Liens are common in personal injury cases. They are only granted with a client’s consent. Lawyers will advise clients to grant or not to grant a lien, depending on the circumstances.
A lien is an agreement to allow a debt to be paid from collateral. For example, a mortgage lien treats a home as collateral. When a homeowner fails to make mortgage payments, a lender can be paid the unpaid portion of the mortgage loan from the sale of the home.
A personal injury lien is a promise to pay another person from the proceeds of a personal injury settlement or verdict. The most common liens in personal injury cases are granted to attorneys, doctors, and lenders.
Clients in personal injury cases almost always agree to pay a contingent fee to their personal injury attorney. The fee is a percentage of the recovery. If no recovery is made, no fee is charged.
Contingent fee agreements give the attorney a lien on the recovery. When a case is settled or a verdict is paid, the attorney will deduct the fee and the costs of litigation from the proceeds. The attorney’s right to make that deduction is based on the lien that is part of the fee agreement.
Other than the lien given to the attorney in a fee agreement, medical liens are the most common liens against personal injury claims. A medical lien is usually given to a doctor as a guarantee that the doctor will keep treating the patient for the injuries that are the subject of the victim’s personal injury claim.
In most personal injury cases, a medical lien is unnecessary. Most accident victims have health insurance that pays for their medical treatment. Insurance companies may be entitled to recover their payments from the proceeds of a settlement or verdict. That right of recovery is based on a subrogation clause in the insurance contract.
A subrogation agreement does not generally operate as a lien. While a lien almost always requires full payment to be made from settlement proceeds (regardless of the amount of the settlement), state law governs the enforceability of subrogation agreements. In many states, an accident victim is not required to repay a health insurance company unless the victim obtains full compensation for the victim’s injuries. For that reason, personal injury lawyers often negotiate with health insurers about their subrogation interest and may refuse to make any subrogation payment at all.
Medical liens are usually negotiated by the victim’s attorney when no health insurance is available. From the client’s perspective, continuing to obtain medical treatment is important to the client’s health. It is also important to the amount of the personal injury settlement or verdict. When a client cannot afford medical treatment, the injury may become worse. The negligent driver’s insurance company, however, will argue that the client did not obtain treatment because the client’s injuries had healed. Continuing treatment creates evidence that the injuries are serious.
In addition, settlements are often driven by medical expenses. Clients who incur larger medical expenses usually get larger settlements. Ending treatment prematurely often makes it difficult for the client to settle for full compensation.
Some doctors are willing to treat uninsured patients without asking for a lien. Some doctors are unwilling to accept a medical lien. But some doctors will trust a lawyer’s assessment of a case and will agree to defer payment of medical bills until a case is resolved. Those doctors essentially provide medical services on credit and use a lien to secure their payment.
Giving a doctor a medical lien can carry a risk. If the case does not settle for its full value or if a jury returns a verdict that is lower than the injury victim expects, the entire settlement might go to the doctor to pay medical bills. Medical liens might therefore be a bad choice when there is a significant risk that a jury will return a small verdict or will place a good share of the blame for the accident on the injury victim.
Medical liens also put a doctor at risk. If a jury awards no money to the injury victim, the doctor will not be paid. Some doctors worry that they will be seen as biased if they have a financial interest in the outcome of a lawsuit. For those reasons, some doctors and hospitals refuse to agree to liens. Since a lien is a voluntary agreement, there is no way to force a doctor to accept a lien.
Lawsuit loans are also secured by liens. A lawsuit loan is an agreement to borrow an amount of money that will be repaid from the proceeds of a lawsuit, either at settlement or when a verdict is paid.
A lawsuit loan is similar to a payday loan, in that the lender expects the borrower to receive a source of funds that will be used to repay the loan. However, lenders see lawsuit loans as riskier than payday loans. Borrowers can be sure of receiving their paycheck if they perform their work and avoid being fired, but whether an accident victim will receive a settlement or verdict is beyond the borrower’s control.
Because lenders view lawsuit loans as risky, they tend to charge high interest rates. If it will take some time before a case settles, the accumulated interest might eat up the settlement, leaving the injury victim with little cash in his or her pocket.
A lawsuit loan might appeal to injury victims who cannot work because of their injuries. The loan might provide funds that are needed to pay rent and other expenses. However, since interest rates are high and it may take time to settle, lawsuit loans should usually be seen as a last resort. Dipping into savings or borrowing money from a retirement account or relative is usually a better option.
Borrowers often want to settle cases quickly so they can pay off their lawsuit loan and prevent interest from accumulating. However, injury victims cheat themselves out of money when they settle a case too quickly. Victims cannot usually know the full extent of a disability until time passes. Settlements are maximized when a victim has medical evidence that the accident caused a long-term disability. That evidence is not always available until a doctor can be sure that an injury is no longer healing. A quick settlement to pay off a loan will rarely be a settlement for the full value of the personal injury case.