It’s on everyone’s mind. But a lot of people are shy about discussing it. Not us. This newsletter is all about money.
THE GOOD NEWS (NO TAX)
Money from personal injury claims isn’t taxed. IRC § 104(a)(2). And it’s not just pain and suffering. Even components like lost income or loss of earning capacity are tax free.
THE BAD NEWS (POTENTIALLY PAYING BACK YOUR OWN CARRIER)
In Washington you get to recover medical expenses (even if you didn’t pay for the medical treatment).
The bad news is that you may not get to keep the money.
In most cases it wouldn’t be fair to allow you to keep that recovery related to medical expenses if someone else paid for them. So, the Courts created a doctrine called “subrogation”.
Subrogation basically means that someone who pays an expense associated with the medical care you received has a right to be reimbursed if you recover that expense from the person who hurt you. But the rule is not absolute and there are some situations where the payer (usually an insurer) doesn’t have to be repaid.
One of the most powerful exceptions to subrogation is something called the “made whole rule”. If you aren’t made whole by a settlement, there isn’t any right of subrogation.
The most common way for this to come up is when the defendant doesn’t have enough insurance. Your case is worth $100,000 and the defendant only has $25,000. Settling for $25,000 doesn’t make you whole and the insurance company doesn’t have a subrogation claim.
There’s another way that people aren’t made whole. That’s when they’re comparatively at fault. Even if you’re only 1 percent at fault for a wreck, your insurance company doesn’t have a right of subrogation because the settlement or verdict only represents 99 percent of your damages.
WHY MONEY SHOULD BE A FACTOR WHEN HIRING A PERSONAL INJURY ATTORNEY
We occasionally have to “interview” with potential clients. They ask all kinds of questions:
Have you ever had a case against XYZ insurance company?
Have you ever sued the driver of a red car?
Have you ever been to trial?
But there are some questions they never ask:
Do you have a line of credit?
Are your taxes paid?
How much money do you owe on your house?
These questions are important because it’s almost impossible to separate personal need from the advice attorneys give to clients. This issue came up in The Verdict.
These moral hazards come up in real life too:
I was co-counsel on a case. An older attorney (not Paul Newman) brought me in to help him litigate it. After I deposed the defendants they agreed to mediate.
The older attorney—who had been missing in action up until that point—decided to attend the mediation. Even though he hadn’t done any of the work, he had an opinion about everything.
Like most mediations, there was quite a bit of down-time. The older attorney took a call. (He must have been somewhat deaf because he had his phone volume turned way up.) It was his banker. His banker said that the attorney’s account was still overdrawn.
The client and I looked at each other. We pretended we didn’t hear. It was embarrassing.
How do you take advice from someone like that? You don’t know whether they’re trying to cover last month’s rent or really believe the case should be settled.
That’s why it’s important to figure out whether the lawyer’s on solid footing or thin ice before you make a hiring decision. If the attorney doesn’t want to answer your questions, that may tell you everything you need to know.
Just for the record Myers & Company doesn’t have any debt. No line of credit, no mortgage…nothing. That’s why we’re able to say “no” to offers when cases are worth more than what insurance companies are willing to pay.
MONEY AND REFERRALS
Personal injury attorneys can’t pay people for making referrals. But there’s no ethics opinion from the Bar Associate that says we can’t give away stuff from our garage. So I’m starting a new program. Here are the prizes for April referrals:
1st Place: Skil Band Saw (new in box)
2nd Place: Torque Wrench–1/2” drive
3rd Place: Myers & Company water bottle and t-shirt.