Case Evaluation – Risk and Required Investment

On this page, we provide some basic facts about how a lawyer evaluates a case from a business perspective (ignoring other non-economic reasons for accepting or declining a particular case), and we illustrate through this process why basic traffic accident claims involve little risk or investment from the lawyer. We hope that this information is helpful if you ever need to hire a lawyer.

Case Evaluation – Any Contingent Fee Case
A contingent fee simply means that a lawyer’s fee is contingent upon obtaining a financial recovery. Contingent fees are allowed in most types of cases with the notable exceptions of divorce and criminal law, but they are mostly used in litigation cases where the client cannot afford to pay an hourly fee. Obviously, agreeing to be paid in this manner can be very risky for the lawyer. Before agreeing to such an arrangement, a lawyer considers risk and necessary investment, in terms of time and money, as well as his or her potential fee. Low-risk cases that do not involve much investment in time or money are the most attractive, particularly when the legal fee earned is high. Since these cases do not take much time, a lawyer can handle many of them at the same time and receive substantial fees.

Experienced lawyers look to three factors when evaluating a case because these factors determine the level of risk and the required investment: (1) liability; (2) damages; and (3) collectability.

  1. Liability. Liability means “fault.” In some cases, liability is clear. In others, it takes months or even years of litigation to gather enough evidence to prove liability.
  2. Damages. In order to recover a financial settlement, the victim must have been injured in some manner (not necessarily physically injured). If you are not injured, you have no damages. In some cases, damages are apparent and easy to quantify, and in others it is difficult to prove the existence and amount of damages.
  3. Collectability. In order for the client and the lawyer to be paid, the settlement or judgment must be collectable. If the defendant is insured, collectability is essentially assured up to the limit of the insurance (insurance companies pay their settlements and final judgments). If there is no available insurance, even if the defendant is a profitable business, collectability can be difficult or impossible. Most Americans have a negative net worth, and many of their assets are protected from judgments or garnishments by law. Bankruptcy will also eliminate most judgments against individuals. It doesn’t do much good to sue someone if you can’t collect any money even if you prevail (“can’t get blood from a turnip”).

After evaluating the merits of the case considering these three factors, the lawyer decides whether he or she will take it for a contingent fee. This evaluation should also cause the lawyer to determine the amount of the fee, but too often lawyers charge the same regardless of the case – 33⅓ – 40%, plus expenses.

Case Evaluation – Traffic Accident Cases
In our opinion, the vast majority of traffic accident cases fall in the “low risk/high reward” category. This is the reason that legal advertisement is directed almost entirely to traffic accident cases, and why many lawyers limit their practices to traffic accident law.

Most traffic accidents are entirely the fault of one driver or the other. The accident report usually states who was at fault, at least in the opinion of the investigating officer. The traffic accident lawyer also knows up front, or very early on, the extent of his client’s damages in terms of injury, medical expenses, lost wages, etc. Finally, the traffic accident lawyer knows up front whether insurance is available and the coverage limits.

The traffic accident lawyer also knows up front, or very early on, the extent of his client’s damages in terms of injury, medical expenses, lost wages, etc. Proving this to the insurance company can require an investment of time and money, but often it is not necessary due to the liability limit.

Finally, the traffic accident lawyer knows up front whether insurance is available and the coverage limits. Insurance companies pay their settlements, and this takes away the risk of not being able to collect a judgment.

Case Evaluation – Other types of cases

In most other types of cases, this information is not available to the lawyer in the beginning. Consider a medical malpractice case. Liability is almost always vigorously contested in these cases, so the lawyer will generally have to invest a great deal of time and money to prove liability. Most doctors and hospitals have malpractice insurance, but not all of them, and it will take some time to find out whether there is insurance and how much is available. Another consideration is that many states cap the amount of damages that a plaintiff can receive in a medical malpractice case, as well as the amount of the lawyer’s contingent fee.

What about a mining disaster that kills 30 miners? Do you think this is a slam dunk from the perspective of the lawyer? The fact is that this could be a very difficult case that ultimately could be worth millions or next to nothing. First, the lawyer would have to think about whether he or she can sue at all, or be subject only to workers compensation for workplace injuries. This will depend on facts that could take months or years to develop. Second, insurance may not be available, or it may be limited. The mining company could be insolvent, or could file bankruptcy if the claims are too high. Next, you may end up in a fight with the attorneys for the other victims if you are sharing a piece of a limited amount of compensation funds. Many other factors could come into play.

Increasing the risk of these cases is that most states cap non-economic damages, and some states, like Florida, cap the amount of the attorney fee. All of this makes these cases not very attractive to lawyers (which is exactly what the state legislatures intended when they changed their medical malpractice laws at the urging of doctors, hospitals and insurance companies). The end result is that even though reputable studies suggest that more than 100,000 people die every year in the United States from medical negligence, successfully making a claim is very difficult.

Appropriate Contingent Fee and Payment of Litigation Expenses
The point we are making is not that all traffic accident cases are easy – they certainly can be very difficult. But most other litigation is very difficult from the outset. Since a lawyer who is being consulted about a traffic accident knows or has a very good idea at the very beginning of the case about liability, damages and collectability, most traffic accident cases involve little or no risk for the lawyer. Also, many cases are settled without much fight for the limit of the insurance policy even if the damages are much greater because there is no more money to get. For these reasons, we believe that the contingent fee in a typical traffic accident case should be less than the contingent fee in most other types of litigation.