What if You Could Be Paid to Lose a Case?

Garden variety litigation financing has been around quite a while in the personal injury arena. Parties (typically plaintiffs) are given up-front cash in exchange for a portion of their payout from a case when they win. Of late, it has expanded to other lines of practice and warrants keeping an eye on it if you practice in family law or business litigation.

Those types of arrangements offer your client some security, but what about you? Is there any recourse you have to guarantee that you get paid if you have a case that goes sideways? Apparently, yes.

Attorneys Justin Leto and Larry Bassuk launched Level Insurance last month and it’s too early to say whether the product is a success but they hope to carve out a niche in competition with existing lenders who finance plaintiff lawyers with high-interest loans, often secured by personal property. […]

Leto and Bassuk, Miami personal-injury lawyers, decided insurance could provide a better mechanism for keeping the litigation rolling. Level is offering insurance policies for up to $100,000 at a flat fee of 7%. Lawyers must purchase the policies within 60 days of serving papers on the defendant and they only collect if they lose.

The appeal of this is easy to see. If you’re working on contingency, you can run up an awful lot of fees and costs and end up with nothing. It raises some ethical quandaries, however. What about the idea that an attorney would consider just tanking a case to get the $100K and be done with something thorny or long-running?

Well, first there’s the hope that people just wouldn’t do that because it is unethical as can be. The real line of defense, most likely, is that you have to lose. Not settle, not remove yourself from the case. Lose.

For most attorneys, the idea of losing at trial (or via a motion to dismiss or summary judgment) is pretty unappealing to one’s ego and reputation. That said, Level Insurance isn’t vetting the cases they insure, which means that someone unscrupulous might take a complete loser of a case just for the payout.

No matter what, it’s a brave new world for litigation financing when attorneys can insure themselves against their own losses. Expect a range of ethics issues we haven’t even thought of yet to spring from this.

1 Comment

  1. Avatar Mark Rouleau says:

    There are so many pitfalls from this. The entire PI case system is set with perverse financial incentives. For example defense lawyers are generally paid on an hourly basis not an outcome based approach. In this tableau they have no interest in getting the case resolved early for less money to their client the defendant. Conversely the plaintiff’s lawyers are paid on a performance based outcome (contingent fee). Although the plaintiff’s counsel’s fees go up as the client’s recovery increases there is the rule of diminishing marginal returns involved in obtaining that last 5% of the case value for the same amount of work employed in obtaining the first 95%. This situation frequently arises in the law firms that are known for taking in large numbers of injury cases simply to turn them over quickly.

    The biggest problem with these types of agreements is that they cross over into the realm of fee splitting with a non-attorney (someone who is neither licensed or subject to the same ethical strictures of an attorney). I wouldn’t be as concerned about the potential incentive to tank a case as we do not object to high low agreements and this type of insurance contract (gamboling contract) is simply setting a floor (low) on the recovery.

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