A letter of protection is a contract in which an attorney representing a personal injury plaintiff promises to pay a medical provider’s charges out of any financial recovery the attorney receives on behalf of the plaintiff. A lien is a creditor’s legal claim on a property that secures payment of a debt. For instance, the bank’s mortgage on your house is a lien. Likewise, a letter of protection serves as a lien in favor of the medical provider.
How a letter of protection works
Paula is injured in an automobile accident. Daniel was driving the other car and appears to be at fault. Paula has no health insurance. Her doctor is reluctant to treat her injuries because he has no assurance that she will be able to pay. Paula visits an attorney who agrees to file a lawsuit for her against Daniel and his insurance company. The attorney issues a letter of protection to the doctor. The letter is intended to assure the doctor that he will be paid out of any settlement proceeds or judgment amount that Paula receives in the lawsuit. If the doctor accepts the letter of protection, he will provide Paula the medical treatment she needs, and he will then wait for payment. When Paula’s lawsuit against Daniel settles, Daniel’s insurance company will send the settlement money to Paula’s attorney. The attorney will pay the doctor’s bill out of the settlement before releasing the remainder of the award to Paula.
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The lawyer’s fiduciary duty to pay pursuant to a letter of protection
In all 50 states, an attorney has a fiduciary duty to protect her client’s financial recovery. A fiduciary duty is an obligation to act in the best interests of another. In this case, it’s the duty of the attorney to safeguard the client’s settlement money and ensure that it is distributed to the parties who have a claim against the client in connection with the personal injury case. This includes anyone to whom the attorney gave a letter of protection.
The letter of protection is a binding and enforceable contract. If the lawyer fails to pay the medical provider or gives the money to the plaintiff instead, the medical provider can sue the lawyer for breach of contract. In addition, the lawyer can be subject to disciplinary action.
The letter of protection is not, however, a 100% guarantee that the doctor will be paid. And, it is not a lawyer’s promise to pay the client’s medical bills out of her own pocket. If the plaintiff loses her case or the settlement award is not enough to cover the medical bills, the plaintiff still owes the medical bills and is obligated to pay them.
Compare a letter of protection to other liens
There is a major difference between a letter of protection and other liens. Many liens are recorded in county or state records to serve as notice to other parties who might have an interest in the property that secured the lien. Letters of protection are not filed in government records.
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Compare a letter of protection to a lawsuit loan
A lawsuit loan, or pre-settlement funding, is an advance provided by a litigation funding company to be paid from the plaintiff’s financial recovery in a lawsuit. The funding company provides the advance during the lawsuit, and the plaintiff promises that the lawsuit funding company will be repaid from the settlement funds. A lawsuit loan differs from a letter of protection in several important respects.
First, the lawsuit loan goes directly to the plaintiff. Plaintiffs will often use the money to pay for medical treatment, but they’re not restricted to just paying doctor or hospital bills. Plaintiffs can use a lawsuit loan to pay for anything, like rent, groceries, or car payments.
Second, a letter of protection offers the plaintiff less protection than a lawsuit loan. The lawsuit loan advance is non-recourse, meaning that the plaintiff does not have to repay it if she loses her case or the recovery is not enough to cover the advance.
Third, the plaintiff, in general, will not pay an extra fee to her attorney to issue a letter of protection. On the other hand, because the plaintiff is using a lawsuit loan advance while the lawsuit progresses, the litigation funding company will assess a fee. That fee will be paid when and if the plaintiff receives a financial recovery.