i’ve seen so many ads asking ordinary to call a number to claim cash due to companies liability or medicare. For example, i will see ads for class action lawsuits against chrysler and how they have faulty head rests. The ad asks for ppl to call the number if they think they qualify. are these scams? why are these ads so ubiquitous?
In: Economics
The higher the amount of claims in the lawsuit, the higher the payout may be and as a result the more the law firm will make.
For example, let’s say Evil Corp made a paint that turns out gave people cancer. Bob had cancer, and now he wants to sue $100 for his cancer treatment and lost wages. The company may say, “Bob is a small fish, but we could also lose if we go to court. We’ll offer him $20 and he’ll take it because he knows he could also lose in court.
But a Slick Lawyer realizes there’s other people with the cancer. So they go out and find 99 more people that claim to have been affected. Now that $100 is $10,000. Evil Corp’s settlement will be based on that $10,000, so maybe they offer $2,000. Also, if it goes to trial, now the payout could be as high as $10,000, not $100. And here’s the ultimate answer to your question: **Slick Lawyer’s fees are based on “contingency,” which means they gets a percentage of the total payout. So the more claims they’re able to join in, the more money they stand to make.**
People understandably have issues with this, because often the lawyers get mega-payouts while the individual claimants receive a small amount. Also, sometimes the lawsuits are frivolous, as they are based more on probability of winning than demand for justice. I will add that in absence of this system, many of these lawsuits wouldn’t be brought at all, and it does provide a sort of counter balance to corporations that can spend tens of millions of a lawsuit, even if it’s imperfect.
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