The Questions Lawsuit Loan Underwriters Ask
Lawsuit loan underwriters are tasked to perform a variety of functions for lawsuit funding companies. In this post, we explore what lawsuit underwriters do for the business and what types of questions they might ask your attorney when discussing your case.
Lawsuit Loan Underwriters – Identity, Role and Function
A lawsuit loan underwriter is a very important part of the lawsuit funding process. Their job as legal loan underwriters is to assess the likelihood of success of a particular case. They are normally attorneys, paralegals or former insurance professionals.
Since lawsuit loan investments are all or nothing investments, a determination must be made that the lawsuit has a high probability of success. In fact, lawsuit funding companies are looking for “slam dunk” cases which are essentially insurance claims that have not yet been paid.
Of course, this is not to say that some investments are not lost. All lawsuit funding companies lose cases for a variety of reasons. Most have nothing to do with a lawsuit funding underwriter’s ability to evaluate the case.
Lawsuit Loan Underwriters Assess Risk
The lawsuit loan underwriter’s job is essentially to assess the risk that a particular lawsuit will prevail. Their job is a tricky one because they only have access to a limited amount of information. That information usually includes the following:
- Information about the incident in question
- Information about the damages suffered
- Information about the defendant’s ability to pay a settlement or judgement
Since this is the “nuts and bolts” of a case, underwriters need documents supporting the plaintiff’s claims. For simple auto accident lawsuit loans, the underwriter will want to see the police report, medical records, lost wage information, and insurance information. For a medical malpractice lawsuit loan, the underwriter wants to consider the medical records, insurance information and medical experts needed to prove liability.
Lawsuit Loan Underwriters Estimate Settlement Value
The estimated settlement value of a case is of primary importance to a lawsuit funding company. As a general rule, lawsuit loan enterprises will approve up to 10%-12% of the estimated settlement value of the case as a cash advance. Other factors do apply when establishing a settlement approval amount. These might include the case’s venue or where in the litigation process the case currently resides.
Underwriters Adjust Rates
Lawsuit loan rates are usually set ahead of time by lawsuit funding companies. If, after evaluation by an underwriter, the case falls into their risk profiles, the client is offered the advance at those rates.
Other companies take a more flexible approach and adjust lawsuit loan rates according to the riskiness of each individual lawsuit. For example, since medical malpractice cases are generally lost more than won, a lawsuit funding company might only want to invest in these cases if they get a better return. Other case types, such as commercial litigation cases often include flexible rates structures.
Lawsuit loan underwriters therefore can adjust rates higher to capture a greater potential return or lower, if the particular case looks particularly strong.
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Attorney Conversation is Essential to the Process
Probably the most important aspect of the underwriting process is the conference, often by phone, with plaintiff’s attorney. Why is this necessary? Let’s take a look.
The majority of lawsuit loans involve attorneys who are hired on a contingency fee basis. That is, they are paid only if the case is successful. Because of this, attorneys are selective of what cases they choose to work on. For more information on this topic, read “Personal Injury Clients – You Should Know How Your Lawyer Thinks”. Generally, attorneys only want to work on cases that make them money. They want the slam dunks, the rear-end auto accident cases with catastrophic injuries. They want to win 9 times out of 10.
Depending on the type of case, attorneys might be more tolerant of losses. For example, it is widely known that med mal lawsuits are lost more often than they are won. Yet, medical malpractice attorneys still make a living. This is because the settlement value of the cases they win greatly outweigh the costs of running the business, including pursuing cases that are ultimately lost. The expectancy of wins vs. losses justifies the effort.
All of this to say that attorneys are sometimes very optimistic about a case and they are eager to tell you about it. Other times they are not as optimistic but are reluctant to share that sentiment.
This is why the best lawsuit funding companies choose legal professionals as lawsuit loan underwriters. Through their expertise, they can sift through the information given to them during the conversation and apply it to the task at hand – figuring if a case is worth the investment.
Common Lawsuit Loan Underwriter Questions
Ultimately, lawsuit loan underwriters are only as good as the questions they ask. Some common questions might include:
- insurance coverage issues
- the amount of liens on the file
- if there were pre-existing conditions
- whether there were prior accidents or similar incidents
- notice requirements
- if the case is in suit (complaint filed in court)
- whether discovery is concluded
- whether a demand was made
- if defendant made an offer
- if there are expert reports
- loss wage claims
- loss of earning capacity
- a discussion of any statute of limitation issues
- any expected problems with causation
- an estimated settlement value of the case
This list can go on and on, depending upon the answers to the previous questions. Most lawsuit funding underwriter conferences last less than 5 minutes. Some much longer. The general idea is to understand what issues exist that might cause plaintiff to lose and what type of settlement offer is to be expected.
Lawsuit Loan Underwriting is an Art
As you might suspect, lawsuit funding underwriting is not an exact science. Each underwriter has unique experiences and understanding which are brought into the process. Some might have more experience in certain areas than others. The best lawsuit funding companies employ the services of multiple underwriters on their team. The more “experts” that can weigh in, the better the chances an investment will yield a return.
And that’s the point exactly.
Thank you for your interest in lawsuit funding underwriters and the lawsuit loan business.