What Is a Contingency Fee?
In most cases, personal injury attorneys provide legal services in exchange for compensation from their clients. While attorneys may render services free of charge in certain situations, a law firm is a business and clients must pay for its service. Sometimes, however, a client requires legal representation but does not have the funds necessary to secure an attorney. In personal injury cases where the client stands to receive a settlement if he or she wins the case, the client and attorney may reach a contingency fee arrangement.
Contingency fee agreements allow clients to utilize the services of an attorney and pay fees later, after the settlement money or trial winnings allow payment. In other words, payment is contingent on the attorney successfully winning or settling the case and providing the client with compensation for any damages. The attorney shoulders the risk that the case will not result in settlement money.
Typically, contingency fees are a certain, previously established percentage of the client’s settlement funds. Median fees are usually around 33%, though fee amounts differ based on the details of the case. Particularly complex cases, or cases lasting a substantially longer amount of time than usual, can result in contingency fees as high as 40%. Simpler cases that require less research and filing on the part of the attorney can carry contingency fees closer to the 25% mark. Other attorneys choose to charge an up-front or partial hourly fee in exchange for a lower contingency fee.
When the courts award a settlement or verdict, the attorney usually claims contingency fees before releasing the remainder of the settlement to the client (or to the client’s bill collectors). This way, the attorney receives the funds upfront and does not risk the client disappearing with the settlement. The final amount the plaintiff receives is after the award has satisfied all outstanding court costs, attorney’s fees, and medical debts.
The obvious advantage of contingency fees is that they allow a client with limited financial means access to the services of an attorney. In some cases, clients can negotiate contingency fees, leading to even greater flexibility for clients. The ability to pay later increases access to attorneys and allows more people to pursue compensation for the damages they suffer at the hands of others.
With a contingency fee arrangement, it does not matter if the client cannot afford to hire a lawyer upfront. The client does not need to put down a minimum amount or down payment. The lawyer will begin working on the case right away, without the client needing to pay a cent to initiate the relationship. The law firm will front all the costs of the lawsuit, including accident investigation and hiring experts. It will only receive repayment if and when the attorney wins the case, and only then through a percentage of the award – never out of the client’s pocket.
With contingency fees, clients will also know exactly how much they will pay for their lawyers up front. The fees will not remain a mystery until the conclusion of the case. The contract between attorney and client will clearly and openly state the percentage the attorney will take from a settlement or verdict. Fee transparency can give clients peace of mind during their lawsuits. The law firm will only take a pre-agreed-upon amount based on the specifications in the contract.
Another advantage of contingency fee arrangements is that clients rest assured knowing that most attorneys will not accept a case they do not feel they can win. The attorney assumes all the risk by guaranteeing you will not pay unless your case is successful. As a result, clients can be certain attorneys working on a contingency basis will work diligently in order to win each case and secure payment.
The Downside of Using a Contingency Fee
Despite the advantages of using a contingency fee, certain downsides do apply. With no guaranteed compensation for the large amounts of work an attorney must put forth during a case, attorneys are often choosy regarding the cases they will take. If a case presents certain legal complications or proves likely to be a difficult case, a client may experience difficulty finding an attorney willing to take the case.
Another downside of paying a contingency fee upon settlement rather than an up-front fee, hourly fee, or some combination is that the contingency fee may end up exceeding the hourly fees the client passed up in favor of the contingency agreement. Particularly for simple, straightforward cases that do not require much legwork or time in court, hourly fees remain minimal. Contingency fees for the same case, however, often add up to the same percentage of the winnings regardless of the length of the trial.
Some attorneys offer flexible or negotiable contingency fees as the case moves along. The client can negotiate a new contingency fee rate if the case looks relatively straightforward, or request an hourly rate instead. Although a request to alter a fee does not obligate an attorney to institute a flexible or negotiable fee, clients can assess the fee schedule as the case proceeds and determine if an altered contingency fee is desirable.
As with many legal situations, certain ethical rules apply to contingency fees. For example, most areas place a cap on contingency fees, ensuring that no attorney receives an exorbitant amount of contingency fees from one particular case. Most jurisdictions with a cap set the cap at 33% of the awarded amount, though certain case types may hold lower caps.
In some jurisdictions, attorneys may not accept certain case types on a contingency basis. For example, many jurisdictions forbid attorneys from accepting child support cases on a contingency basis to prevent the system from working against the best interests of the child. Similarly, attorneys in some jurisdictions may not accept criminal cases or divorce cases on a contingency basis to prevent attorneys from working against public policy.
Other ethical obligations may prevent attorneys from shouldering all or a majority of the costs of the litigation. If an attorney must contribute money from his or her personal funds to continue work on the case, he or she may avoid contributing too much money. In this situation, the attorney may not put forth the necessary effort to achieve the best results.
Fees vs. Costs
Before entering into a contingency fee arrangement, it is important that clients know what expenses contingency fees cover. When a client enters into a legal agreement with an attorney, the legal agreement lists fee and cost arrangements in a written format. It is essential clients review the details of a legal agreement before signing.
In most cases, contingency fees only cover the attorney’s fees. Other costs of the litigation, such as court costs, copying costs, filing costs, expert witness testimony costs, and deposition costs, may fall on the client. Depending on the complexity of the case, the length of the case, and the amount of work the attorney must contribute, additional fees and costs may arise during the proceedings. It is the client’s responsibility to determine the source of payment for extra fees and costs. The cost schedule is as follows.
- Court and filing costs can range up to $400
- Discovery costs, including deposition costs, can cost upwards of $1,000 for an eight-hour deposition
- Evidence costs, including the fees to obtain medical and legal records, can reach several hundred dollars
- Witness costs for cases requiring expert witnesses can begin at a few thousand dollars and reach tens of thousands of dollars if more than one witness provides testimony
- Copying and other paperwork costs can add up to a few hundred dollars over the length of a case
If the attorney loses the case and the courts’ award court costs to the winning side, requiring the losing side to pay all court costs, the client may assume responsibility for the costs. If the attorney wins the case, however, it typically becomes the defendant’s responsibility to cover all the plaintiff’s legal fees and court costs. Before entering into an agreement with an attorney, the client must determine which costs become his or her responsibility.
How to Keep the Costs of a Case Low
It may be possible to negotiate lower attorney’s fees depending on the law firm, the lawyer, and the facts of the client’s case. First, the client should comparison shop for a few different lawyers in the area. Keep in mind, however, that clients get what they pay for – cheaper legal services may not be in the client’s best interests if the quality of the firm is questionable.
Next, the client can ask the firm for fee options. Contingency fee might not be the only, or the cheapest, choice. Clients can propose arrangements that work for them. The attorney might agree to the client’s desired terms or counter with a different offer. The client should know the value of his or her case before starting. Clients may also be able to cut costs by doing some of the busy work, such as gathering accident reports and keeping files organized.
Who Should Enter Into a Contingency Agreement?
Potential clients without the means to pay up-front or hourly attorney fees should consider utilizing a contingency agreement for personal injury cases. However, whether an attorney accepts cases on a contingency basis depends on the attorney’s own preference and policies as well as the type of case involved. Most personal injury attorneys accept some form of a contingency agreement since this area of law holds ideal conditions for such an arrangement.
Before entering into a legal agreement of any kind, it is important to establish compensation specifics. The type of contingency fee the attorney prefers, what happens if the attorney loses the case, and who is responsible for other fees and costs are essential questions for any potential client. In addition, weighing the potential contingency fees against the complexity of the case and the potential hourly fees bears consideration when deciding whether to pursue a case on a contingency basis. Call your local attorney for any questions you may have before agreeing to anything.