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The Costs of Trial vs. Settlement

HELPING THE CLIENT DECIDE THE ECONOMICS OF TRIAL VS. SETTLEMENT

Given the often confusing array of expenses, liens, and other claims frequently deducted from a personal injury recovery, no experienced personal injury lawyer would advise a client to accept a settlement over a trial without first analyzing the amount of money the client will likely put in his or her pocket in each case. Typically, the analysis begins after the defendant’s insurance company has evaluated the Burnett & Williams demand package. Insurance companies do not like the unpredictability of a trial, and they will usually attempt to negotiate a resolution of the case ahead of time.

Several factors can dramatically affect the client’s net proceeds regardless of whether a case is tried or settled. Chief among them is any right of reimbursement for medical expenses. While Virginia is an anti-subrogation state, which means health insurance companies cannot seek to be repaid from accident claim proceeds, many cases in the Commonwealth are governed by federal law. Examples include Medicare, Medicaid, Federal Workers Compensation, and health benefit plans governed by the Employees Income Retirement Security Act of 1974 (ERISA). Many of these federally regulated plans expect to be reimbursed 100% of their payment amounts. Others will allow an offset for attorney fees. In some cases, the client enters into an assignment agreement with a health care provider that requires payment in full upon resolution of a case.

Consistent with Virginia law and lawyer ethics, the engagement letters of most Virginia attorneys provide that the out of pocket expenses incurred for a client’s case are the responsibility of the client. The attorney often advances those expenses and deducts them from the proceeds upon resolution of the case. The out of pocket expenses can be minimal in a case that settles without litigation, or tens of thousands of dollars in a case that goes through the full process of a trial. Most clients are surprised to learn that doctors charge hefty fees to provide needed testimony in a case. It is common for a doctor to charge $10,000 or more for preparation, a deposition, and testimony at trial. Exhibits depicting the particulars of a client’s injuries typically cost over $1,000 each. Court reporters charge about $3 per page for transcripts of depositions. These costs can add up quickly.

Most Virginia lawyers also have a set percentage fee for a case that settles, and a higher fee if the case has to file suit and/or go to trial. Without looking at a breakdown of the expenses associated with each, it is next to impossible for a client to make an intelligent, informed decision about how a settlement offer stacks up compared to a potential verdict amount. To assist our clients in this process, we have developed what we call “net sheets” to help the client compare and contrast outcomes. Importantly, these net sheets clearly show how much larger a verdict must be to put exactly the same dollar amount in a client’s pocket as a given settlement amount.

Below are net sheets for two cases we recently resolved, one relatively small and the other larger. In each case the client had to carefully consider whether the potential for a larger verdict was sufficient to justify the risk of trial.

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Armed with net sheets, a client has valuable information that helps in making informed decisions and assessing the risk/benefit of going to trial. From Henrico County to Frederick County, everyone knows that trial outcomes can be unpredictable in Virginia personal injury cases. As the client makes the final decision in any case, Burnett & Williams endeavors to provide all of the knowable information and offer our best advice, based on decades of experience. Our clients tell us that our net sheets are one expression of the clear, forthright advice that is always helpful in making these tough decisions.