WHERE DOES THE MONEY FROM MY CAR ACCIDENT SETTLEMENT GO?
When an auto case settles, or after the judge or jury give a verdict in your favor, the insurance company will send your lawyers a check. Your lawyers will ask your permission to sign your name to the check, and they will deposit it in an escrow account. The escrow account is one of the safest, most regulated parts of lawyering. Lawyers can lose their ability to practice law if they don’t handle the escrow account exactly right. It is a near-sacred duty to the client.
After that, the lawyer will need to disburse the money to everyone who is entitled to part of it. You can see a sample settlement and disbursement form here: Settlement & Disbursement (03-05-18). In general, the money goes three places: to you, to your lawyer, and to the other people (usually medical providers or health insurance companies) who are still owed money. Let’s run through a sample distribution.
Let’s say your case settles for $300,000.00. The amount of money your lawyers get is determined by your contract with them—by the retainer agreement (sample here: Retainer (Form-Auto)(03-04-18)) you signed. Most lawyers have the same fee agreement for settled cases—they get 1/3 (or 33.33%) of the total gross settlement. (If you are active military or a veteran, let us know—as part of our appreciation, we cut our fee percentage!) In our example, 1/3 of $300,000 is $100,000. Sounds like a lot, and it is. The question to ask yourself is, without your lawyers, would you have received as good of a verdict? If you hire cut-rate lawyers, would you still do as well?
So this leaves $200,000. Your lawyers will typically (again, if agreed to by your contract) get their expenses reimbursed out the settlement. So, if they spent $0.49 on a stamp sending a demand to the insurance company, they get that paid back. Expenses can include postage, paper, copies, expert witness fees (those can be pricey!), deposition transcript costs, court filing fees, and mileage to the courthouse. In a typical district court case, expenses typically average between $50 and $300. In a circuit court case, it varies depending on the complexity of the case. Could be less than $1,000. Could be higher. Let’s say our hypothetical settlement case had $500 in expenses, and that it settled before a lawsuit needed to be filed, and before experts needed to be hired. That means the lawyers get $100,000 for their fee, and $500 for expenses, for a total of $100,500.
That leaves $199,500 as the client’s portion. Some clients will ask us to pay back their outstanding medical expenses. Whether you have any medical expenses depends on a number of things—did PIP or Medpay pay for your expenses? Did you have health insurance that paid for it? Usually, it is your choice whether you pay them back. We usually recommend that you do—you don’t want those bills going into collections.
On the other hand, your health insurance, or Medicare, or medical assistance may have paid, and you don’t owe any money to your doctors. In that case, you may have an obligation to reimburse them for a portion of their expenses. Health insurance is usually a contractual right of recovery, which we think is between you and them. If you tell us to pay, we will (and, we are very good at getting them to reduce their bills, in most cases). If you want to pay them yourself, you can do that, too. If Medicare or medical assistance paid, your lawyers typically have an obligation to pay them back. Not much we can do about that, but we can negotiate the final amount. It is usually on good terms—Medicare pays pennies on the dollar for most medical bills, and then they are required by law to reduce that amount by a third (in addition to whatever else we can get them to reduce). So, you usually end up okay.
So, let’s say health insurance paid $10,000. In Maryland, they must reduce by 1/3 (the same percentage that the attorneys make, because they are getting the benefit of the work your attorneys did), meaning they are entitled to $6,666.66 back (perhaps more, if we can negotiate further).
In our example, your $199,500 is reduced by that $6,666.66, meaning you get $192,833.34 in your bank account. So that’s how it works.
Questions? See the following posts for more information, or call us at 410.252.0600 for help:
- Value of Your Maryland Auto Accident Case, Part 6: Personal Injury Protection (PIP)
- Value of Your Maryland Auto Accident Case, Part 7: Health Insurance and Medical Reductions
- Sample Settlement & Disbursement Form (PDF): Settlement & Disbursement (03-05-18)