry inadequate coverage due to the high cost of insurance which results from their bad driving records. Some carinsurance companies offer underinsured motorist coverage, so drivers can protect themselves in the event that they are in an accident caused by somebody who carries inadequate coverage.

- When people make claims with their insurance companies, they sometimes run into difficulty with the insurance company's refusal to negotiate the claim fairly. For example, an insurance company may refuse to offer fair value for a "totaled" car. In "no fault" states, where drivers insure for their own accident-related medical care, it can involve the improper denial of coverage or reimbursement by the insurance company.

Special Issues

Special issues can arise in automobile litigation which make it more difficult to litigate a car accident claim, which make additional parties potentially liable for injuries, or which must be considered during the course of litigating a case. Special issues arising from the accident itself include:

Vehicle Defects

At times an accident will result from a defect with a driver's vehicle, such as a tire blowout, brake failure, or other mechanical failure. Sometimes the injuries suffered in an accident will be made worse by a design or manufacturing defect with a vehicle, such as a design defect which makes an SUV more susceptible to rolling over in an accident or a gas tank more likely to ignite in a collision, or a manufacturing defect which causes a seatbelt to fail or an airbag to deploy improperly.

Most automobile accident litigation involves two vehicles, with a driver or passenger from the first vehicle claiming that the driver of the second vehicle caused the accident through negligent driving. Sometimes the litigation will involve the driver and passenger of a single vehicle, with the passenger claiming injury as a result of the driver's negligence. At times, litigation will be against a governmental agency which is alleged to have failed to properly design or maintain a roadway or intersection. Car accident litigation may also include a product liability claim against the manufacturer of a vehicle or part of a vehicle, alleging a design or manufacturing defect which contributed to the accident. A claim might also arise against a mechanic or service center whose work left a vehicle in a hazardous condition.

Intoxication

Sometimes, bad weather conditions will contribute to an accident by interfering with visibility, diminishing traction on the road surface, or otherwise making it more difficult to drive a car. A driver should take the effects of the weather, such as strong cross-winds or slippery roads, into consideration when driving. Sometimes the weather will cause an unexpected hazard, such as black ice or flash flooding, which may not be detected by a driver until it is too late to avoid the hazard.

Distractions

When the driver's attention becomes diverted from the road, the chances of an accident increase. Distractions may occur from outside of the car, such as when something at the side of the road draws a driver's attention. Distractions also occur inside cars, such as where the driver attempts to read or put on makeup while driving, change CD's in the CD player, dials a cellular phone, or attempts to parent an upset or unruly child.

Driver Error

The most common cause of car accidents is driver error. Common errors which contribute to accidents include failure to yield the right of way, following too closely, driving at excessive speeds, unsafe passing, and disregard of traffic control devices.

Litigation After Car Accidents

Not every car accident will result in litigation. Where nobody is injured or injuries are minor, it may be possible to resolve all claims for medical care and property damage directly with the drivers' car insurance companies. The greater the damage or injury that results from a car accident, the more likely it is that a lawsuit will follow.

Car Accident Lawsuits

Despite significant safety improvements in automobile and in the design of roads, car accidents remain quite common. It is likely that any given person will be involved in at least one serious automobile accident during his or her lifetime. This article explores when a car accident may result in litigation.

If you are involved in a car accident, you may benefit from reviewing these suggestions about what to do after a car accident, and from consulting a personal injury lawyer.

Using Multiple Insurance Companies

For larger settlements, it often makes sense to purchase annuities for a structured settlement from several different companies, dividing the settlement between those companies. This can provide you with protection in the event that a company that issued annuities for your settlement package goes into bankruptcy - even in the event that one of the companies defaults in part or in full on your settlement payments, you would still receive full payment from the other companies.

Life Expectancy

It is unfortunate, but many people who receive large personal injury or workers' compensation settlements will have a shortened life expectancy as a result of their injuries. It is important to consider life expectancy in association with any structured settlement, and to consider whether it is appropriate to enter into an annuity where payments will cease upon death. Sometimes it will make sense to insist upon an annuity that pays a minimum number of payments, or one that will pay a balance into the plaintiff's estate, such that the value of the settlement is not lost to an insurance company upon the plaintiff's untimely death.

Self-Dealing

There have been cases where the plaintiff's lawyer is also in the insurance business, and sets up a structured settlement on behalf of a client without disclosing that the attorney is purchasing the annuities from his own business, or is pocketing a large commission on the annuities. Similarly, there have been situations where the plaintiff's attorney has referred the client to a particular financial planner to set up a structured settlement, without disclosing that the financial planner will be paying the attorney a referral fee in relation to the client's account. Make sure that you know what financial interest, if any, your lawyer has in relation to any financial services sold or recommended by the lawyer.

Overstated Value

Sometimes, after negotiating a particular settlement figure, the defense will overstate the value of a structured settlement. As a result the plaintiff, in accepting the settlement, in fact obtains a significantly lower dollar value than was agreed upon. Some defendants have nominally paid the full amount of the settlement, knowing that they would later obtain significant rebates from the annuity companies they used. Plaintiffs should consider compariing the fees and commissions charged for similar settlement packages by a variety of insurance companies, to make sure that they are in fact getting full value. A plaintiff may wish to make it a condition of the settlement that the defendant will actually pay the full value of the settlement in setting up the structured settlement, and that any rebates received by the defendant for annuities included in the settlement be payable to the plaintiff.

Excessive Commissions

Annuities can be highly profitable for insurance companies, and they often carry very large commissions. It is important to ensure that the commissions charged in setting up a structured settlement don't consume an inappropriate percentage of its principal.

Selling a Structured Settlement

If you have a structured settlement, you may have been approached by a company interested in purchasing your settlement, or may be curious about selling your settlement in return for a lump sum buyout. About two thirds of states have enacted laws which restict the sale of structured settlements, and tax-free structured settlements are also subject to federal restrictions on their sale to a third party. Also, some insurance companies will not assign or transfer annuities to third parties, to discourage the sale of structured settlements. As a consequence, depending upon where you live and the terms of your annuities, it may not be possible for you to sell your settlement.

Keep in mind that companies which buy structured settlements intend to profit from their purchase, and sometimes their offers may seem quite low. You may benefit from approaching more than one company in relation to the sale of your settlement, to make sure that you obtain the highest payoff. You also want to be sure that the company which wants to buy your settlement is established, well-funded, and reputable - you don't want a fly-by-night outfit to obtain the rights to your annuities but to disappear or go bankrupt before paying you the buyout money. You may have to go to court to get a judge to approve the buyout. It is usually a good idea to consult with a lawyer before entering into an agreement to sell your settlement.

Potential Disadvantages of Structured Settlements

Some people who enter into structured settlements feel trapped by the periodic payments. They may wish to purchase a new home, or other expensive item, yet be unable to muster the resources because they can't borrow against future payments under their settlement.

Some people will do better by accepting a lump sum settlement, and investing it themselves. Many standard investments will give a greater long-term return than the annuities used in structured settlements.

Benefits of a Structured Settlement

One significant advantage of a structured settlement is tax avoidance. With appropriate set-up, a structured settlement may significantly reduce the plaintiff's tax obligations as a result of the settlement, and may in some cases be tax-free.

A structured settlement can protect a plaintiff from having settlement funds dissipated, when they are necessary to pay for future care or needs. Sometimes a structured settlement can help protect a plaintiff from himself - some people simply aren't good with money, or can't say no to relatives who want to "share the wealth", and even a large settlement can be rapidly exhausted. Minors may benefit from a structured settlement as well, such as a settlement which provides for certain costs during their youth, an additional disbursement to pay for college or other educational expenses, and then one or more disbursements in adulthood. An injured person who has long-term special needs may benefit from having periodic lump sums with which to purchase medical equipment or modified vehicles.

In some situations, it will be better for a severely disabled plaintiff to set up a special needs trust, rather than entering into a lump sum or structured settlement. Any plaintiff who is receiving, or expects to receive, Medicaid or other public assistance, or the guardian or conservator entering into a settlement on behalf of a disabled ward, should consult with a disabilities financial planner about their situation before choosing any particular settlement option or structure.

What Is a Structured Settlement?

Sometimes when a plaintiff settles a case for a large sum of money, the defendant, the plaintiff's attorney, or a financial planner consulted in association with the settlement, will propose paying the settlement in installments over time rather than in a single lump sum. When a settlement is paid in this manner it is called a "structured settlement". Often the structured settlement will be created through the purchase of one or more annuities, which guarantee the future payments.

A structured settlement can provide for payment in pretty much any schedule the parties choose. For example, the settlement may be paid in annual installments over a number of years, or it may be paid in periodic lump sums every few years.