Who Pays Personal Injury Claims?

Most people who file personal injury claims pay their attorney out of pocket. The exception is New York state, where victims of car accidents and other accidents involving negligence or fraud are entitled to reimbursement from the tortfeasor.

Options For Compensation

Injured people have two options for reimbursing their lawyers. One is to sue the party who harmed them and win a judgment. That requires filing a lawsuit in court. The other option is to enter into a settlement agreement, which is negotiated between an injured person and his or her lawyer. The victim is represented by an attorney, and the defendant is represented by an insurance company.

The parties can negotiate a settlement that pays out an agreed-upon amount. The injured person is usually required to sign a release, agreeing to accept the settlement funds and to relinquish any future rights to pursue a claim against the responsible party. In return, the insurance company will likely drop its suit against the victim.

When the parties come to an agreement, the lawyer files a Notice of Claim with the court. The Notice of Claim informs the opposing side that the plaintiff intends to sue the defendant for damages. If the parties can reach a deal, the attorney signs the notice of settlement, which the judge then signs. Once the judge approves the agreement, the settlement money is distributed.

In many states, the defendant pays the injured person's lawyer directly, and the plaintiff signs off on the payment. This is referred to as a direct payment or a cash collateral order.

New York state requires that the injured person's lawyer receive a lien for his or her fees and expenses, and the court will give priority to the lien when the settlement proceeds are distributed. Most states require that the defendant's insurer pay the fees and expenses, which are commonly referred to as a reimbursement order.

Other states have what is called a pro rata order. The injured person's lawyer gets the settlement, and the other lawyer gets a percentage of the fee. The fee is determined by dividing the lawyer's total fees by the number of hours spent.

Most states require that a written notice be sent to the injured person's lawyer that the defendant has paid the fee. The letter should include the amount of the payment. The injured person's lawyer must keep track of the fee and expenses, and the state agency that oversees personal injury claims will keep track of the payments.