Reasonable is Not Maximum, Good is Not the Best-The Value Added to a Lawsuit By the Cost of Defense

I was recently contacted by a prospective client that was referred by a friend. The prospective client wanted to sue his employer after he was let go for relieving himself on a worksite because the employer had failed to provide any bathroom facilities. I told him it sounded interesting (primarily because he went no. 2 and it was inside a mall), but was probably low value and not worth litigating. I explained to him that any time I spent on the case would far exceed any potential return. He understood.

However, since he was referred by a friend, I told him that I would look into the law and write a demand letter if warranted. I told him that we may be able to get a small amount of money, but that the case was likely not worth filing a lawsuit over. I was blunt and up-front with him. He appreciated it and then told me that his girlfriend was attacked last week by three dogs when she was cleaning a client’s home. My ears perked up, and I told him “now that’s a case.” He asked me to speak with her to discuss her case and I gladly did.

It turns out that his girlfriend cleans houses. She told me she went to a client’s house and the client told her it was safe to come in. Within twenty seconds of entering, she was attacked by three dogs. She received multiple dog bites on her legs and ankles which required medical attention. She received stitches for her wounds and was on crutches. The attack was violent and serious—animal safety patrol officers were involved.

Before I could offer my services, she told me she had retained an attorney the day before. I asked her who the attorney was and she told me his name. I googled him and it turns out it is a Beverly Hills attorney that holds himself out as a dog bite attorney. His website was dogbitelawyer.com or something to that effect. My first reaction was that this attorney is cheesy and I immediately thought of Saul Goodman from the TV show Breaking Bad. (Probably my favorite TV series of recent time, but I digress).

I immediately asked her a few questions to qualify the attorney. 1) Did you speak to him in person? She answered yes. (That’s a good sign I thought). 2) Is he going to file a lawsuit? She then told me that the attorney told her that he was going to get her more money than she would get by settling directly with the insurance company and that he was going to send the insurance company a letter. I asked her again, “Did he tell you he is going to file a lawsuit?” She answered yes, he said he was going to get me money for pain and suffering and more than just my medical expenses. I then said “that’s fine, but did he say he is going to file a lawsuit?” She didn’t have a clear answer and didn’t appear to know.

I then educated her on the realities of legal practice and mass volume representation. I more or less explained the following: Many attorneys do not file lawsuits if they can get a reasonable settlement without doing so. The problem is, reasonable is not maximum, good is not the best, and if your attorney takes this strategy, you are getting less than you could if he filed a lawsuit on your behalf.

Many attorneys will sign a case promising “legal representation” and then provide virtually no legal services at all. This happens frequently in personal injury cases, especially those involving motor vehicle accidents. It is not uncommon for an attorney to represent a client, then have a paralegal or secretary obtain all the medical records or documents. Once this is accomplished, the paralegal or secretary will forward this package to the insurance company with a form demand letter. Shortly after, a settlement offer is received and the attorney convinces his client that it is a good offer and he or she should take it by highlighting all the negative aspects of their case. In this not uncommon scenario, the attorney has not engaged in any “real lawyering” and has spent two hours of his time. Basically, the one hour it took to sign the case and the second hour it took to call his client in and convince him or her the settlement is worth accepting.

This gives the attorney the maximum return on his time. For example, under this scenario, if the case settled for $30,000 and the attorney made 1/3, he made $10,000 for those two hours and the client received $20,000. That’s a handsome take for the attorney who made $5,000 per hour. However, the client has not received the maximum value of his or her case, because the insurance company has not compensated the client for the cost of defense or eliminating the risk at trial. In every lawsuit, the insurance company must take into account two items: 1) the amount it will cost to defend the lawsuit; and 2) the risk of losing a significant amount at trial. The first could be tens of thousands of dollars. The second could far exceed that depending on the case.

Insurance companies are always concerned with reducing risk and exposure. After all, they are insurance companies. A lawsuit puts an insurance company at risk and exposes it. As a result, the insurance company will pay for certainty and to eliminate that risk. Likewise, the insurance company will contribute funds to the settlement that it would have paid its attorneys instead to defend the case. This is what I call the “value added by a lawsuit.” In every lawsuit, these two components: costs of defense and certainty of settlement—increase the settlement amount.

If you hire an attorney and he tries to settle your case without filing a lawsuit, a red flag should go up. There are exceptions to this rule, such as a case with low insurance policy limits coupled with a defendant who has insufficient assets to satisfy any judgment that exceeds those limits. In that situation if the insurance company offers the policy limits, that is all you can get and it makes sense to settle quickly. However, generally, if your attorney is trying to settle your case without filing a lawsuit, he has left money on the table. Why would any attorney do this you ask? It’s fairly simple.

Imagine the same scenario as above, except that your attorney now files a lawsuit and prosecutes it. In this scenario, the attorney has drafted and filed legal documents, appeared in court, gathered evidence, taken sworn statements (depositions), among other tasks involved with “real lawyering.” A modest estimate is that your attorney has spent 60 hours of his time on your case. By doing so, your attorney was able to get you the “value added by a lawsuit.” This includes the money the insurance company will pay its attorneys to litigate the lawsuit or try the case as well as an amount paid by the insurance company to eliminate the risk of trial.

This value added may be $30,000 which is made up of the $20,000 that the insurance company would have paid its attorneys to continue and $10,000 to eliminate the risk of trial. In the above scenario, the client would then have the original $30,000 for pain, suffering and medical expenses and then an additional, $30,000 for the value added by the lawsuit for a total of $60,000. The attorney would take his 1/3 or $20,000 and the client would take $40,000. The client receives double what he or she would have otherwise. BUT the attorney doesn’t receive double, the attorney receives much less. If the attorney earned $20,000 and spent 60 hours on it, then he made $333 per hour, much less than the $5,000 per hour in the first scenario.

Remember reasonable is not maximum. Good is not the best. If your attorney is only interested in settling your case and not doing any “real lawyering” then you need to reconsider your options. Our firm files lawsuits in nearly every case we take. In the rare instance we don’t, we tell the client up front and bluntly that there case doesn’t warrant it. If you are seeking an attorney, ask them flat out if he or she is going to file a lawsuit. If not, you can collect the documents and send them to the insurance company yourself and avoid the 1/3 attorney fee. On the other hand, you can visit the attorneys at the Piccuta Law Group, LLP and get some “real lawyering” done on your case.