Pursuing maximum compensation for your injuries is an easy general concept: The bigger the settlement, the better. However, there are many complex factors that may impact the amount of money that you retain after your case is complete. Below are brief descriptions of several financial aspects that may affect the amount of your recovery.
If you have a personal injury claim, it is important that you understand the relevant topics below well enough to make informed decisions. As you evaluate a law firm to represent you, be sure to discuss which of these factors might impact your case.
The potential value of your personal injury claim is first established by the damages you sustain, including the extent of medical treatment required, wages lost, and impact on your quality of life. However, the funds to recover these damages may be restricted by insurance coverage limits and/or assets associated with the negligent party.
In most accidents, the insurance policy limits of the driver who caused the collision to determine the maximum settlement amount possible. If your damages exceed the at-fault driver’s policy limits, and you have an uninsured/underinsured motorist policy, your insurance may apply and extend the potential recovery amount.
In some situations, commercial or government entities may be liable and have associated resources to potentially fund the recovery of your damages.
If you did not have car insurance at the time of the accident, your recovery of damages may be limited — even if you were not at fault. Proposition 213 is a California state law that restricts uninsured drivers from collecting non-economic damages resulting from a car accident. This dramatically limits the potential value of the claim, regardless of insurance policy limits that may apply. The law also applies to drivers who were under the influence of drugs or alcohol at the time of the accident.
ATTORNEY FEE RATES
Most personal injury attorneys offer a contingency fee contract. This means that the law firm will be compensated for legal services if recovery is obtained for your claim.
The law firm is paid a percentage from either the gross recovery (the full amount) or the net recovery (after costs are deducted). The rate is commonly around 33 1/3 percent but may depend on whether a lawsuit is filed with the court, the case goes to trial or other conditions. It is important to review the fee contract carefully and understand the terms before signing.
LEGAL CASE COSTS
Attorney fees pay for your legal team’s time, expertise, and general overhead expenses. Hard costs that the law firm incurs that are related to your case may also be deducted from your recovery amount, including:
- Court filing fees, jury fees, court reporter fees
- Photocopies, faxes, postage, transcripts
- Parking, mileage, messenger service
- Expert witnesses, consultants
- Private mediators, arbitrators
- Investigators, legal search fees
Typically, these advanced costs are deducted after the attorneys’ fees have been paid from your gross recovery, but this may depend upon your fee agreement.
Adults can enter into a payment contract that they consider to be fair, but children under age 18 legally do not have equal bargaining power regarding a fee agreement. When a minor has a personal injury claim, the court must approve contracts and how funds are handled.
The court must ensure that settlement money will be used for the minor’s benefit until he or she turns 18 and must approve and/or determine:
- The number of attorneys’ fees, including contingency fee contracts
- Litigation costs
- What happens to the remaining portion of settlement proceeds
Settlement funds for an injury victim who is a minor are usually deposited in a blocked bank account that no one can withdraw any amount from without a court order.
A lien is a legal claim for a debt. Most personal injury claims involve medical liens and/or required reimbursements which must be resolved before you receive your settlement funds.
Depending on the situation, various entities can assert a lien or reimbursement against your settlement, including the state and federal government, health insurance companies, hospitals, and other medical providers. Here are some common examples:
- Medical Provider – A doctor provides treatment for your injuries, but you do not pay at that time. Instead, you grant a lien agreeing to pay your bill later from your settlement.
- Private Health Insurance – Most health insurance plan contracts include an agreement that they will be reimbursed from a third-party recovery. If your insurance pays for the treatment of your accident injuries, and you later receive settlement money for that treatment, the insurance company expects to be paid back.
- Public Health Insurance – If medical care for your accident injuries was paid for by a public health plan, such as Medicare or Medi-Cal, that entity expects to be paid back from settlement money you receive for treatment.
- Workers’ Compensation Insurance – If you are injured by a third party while working, your treatment may initially be paid through Workers’ Compensation Insurance. However, if you are later awarded a settlement from a negligent party other than your employer, you may need to reimburse Workers’ Compensation for those costs.
- Employee Retirement Income Security Act of 1974 (ERISA) – ERISA is a federal law that governs most employee health plans and involves a very complex type of lien. ERISA health plan contracts typically have legal clauses that give their lien claims priority without consideration of the overall case situation.
A structured settlement means you receive your recovery amount in payments overtime on a schedule instead of as a lump sum. Generally, personal injury lawsuits are paid all at once, but this type of payment arrangement may be proposed to accommodate either you or the defendant, depending on the situation.
SPECIAL NEEDS TRUSTS
A special needs trust (SNT) holds funds on your behalf if you have disabilities to preserve your eligibility for public benefits, such as Medicaid or Supplemental Security Income (SSI). The assets held by the trust do not change your eligibility for assistance, but SNTs do have strict regulations regarding the disbursement of funds. SNT payments are meant to supplement funds and services available through government programs.
A settlement planner establishes SNT disbursements that meet your financial requirements, including immediate needs requiring a lump sum payment, as well as a structured payment schedule over time.
Medicare set-asides (MSAs) are settlement funds designated to pay for future medical costs related to your accident injuries that Medicare would otherwise cover. MSAs are created for situations such as:
- You are currently on Medicare and your settlement is greater than $25,000; or
- You are likely to begin Medicare coverage within 30 months, and your settlement is greater than $250,000; and
- You are likely to require future medical treatment for your injuries.
Because MSAs are funds available to you, they impact your eligibility for public benefits. In order to protect your government program eligibility, an SNT may first be established to include both the MSA amount and the remainder of your settlement proceeds.
Section 998 of the Code of Civil Procedure provides an incentive for parties to negotiate a settlement before trial by involving the risk of additional legal fees.
If a 998 offer is not accepted, and the party who rejected the offer is not awarded a greater amount at trial, some legal costs are shifted. For instance, if you reject a 998 offer, and the trial verdict ends up being less than that offer amount, the court can deduct a reasonable sum from your award to cover the defendant’s legal expenses.
Settlement for compensatory damages (physical injuries) are not subjected to tax, but tax law for punitive damages and interest changed in 2018. This portion of your settlement may now be taxed, which should be taken into consideration as you make decisions about your case. Your personal injury attorney cannot provide tax-related guidance, so be sure to consult with a qualified tax advisor.
If you have been injured due to the negligence of another and are considering legal representation, contact the Arnold Law Firm for a no-cost, no-obligation evaluation of your case. We will help you understand your legal options and answer any questions you may have.
Call us at (916) 777-7777.