Following an auto accident, injured parties may pursue injury claims against the at-fault driver(s). If the pre-suit negotiations reach a stalemate where neither side is willing to move any further, the injured party must decide whether to file a lawsuit.
The advantage to filing a lawsuit is that most insurance companies will pay more to settle the case in litigation for two reasons. First, the insurance company must hire an attorney to defend the lawsuit. As the case progresses, the defense will likely conduct depositions and retain experts. To avoid these expenses, most insurance companies will pay more to settle the claim.
Second, if the case goes to trial, the insurance company has a risk that the jury will award more than the case could be settled for. If this happens, the insurance company not only paid out all the litigation expenses, but it also must pay the verdict award. A settlement eliminates the risk of an unexpected verdict and stops the litigation expenses from accruing any further.
These same risks affect the injured party and should be carefully considered in determining whether to file a lawsuit. For example, most law firm’s charge approximately 33.3% of the settlement amount if the settlement occurs before filing a lawsuit. Once the lawsuit is filed and passes the initial stages, the law firm’s fee will likely increase to 40%. In addition, there will be discovery and expert fees that your lawyer will pay initially but they will be reimbursed when the case resolves. In some cases, even if the case settles for a higher total amount during the lawsuit, the net amount in your pocket may be the same or less than it would have been pre-suit. Here is an example:
Pre-suit settlement offer from insurance company: $50,000 – $16,650 (33.3% attorney fees) – $1,000 (medical records costs)- $20,000 (medical bills) = $12,350 to client
Post-suit settlement offer from insurance company: $75,000 - $30,000 (40% attorney fees) - $10,000 (expert and other litigation costs) - $20,000 (medical bills) = $15,000 to client
Each case has different factors and amounts to consider. The example above is used to illustrate a point but it may or may not exemplify your particular case. From the example above, you can see that even though the settlement offer increased by $25,000, the amount payable to the client increased by only $2,650.
In summation, my recommendation is to file suit on cases where the insurance company has significantly undervalued your claim at the pre-suit stage. In cases where the insurance company is willing to settle for a reasonable amount, the litigation process may not dramatically increase the post-suit recovery to the client.