We investigate the effect of litigants’ objective merits of the case on litigationoutcomes under the contingent fee and the legal expenses insurance regimes.We first demonstrate that the objective merits of the case decreases theamount of contingent fee under the contingent fee regime. Moreover, thehigher reflection of the merits on a judgment we have, the lower the totaleffort levels in both regimes. Next, we provide a condition under which theplaintiff can benefit from the contingent fee regime and vice versa. Finally, weshow that the total effort level is always lower in the contingent fee regime.