The Cram Down: When The Money Available Isn't Enough

The Cram Down: When The Money Available Isn't Enough

Many people have an image of personal injury lawyers fighting for verdicts before juries in court. Undoubtedly, that is a critical part of what we do. But there is another less glamorous but equally important role we can play: helping with the inadequate settlement.

It’s no secret that many people driving in Florida have inadequate insurance for injuries they cause to others. Some drivers have no coverage at all. Many others have coverage, but at limits which are insufficient to pay an injured person’s total damages. In a case where someone suffers catastrophic injuries, even $100,000 in coverage might only cover a few hours or days of medical bills.

Consider this example: a woman in her 30s gets hit by a pickup truck which runs a red light and smashes into the driver’s side of her car. She is removed with jaws of life, flown by helicopter to a trauma center, and found to have several broken bones. She stays in the hospital for several days, then faces seemingly endless sessions of therapy when she’s released.

Thirty days after her accident, she begins receiving her bills and adding them up. To her horror, she finds that her bills – at least on paper – are about $150,000. But the driver of the pickup who hit her has $100,000 in coverage, and she has no coverage of her own. The insurance company for the pickup truck driver is willing to pay her the $100,000, but it’s already clear that it won’t be enough.

Left to her own devices, our accident victim may end up with nothing but debt. If she sees a lawyer, on the other hand, she may be able to get some relief. Lawyers can sometimes orchestrate what we call a “cram down” settlement, where everyone shares the pain to create the fairest possible outcome.

The term “cram down” has a specific meaning in bankruptcy law. As we use it, it simply means getting everyone involved in the case to take a financial hit. A lawyer can negotiate with hospitals, physician’s offices, and health insurance companies making reimbursement claims. When a lawyer tells them the settlement funds were inadequate, they often will realize that fairness requires them to make a sacrifice too. In many cases, they will agree to accept less than their total bills in exchange for prompt and certain payment.

In this scenario, our accident victim goes from the possibility of owing money to having all her bills paid and putting money in her pocket. If her bills are reduced from $150,000 to $40,000, they can be paid in their entirety from the $100,000 in settlement funds. There will still be money left after that for her personally. This is less than ideal, but it is much better than paying out all the settlement funds and still owing money.

While this type of negotiation work lacks the drama and tension of a courtroom battle, the outcome may be just as important to clients. They may find that this under-the-radar work is the difference between financial disaster and getting back on their feet.

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