The business of trial law
There's an interesting discussion on tort reform going on over at Strange Women Lying In Ponds.
I'm more of a Moral Argument kind of guy. Sway me with an appeal to principle, to my sense of right and wrong. I'll just admit it: I'm not a skilled businessman. So it's not surprising that I hadn't considered things from a business perspective:
Let's say that you have an award after trial of $1 million. The plaintiff's lawyer might easily have about $100k in costs sunk into that, so those costs come off the top right away, reducing the total award to $900k. The attorney takes (typically after trial) 40% of that, reducing the plaintiff's collection to about $540k. But then an insurer might have the right to collect $200k from the plaintiff by right of subrogation, thus reducing the plaintiff's take to $340k.I'm restricted from talking too much about this, because I don't want to end up like the Queen of Sky.So, assuming your numbers are ballpark accurate, what you are telling me is that the attorney is being paid $460,000 on costs of $100,000? That equates to a profit margin of 360%.....just a RIDICULOUSLY high number.
But it makes sense. It is a huge risk to invest a couple million dollars into a case on contingency -- but that really should be considered in the overall cost of doing business.
Would attorneys be so zealous to pursue the manufacturers of asbestos and Vioxx if the case for injustice had to be built at great expense, and at a potential payout of only, say, 50%? Would it harm people who had really been hurt?
I think there's a lot of hysteria coming from the trial attorneys on this, and it's easy to understand why, even if you only take into consideration their personal investment in the system as it stands today. But it's also hard to ignore the fact that insurance rates are rising geometrically, and we need to get to the lab to start working on a solution.
Posted by Matt at January 19, 2005 10:51 AM
