After an accident, the thought of hiring a lawyer can raise an immediate concern: How can I afford legal representation while I am already facing medical bills, lost income and other unexpected expenses?
Many personal injury lawyers address this concern by working on a contingency fee basis. Under this arrangement, you generally do not pay the lawyer an upfront retainer or receive hourly legal bills. Instead, the lawyer earns an agreed-upon percentage of the compensation recovered for you.
If the lawyer does not obtain a settlement or favorable verdict, the lawyer generally does not receive an attorney’s fee.
What Does “Contingency Fee” Mean?
A contingency fee is a payment arrangement in which a lawyer’s compensation depends – or is “contingent” – on the outcome of the case.
Rather than charging by the hour, the lawyer receives a percentage of the money recovered through:
· An insurance settlement
· A negotiated settlement after a lawsuit is filed
· A mediation or arbitration award
· A jury verdict
· Another successful resolution of the claim
Cornell Law School’s Legal Information Institute defines a contingency fee as an arrangement in which a lawyer receives a percentage of the monetary recovery when the client wins or settles the case. The amount may also depend on the stage at which the case is resolved.
This arrangement is especially common in personal injury cases because many injured people cannot afford to pay a lawyer by the hour while they are recovering from an accident.
How Does a Contingency Fee Work?
When a lawyer agrees to handle your case on contingency, you will usually sign a written fee agreement before the lawyer begins working on the claim.
The agreement should explain how the contingency fee works, including:
- The percentage the lawyer will receive
- Whether the percentage changes if a lawsuit is filed
- Whether a different percentage applies if the case goes to trial or appeal
- Which case expenses may be deducted from the recovery
- Whether expenses are deducted before or after the attorney’s fee is calculated
- What happens if no compensation is recovered
- How the representation may be ended
The New York City Bar Association explains that a personal injury client working under a contingency arrangement generally does not pay upfront or hourly attorney fees. Instead, payment depends on the client recovering compensation for the injury.
Because fee rules can vary by state and by the type of claim, clients should carefully read the agreement and ask questions before signing it.
What Percentage Does a Personal Injury Lawyer Receive?
The exact contingency fee percentage varies. It may depend on:
- The law of the state where the case is handled
- The type and complexity of the claim
- Whether the case settles before a lawsuit is filed
- Whether litigation becomes necessary
- Whether the case goes to trial
- Whether an appeal is required
- The terms negotiated between the client and lawyer
A fee of approximately one-third of the recovery is common in many personal injury cases, but it should not be assumed that every lawyer or case uses the same percentage. Cornell’s Legal Information Institute notes that successful personal injury lawyers are often entitled to around 33% of the recovery, although the actual arrangement may differ.
Some agreements use a sliding fee structure. For example, the lawyer may receive one percentage if the claim settles before litigation and a higher percentage if the lawyer must file a lawsuit, conduct depositions, retain experts or take the case to trial.
The percentage and any possible increases should be clearly disclosed in the written agreement.
An Example of How a Contingency Fee Is Calculated
Suppose an injured person receives a settlement of $150,000 and the lawyer’s contingency fee is one-third.
The attorney’s fee would be approximately $50,000.
The remaining amount may then be reduced by applicable case expenses, medical liens, health insurance reimbursement claims or other required payments. The final amount received by the client will depend on the specific facts of the case and the terms of the fee agreement.
One important detail is whether case expenses are deducted before or after the contingency fee is calculated.
For example:
Expenses Deducted Before the Fee
If a $150,000 settlement includes $10,000 in case expenses, the fee may be calculated from the remaining $140,000.
Expenses Deducted After the Fee
The lawyer may instead calculate the fee from the entire $150,000 settlement and deduct the $10,000 in expenses afterward.
The difference can affect the client’s net recovery. That is why the fee agreement should clearly state how these calculations will be made.
Are Attorney’s Fees and Case Costs the Same Thing?
No. An attorney’s fee compensates the lawyer and law firm for their legal services. Case costs are expenses incurred while investigating, preparing and pursuing the claim.
Common case expenses may include:
- Court filing fees
- Medical record charges
- Police report fees
- Deposition costs
- Expert witness fees
- Accident reconstruction expenses
- Investigative services
- Medical examinations
- Exhibit preparation
- Travel expenses
- Postage and document-production costs
Some law firms advance these expenses while the case is pending and seek reimbursement from the recovery. Others may require the client to pay certain expenses separately.
The phrase “no fee unless we win” usually refers specifically to the attorney’s professional fee. It does not automatically mean that every possible case cost will be waived if the claim is unsuccessful. The client’s responsibility for expenses should be addressed in the written agreement.
What Happens If the Lawyer Does Not Recover Compensation?
Under a typical contingency fee arrangement, the lawyer does not receive an attorney’s fee if the client receives no settlement or verdict.
That means the client generally does not owe thousands of dollars in hourly legal fees after an unsuccessful case.
However, clients should still ask whether they could be responsible for any case expenses if no recovery is obtained. Policies differ among law firms, and the written agreement controls the arrangement.
Before hiring a lawyer, ask directly:
If my case is unsuccessful, will I owe anything for costs or expenses?
A reputable lawyer should be willing to provide a clear answer.
Why Do Personal Injury Lawyers Use Contingency Fees?
Personal injury cases can require substantial time, investigation and financial resources. They may involve reviewing medical records, interviewing witnesses, analyzing insurance policies, consulting experts, negotiating with insurers and preparing for trial.
Most accident victims cannot afford to pay for all of that work on an hourly basis.
A contingency fee arrangement allows an injured person to pursue a claim without paying ongoing legal bills. It can provide access to representation for people who might otherwise be unable to afford it.
The arrangement also places some of the financial risk on the lawyer. The law firm may devote months or even years to the case without knowing whether it will ultimately receive a fee.
Benefits of a Contingency Fee Arrangement
No Large Upfront Retainer
You generally do not need to pay a substantial retainer before the lawyer begins working on the case.
No Hourly Legal Bills
You do not ordinarily receive a bill each time the lawyer makes a phone call, reviews a record, writes a letter or attends a court hearing.
Access to Legal Representation
People can seek professional representation even when medical expenses or lost wages have created financial hardship.
Payment Is Connected to the Result
The lawyer receives a fee only if compensation is successfully recovered under the terms of the agreement.
The Lawyer Assumes Financial Risk
The law firm risks receiving no attorney’s fee despite investing significant time and resources in the case.
Does a Contingency Fee Give the Lawyer Control Over the Case?
No. The client remains the person who decides whether to accept or reject a settlement offer.
A lawyer can evaluate an offer, explain its advantages and disadvantages, discuss the risks of continuing and make a recommendation. However, the final settlement decision belongs to the client.
The lawyer’s financial interest in the outcome does not authorize the lawyer to accept a settlement without the client’s approval.
Can a Contingency Fee Change During the Case?
It may, but only according to the terms of the fee agreement and applicable professional-conduct rules.
Some agreements provide different percentages depending on how far the case progresses. A lower percentage might apply if an insurer offers a fair settlement during the early claims process. A higher percentage might apply if the lawyer must file a lawsuit or prepare for trial.
Litigation often requires substantially more work, including:
- Preparing and filing court documents
- Exchanging evidence through discovery
- Taking and defending depositions
- Retaining expert witnesses
- Attending hearings
- Filing or opposing motions
- Preparing exhibits and witnesses
- Conducting a trial
Any stepped or changing percentage should be explained before the representation begins.
Is the Contingency Fee Taken From the Gross or Net Settlement?
That depends on the agreement.
A contingency fee based on the gross recovery is calculated before specified expenses are deducted. A fee based on the net recovery is calculated after specified expenses have been subtracted.
For example, assume a case settles for $100,000 and has $10,000 in litigation expenses.
If the fee is calculated from the gross settlement, the percentage applies to $100,000. If it is calculated from the net settlement after expenses, the percentage may apply to $90,000.
Neither method should come as a surprise. The written agreement should explain which calculation will be used.
What Other Deductions May Come From a Settlement?
The lawyer’s contingency fee is not necessarily the only amount deducted from a personal injury recovery.
Depending on the circumstances, settlement funds may also be used to pay:
- Outstanding medical bills
- Medical provider liens
- Health insurance reimbursement claims
- Medicare or Medicaid reimbursement obligations
- Workers’ compensation liens
- Case expenses
- Other legally enforceable obligations
Before distributing the settlement, the lawyer will generally prepare a closing or settlement statement showing the gross recovery, attorney’s fee, expenses, lien payments and the net amount payable to the client.
You should review that statement and ask about any deduction you do not understand.
Questions to Ask About a Contingency Fee
Before signing an agreement with a personal injury lawyer, consider asking:
1. What percentage will you charge?
2. Does the percentage increase if a lawsuit is filed?
3. Will it increase again if the case goes to trial or appeal?
4. Are expenses deducted before or after the fee is calculated?
5. Who advances the costs of investigating and litigating the case?
6. Will I owe any expenses if the case is unsuccessful?
7. What other deductions may be taken from my settlement?
8. Will I receive a written breakdown before the funds are distributed?
9. What happens to the fee if I change lawyers?
10. Are there any circumstances in which I would owe an hourly fee?
The lawyer should explain the agreement in understandable terms and give you an opportunity to review it before signing.
What Happens If You Change Lawyers?
A client generally has the right to change attorneys, although doing so may affect how fees are divided at the end of the case.
The original lawyer may claim compensation for work already performed, depending on the agreement and applicable state law. In many cases, the former and new lawyers resolve the division of the contingency fee between themselves, without increasing the total percentage charged to the client.
However, the rules vary. Before changing attorneys, discuss the potential financial consequences with the new lawyer.
Are Contingency Fees Available for Every Type of Legal Matter?
No. Contingency fees are common in personal injury and certain other cases involving monetary damages, but they are not allowed or appropriate in every legal matter.
Professional-conduct rules may restrict or prohibit contingent fees in certain family law and criminal cases. Special laws may also limit attorney fees for particular claims, such as certain cases involving government entities.
The availability and permissible structure of a contingency fee therefore depend on the type of case and the jurisdiction.
A Contingency Fee Can Make Legal Help More Accessible
A contingency fee allows an injured person to hire a lawyer without paying a large retainer or ongoing hourly fees. The lawyer is paid from the compensation recovered through a settlement or verdict. If no recovery is obtained, the lawyer generally receives no attorney’s fee.
That basic concept is simple, but the details still matter. The percentage, responsibility for case expenses, method of calculating the fee and possible deductions should all be clearly stated in writing.
Before hiring a personal injury lawyer, read the agreement carefully, ask questions and make sure you understand how much may be deducted from a successful recovery. A clear contingency fee agreement allows you and your lawyer to begin the case with the same expectations about how legal services will be paid.
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