LEGAL GUIDE
Written by attorney Daniel C. Cuppett | Oct 23, 2012

Understanding Attorney Fees In Personal Injury Cases

UNDERSTANDING ATTORNEY FEES IN PERSONAL INJURY CASES

FEES VS. COSTS

One of the factors in choosing a lawyer that deserves special attention is understanding the difference between attorney fees and costs. The difference in these terms sometimes leads to confusion and causes clients to feel like they have been tricked. You have probably heard lawyers boasting in their ads that they do not charge a fee unless you get money. You should be aware that although it may be true that they charge no fee for their time unless you win, you may be responsible for paying thecostsof pursuing the claim regardless of the outcome.

The fee charged by a lawyer is the charge for their time.Costs, on the other hand, are those out of pocket expenses that the lawyer pays in the furtherance of your case and may expect, depending on the provisions of the fee agreement, to be reimbursed for. Costs include, among other things, charges for getting medical records, postage, copying, faxing, long distance charges, court filing fees, etc. Make sure that when you hire a lawyer to handle a personal injury case that you understand whether their contingency fee includes both fees and costs or whether instead the costs are separate from the fees, and exactly what you are responsible for paying, win or lose. (Some states have very specific rules that require lawyers to be very clear about this difference, but other states’ rules are less stringent, and some states do not allow costs to be contingent on the outcome but must be the responsibility of the client no matter what).

Some lawyers may indicate that their fee is contingent on the outcome of the case and that they do not get paid a fee unless you win, but ask you to pay them a retainer up front for costs. In my experience, this is not common. Thus, if the lawyer wants you to pay for the costs of the case up front, or insists that you pay for every cost as it is accrued, there could be several reasons for this. First, the lawyer may recognize that for one reason or another your case has a bigger chance of losing than most of his or her cases. He or she might be willing to take a chance on your case and invest time, but not money for costs. Usually, if this is the case, the lawyer will tell you up front that this is why you will have to pay for the costs. It might then be a good idea to consult with at least one other attorney before agreeing to do this, as another attorney might not see your case as being as risky and agree to advance the costs. Of course, if you have never hired an attorney before, it is always good to consult with more than one attorney before you make your final decision.

UNDERSTANDING CONTINGENCY FEES

Most personal injury lawyers do not charge an hourly fee for their time. Hourly charges usually apply to criminal cases, divorce cases, and others, but not personal injury cases. Normally, an attorney in a personal injury case will charge the client a percentage of the settlement or judgment that is attained, if any, at the end of the case. This is called a “contingency fee" or “contingent fee" - it is contingent upon the ultimate outcome of the case. If the case gets nothing, obviously any percentage of nothing is nothing. That is why there is no fee unless you win.

That leads to the obvious question of what percentage constitutes a proper contingency fee. Personal injury law can be very competitive, depending on where you live, and as such you may find that there are sometimes various fees charged by different lawyers to try to get your business. However, the most common contingency fee is probably still the traditional one third contingency fee. In that arrangement, the lawyer’s fee is one third of the settlement or verdict. Firms with a lot of advertising typically will charge a one third contingency fee. In recent times, some firms have even increased their fees to forty percent, or even more in some situations. On the other hand, some lawyers who do not advertise as much or practice in locations with more competition may charge lower fees. This may sound enticing, but keep in mind that a lower fee may mean a less experienced lawyer with less capital to fund your case and so even a higher percentage fee may be better in the long run if the more expensive lawyer gets you a higher settlement or verdict. Also, cheaper lawyers often get more clients, are consequently busier, and therefore may have less time to talk to you if you have a question or return your phone calls promptly. That is not to say that cheaper cannot be better, just remember that in many cases, you get what you pay for. So lower fees may factor into your decision, but should be considered in combination with many other factors.

You should also be sure you understand at the outset whether the lawyer’s percentage is calculated from the total settlement, or whether costs are deducted before the calculation is made. In most cases, the percentage is calculated based on the total settlement and then the costs are taken off after attorney fees are deducted. For example, suppose that your attorney charges the common one third contingency fee and deducts the fee before costs, as is usually the case. Suppose further that you get a settlement of $90,000, have costs of $5,000, and have to pay $5,000 in outstanding medical bills. The calculations would be as follows:

$90,000 Settlement

minus $30,000 One third contingency fee

minus $5,000 Costs to be reimbursed to your attorney

minus $5,000 To be paid to your doctors (assuming you wish for the attorney to take care of paying these bills out of your settlement rather than tendering payment yourself - or if you authorized your attorney to issue letters of protection.

Equals $50,000 Total amount of the settlement that you will receive.

I have also frequently encountered confused clients who thought, despite my careful explanation and detailed fee agreement, that my contingency fee was calculated based on the amount of the settlement that remains after medical bills are deducted. In other words, they thought I only got a percentage of the amount recovered for pain and suffering. I never understood why this misconception was so common, and continued even after I instituted a policy of carefully explaining in the very beginning that this is not the case. So, if you believe this is the arrangement with your lawyer, make sure that you understand exactly how your lawyer’s fee is calculated.

TIERED CONTINGENCY FEES

Instead of reducing their contingency fee percentage overall, some lawyers charge a contingency fee that depends on how far your case goes before reaching a conclusion. In other words, if the case settles before a lawsuit is filed, the contingency fee is lower than if the case goes all the way to trial or beyond. A sample of this sort of multi-tiered contingency fee arrangement might look something like this:

25% if the case settles before a lawsuit is filed

33% if the case settles during trial or if the case goes all the way to a jury verdict

40% if the case goes to trial, either side appeals, and the case must be tried a second time

These percentages are meant only to illustrate how this type of arrangement works. Unlike the common, overall contingency fee that has traditionally been one-third, there is no traditional or more common set of percentages that are used in this type of tiered fee arrangement that are more common than any others, at least not that I am aware of.

This type of arrangement may work to your advantage by offering a lower fee if your case ends sooner rather than later. On the other hand, the fees might be scaled so that if you go to trial you pay more than the traditional one third, in which case it might be better to take your chances with a one third arrangement regardless of how far the case goes. Of course, it can be difficult to predict at the outset how far your case will go.

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