Originally Published March 23, 2017
Legal funding underwriters sit smack in the middle of all legal funding business, such that any mistakes or errors they make reverberate throughout the entire operation.
Approve a handful of bad cases? Those losses are going to come directly out of the bottom line.
On the flip side, too conservative and not approving cases that are indeed good investments? It's expensive to fall short of the efficient frontier. It's a lost deal today and perhaps a lost relationship tomorrow!
Accidentally tell a case manager a plaintiff is approved, when in fact, they aren't? That case manager is now going to be on the phone for 30+ minutes explaining the mix-up, and the attorney relationship may be in jeopardy.
Those are just three examples, and they barely scratch the surface. The aim of this article is to highlight seven errors that all legal funding underwriters eventually make so that you can identify them before they happen and save yourself from mistakes.
Neglecting a Financial History
A common error many underwriters make is not doing a thorough liens and judgment search on the client. Search tools such as Lexis Nexis, Google and relevant Secretary of State websites all provide information on outstanding liens and judgments.
Many underwriters also fail to perform such a review on attorneys. If an attorney has a colorful history of liens and judgments, this can give insight into the attorney's state of mind, or at least his or her prioritizing capabilities.
On the flip side, do not be too quick to cast aside a funding application if it appears that there are too many outstanding liens and judgments out there for a specific client. A little help now can establish trust and makes for a good business relationship.
Sometimes a little legwork from the client-either a plaintiff or attorney (but more so for a plaintiff)-can help to find releases and satisfactions for old liens and judgments. Do not be afraid to offer guidance to your clients on how they can locate or procure releases of judgments or liens which can sometimes be as simple as calling the court in question and speaking to the relevant person.
Underwriting Case Types Where You're Not an Expert
Many legal funding underwriters are former practicing PI attorneys who are primarily familiar with motor vehicle accidents, slip and fall, premises liability, and other common case types which they encountered when practicing.
While those typically make up the bulk of cases you'll underwrite, it would be naive to think you'll have expertise in every case that comes across your desk. So what do you do when something more obscure comes across your desk?
The worst thing you can do is to pretend as if you understand the case enough to approve or deny the application. Admitting you don't have sufficient knowledge on a case type is challenging, but it sure beats a bad investment that you'll have to answer for in six months.
Let me paint you a picture:
The 10th case of the day comes across your desk. The case manager is desperate for it to be approved and tells you that liability, coverage, and damages align. You take a quick glance through the docs and confirm: "Police report-check. Meds-check. Dec sheet-check. Approved for $500." And then you find out a week later that it was a dud after your manager took a look at the docs and noticed that there were four claimants on a 25/50 policy.
Not reading each and every document, even on apparent slam dunks, is by far the easier mistake to make and one I'm sure all of us have whiffed on at some point.
Underwriting is definitely all in the details, the facts, the story, and the end result. An underwriter needs to be detail-oriented and maintain the patience to weed through the unnecessary and get to the core issue. Much easier said than done.
Not Realizing That "Too Good To Be True" Nearly Always Is
Underwriters who aren't alert for potential fraud, or at least the overselling of a case, are bound to make mistakes.
One red flag in this category that should never be ignored is when an attorney is pushing hard and saying all the right things about the case for their plaintiff to get funding.
As we all know, most attorneys are, at best, indifferent towards plaintiff funding. When they behave otherwise, it's time to review the case with a fine-toothed comb:
- Ensure that all case documents are complete, authentic, and tell the whole story.
- Ask pointed questions, and pay particular attention to the questions that aren't being answered.
- Review the attorney history with your company and look for any disciplinary history.
Being Swayed by Other People's Priorities
As one of the key decision makers at a legal funding company, underwriters are constantly being pulled in multiple directions. Case managers want fast decisions and as many approvals as possible. Execs want correct decisions that maximize ROI. Attorneys want to talk to you as little as possible.
An underwriter can feel the clock ticking and give the go-ahead to a case which is not really ready to go. As an example, in a wrongful death or medical malpractice case where there is a settlement and a release, but an application has not been filed in surrogate's court, it is always a good idea to wait until the application has been entered and a decision has been made so that there are no surprises about legal fees being reduced due to new liens cropping up.
Not Using Technology
Let's be honest, technology can be overwhelming, and we would rather keep doing things the way we are used to-with good old pen, paper, and in/out baskets.
This is a mistake on two fronts. First, you will lose track of underwriting notes, forget attorney conversations, lose case documents, and have a hard time staying organized just using pen and paper. Second, as the legal funding industry continues to evolve and attract new talent that is willing and able to embrace new technology, you may find it hard to compete with the underwriters who are taking advantage of the efficiencies they gain from software.
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