UNDERSTANDING ATTORNEY FEES IN PERSONAL INJURY CASES
First, this section will explain the difference between attorney fees and costs, and that your responsibility for costs may or may not be contingent upon the outcome. Then, there is an explanation of how contingency fees work, including how they are calculated, what percentage they usually are, and why they are not as high as they may seem to you at first. Next, there is advice on how, in some situations, you may be able to haggle for a reduced fee as well as give an explanation of how tiered contingency fees work. Finally, there is a brief outline of hiring a personal injury lawyer on an hourly fee basis rather than a contingency fee basis.
FEES VS. COSTS
One of the factors in choosing a lawyer that deserves special attention is understanding the difference between attorney fees and costs. As you may have guessed by my use of both of the terms, “fees” and “costs” that they do not mean the same thing. This 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 the costs of 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 COMMON COSTS INVOLVED IN PERSONAL INJURY CASES
Below is a list which includes many of the costs you might encounter in a personal injury case. Keep in mind that this list is not the entire list, as there may be costs for your particular case that are not common.
FILING/SERVICE OF PROCESS FEES
EXPERT FEES These vary considerably. Could be less than $50.00 per hour or more than $1000 per hour, depending on the type and availability of the expert. Remember, the expert’s expenses (airfare, hotel, mileage, food, etc.) are usually in addition to their fee.
LONG DISTANCE PHONE CHARGES
RESEARCH SERVICE FEES
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.
Other reasons that the attorney might want you to pay the costs are that the attorney simply does not have the money or credit to pay the costs or that the attorney does not have much experience doing personal injury cases and does not yet understand that it is the usual practice for the lawyer to advance the costs in a personal injury case with a contingency fee type of arrangement. This does not necessarily mean that you should not hire the lawyer, but make sure you carefully consider a couple of things. First, if the attorney cannot afford to pay the costs, you should ask yourself why. Most attorneys, even if they cannot afford the costs themselves, have access to credit that can be used for expenses. Second, make sure you are confident that the attorney knows what he or she is doing. Sometimes attorneys who do 99% divorce cases will take a personal injury case based on excitement from the belief that they can make a lot of money with little work. A lot of lawyers who do not do personal injury cases sometimes have a misconception that personal injury cases are easy. What they do not realize is that there are a lot of complicated steps to properly handling a personal injury case, and a lawyer who does them regularly often has a smooth system in place to handle each step of the case - almost like an assembly line. To an outsider it may look easy, but from the inside, a personal injury lawyer must at every moment be planning and strategizing every step of the case, such as the collection and organization of medical records, knowing what experts are needed and then finding them, getting reports from doctors, analyzing wage losses, organizing proof of future medical bills, tracking down defendants, dealing with insurance companies, planning for trial, and hundreds of other little details. There have been many occasions when clients came to me and said that they had hired the lawyer who did the title search for them when they bought their house to handle their car accident case, but six months later, the lawyer told them that they should take their case to another lawyer who primarily does personal injury work. The absolute worst situation of this kind is when an inexperienced lawyer tries to do a medical malpractice case or complicated toxic tort case without at least teaming up with another lawyer who does have experience.
I once had a client come to me who fired his lawyer because the lawyer was in over his head and wanted to settle the case for $10,000. The lawyer did not regularly practice personal injury law but thought that he could settle this personal injury case quickly and for lots of money. The defendant was a big corporation that had a team of lawyers who were inundating the lawyer with reports from expensive, well credentialed, experts that said the case was a loser for the plaintiff. The inexperienced lawyer did not know what to do and fell for the tactics of the defense lawyers and wanted to get out of the case quickly with something, because he feared he would get nothing if the case continued. In addition, the defense lawyers threatened that they would try to convince a judge to make the lawyer pay the defendant’s legal expenses of the case, which were more than $100,000 (this was very unlikely, but the lawyer fell for it). After spending a few hours with the file I realized that the defendants were putting on a very elaborate and scary bluff, and I called it. We settled several months later for an amount that my client was quite happy with. The lesson here is to make sure that your lawyer knows how to handle the type of case that you have, or at least that he or she spends the time and effort to learn or works with another lawyer who does have related experience (at no extra cost to you, of course).
On the other hand, do not assume that someone who does mostly family law or criminal law cannot properly handle a personal injury case. It may be that they have experience in personal injury matters but prefer other types of work and take a limited number of personal injury cases. You should ask questions. Find out what experience they have and what types of cases they have handled in the past.
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:
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.
PAYING HOURLY FEES FOR A PERSONAL INJURY LAWYER
If you have a lot of available cash, and you do not want to pay a lawyer a percentage of what you get, most lawyers will agree to take your case on an hourly basis. Keep in mind, though, that a typical personal injury lawyer may charge you anywhere from $125 to $250 or more per hour for their time, plus expenses. In some more rural areas, or with some lesser experienced lawyers, you might pay as little as $85 per hour or less, and for some highly experienced and well known lawyers you might pay up to $500 or more per hour. The fees could easily reach $10,000 to $20,000 or more. As you might imagine, most people cannot afford to pay that kind of money, and most lawyers want a large retainer up front when they take a case on an hourly fee basis. Furthermore, every time the retainer runs low, the client has to replenish it with more money. Also, it is important that you understand that hourly fees have to be paid as the lawyer does the work, you cannot wait until the case is over to pay in hopes that you get a settlement or verdict and can use that money to pay the lawyer. This is why contingency fee arrangements are so attractive. The client does not have to put up a lot of money, and usually does not have to put up any money, in order to pursue a case.
THE THEORY BEHIND CONTINGENCY FEES
Many clients have asked me over the years why contingency fees are, in their perception, so high. They realize that most lawyers charge one-third of the recovery as their fee, but they believe this is very high and wonder why. Furthermore, clients often get particularly upset when they perceive that their attorney took a third of their money even if the case did not have to go to trial and even if the attorney did not spend very many hours on their case. I will outline for you, the explanation that I have always given to those clients, and which has usually made them feel much better about the amount of the fee.
When you hire an attorney on a contingency fee basis, that attorney is taking a gamble on your case. During the course of litigation, the case may turn out to be easier than he or she initially thought. On the other hand, it might turn out to be much harder. Some cases will settle, some will go to trial, and some will even be appealed and perhaps tried multiple times. Thus, when an attorney signs you up, he or she really has very little idea as to whether your case will take 5 hours of work or 500 hours of work. He or she also knows that the case may make lots of money, or it could get nothing, in which case he or she has invested significant time and gets no money for that time. Also, not only will the attorney not get paid for his or her time if the case loses, but he or she will also lose the costs invested in the case, potentially thousands of dollars, because even if the client is contractually responsible for paying the costs as provided in the fee agreement, the attorney knows that many clients cannot afford to reimburse these expenses. So, over the course of a year, an attorney will have some cases that make lots of money with little work, some cases with lots of work that make no money, and the rest will fall somewhere in between. When you walk into the office, neither you nor the attorney can really know where your case will fit on this spectrum. Therefore, you are agreeing to pay a third of the money you get regardless of how much work is involved on the theory that if your case takes little time, that your case will help to finance other cases that lose. On the other hand, if your case loses, it was then financed by other cases that took very little time. Clients are, in effect, pooling their resources together, sort of like buying an insurance policy, to help offset the inability to know whether their case will ultimately be an easy one or a tough one. In the end, the personal injury attorney will win some, lose some, and hopefully average a reasonable income after overhead is paid.