Your Guide to Underwriting MVAs: Part 2

July 21, 2017
5min read

In part one of the MVA Underwriting Guide for Legal Funders we covered five important pieces of MVAs applications you should always keep in mind when underwriting:

  1. Number of potential claimants
  2. Medical billing
  3. Policy limits and damages
  4. Causation considerations
  5. Time since date of loss

Now it's time for a brief walk-through of four venue-based case features you need to take into account when underwriting motor vehicle accident cases for legal funding investment:

  1. Fault apportionment
  2. State Limits on Insurance Coverage
  3. Joint and Several Liability
  4. Affirmative Defenses by State

#1 Fault Apportionment

Depending on the state in which the incident occurred, one of three main types of fault apportionment will apply to your MVA application.

We'll address these in order of funder-friendliness.

Pure Comparative Fault

This is is the easiest and best system for a legal funder.

The claimant can be 99% liable for the cause of the accident and still sue and recover, albeit their award will be reduced by the percentage of their fault.

Alaska, Arizona, California, Florida, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, New York, Rhode Island, South Dakota, and Washington currently follow this rule of law.

Modified ComparativeFault

Modified comparative fault apportionment is the more complicated since there are 2 variants. Of the 33 states that recognize modified comparative fault, 12 adherent states follow the 50% rule. That is, in 12 of the 33 adherent states, a client who is found 50% at-fault for an accident cannot recover funds. If the client is just 49% at fault, however, he or she can recoup funds.

The other states implementing this rule use the 51% bar rule. That is, the damaged party can recover if he/she is 50% responsible.  If the party is more than 50% responsible, recovery is not possible.

Arkansas, Colorado, Georgia, Idaho, Kansas, Maine, Nebraska, North Dakota, South Carolina, Tennessee, Utah and West Virginia follow this rule. Experienced funders will notice many non-funding-friendly states on this list, anyway.

Pure Contributory Negligence

This is a relatively easy concept of law. However, it is the least favorable for a funder.  This rule states that claimants even 1% responsible for an accident are barred from suing. In these venues, it is best to avoid any MVA that is not a rear-end hit or an instance in which the defendant insurance carrier has issued a letter accepting liability.

Alabama, DC, Maryland, North Carolina, and Virginia employ this rule. You will notice almost ALL these states are most funders' "no-fund" lists.     

#2 State Limits on Insurance Coverage

This seems like a straightforward concept.  I can tell you, however, that many funders, while making sure money gets out on the street or looking at the 13th case of the day, glance at a great fractured leg in need of surgery and say, "rear end hit, 100% liability, great injuries, they want $15,000. Do it."

While in a vacuum this hasty analysis makes perfect sense, what happens when you or your underwriter looks down and notices the defendant's vehicle is a 1977 Gremlin in New Jersey with minimum standard policy and only $15,000 coverage?

This is all to say: Be aware of state minimums.

Many cases you see will be in the early stages of the case and counsel will not have obtained the dec sheet for the defendant yet. Thus, you must presume they have the state minimum, which can be easily verified by referring to a site, such as Understanding Minimum Car Insurance Requirements.

Make sure your underwriter also looks into whether noneconomic damages are suable, as they are in New Jersey and Pennsylvania, for example.  

#3 Joint and Several Liability

Paraphrasing this handy guide, joint and several liability allows a plaintiff to sue for and recover the full amount of recoverable damages from any defendant. In the "pure" form, plaintiffs can recover the entire amount of damages from any of the jointly and severally liable tortfeasors, regardless of a particular defendant's percentage share of fault.

This concept, which varies on a state-by-state basis, is also key for every funder because it determines how many policies are available to the plaintiff, thereby affecting potential case value.  

#4 Affirmative Defenses by State

Knowing the nuances of affirmative defenses available in each state is yet another resource underwriters need in order to pick the strongest investments, although it is nearly impossible to cover all the affirmative defenses, their legitimacy and their analysis by state in this article. Therefore, we'll use an example of affirmative defense available in all states: seatbelt use or non-use.

Almost every state has established seat belt laws. Most states have taken legislation beyond just the front seats, requiring riders in the back seats under a certain age to buckle up, as well.

Why should funders care?  In some states--New York, for example-- lack of seatbelt use can be a mitigating factor in damages. The theory being, if the injury is a broken nose and face from hitting the windshield, the defense will argue the injuries were caused by lack of seatbelt use.  On the other hand, like in Georgia, this defense cannot even be raised unless it somehow materially affected the client's operation of the vehicle. It can be a comparative fault issue, but not a damages per se defense.

Affirmative defenses are something to note seriously while assessing case value as well as when estimating the amount of funding possible for a case.

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The Mighty Team

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