Background on Attorney Fees

Law firms are businesses, and just like any business, they need to make a profit. However, not all lawyers are paid in the same way. Often lawyers are paid by the hour, but that arrangement may put a client and lawyer at odds. The client wants the case resolved as efficiently as possible, but a lawyer is incentivized to bill their client as much as possible to increase the law firm’s profit. A contingency fee is a better arrangement that ensures the client and lawyer are on the same side.

What is a Contingency Fee?

A contingency fee means that the lawyer’s pay is based on the success of the case. If their client is rewarded compensation through a settlement or a verdict, the lawyer takes an agreed-upon percentage of that compensation as their fee. The contingency fee arrangement means that a lawyer agrees to work on your case without an up-front payment (known as a retainer), and you only pay attorney fees if you win the case.

The common percentage for a contingency fee among personal injury attorneys is 33 1/3% or 1/3 of the settlement if a case resolves without going to trial or arbitration. Many attorneys increase that fee to 50% if a case goes to trial or arbitration, but at Idiart Law Group LLC, we only take 40% of the award because we believe the client’s recovery should be maximized.

Other Costs to Consider with Contingency Fees

Contingency fees are relatively straightforward on the surface. For example, you agree to pay a 33 1/3% contingency fee to your lawyer if the case settles. You agree to settle your case for $90,000, your lawyer is paid $30,000, and you get $60,000. However, the legal process has costs and liens which can make these calculations more complex.

Bringing a case to court costs money. There are filing fees, payment of expert witnesses, fees for documents and transcripts, and more depending on the case. This can easily add up to several thousand dollars in litigation expenses.
Besides litigation expenses, your medical bills will also likely be a part of your compensation. Medical providers and insurance companies have the right to be reimbursed for the expenses they incurred from the payment by the at-fault person or company. They can issue a lien on your case which requires that they are paid out of any compensation you receive.

All of these other costs and liens can have a significant impact on your take-home amount. You want to be sure to hire a lawyer who will push for the highest settlement or verdict on one side and then on the other side negotiate with the lien holders to reduce their amounts to maximize your net recovery. For example, let’s say that in our example of a case with a $90,000 reward and a 33 1/3% contingency fee there were $5,000 in litigation costs and a $15,000 lien for medical expenses. After the attorney fee of $30,000, litigation costs of $5,000, and medical expense lien of $15,000, you will be left with $40,000.
If your lawyer can reduce the lien by 1/3 from $15,000 to $10,000, you are left with $45,000 instead of $40,000. Not all lawyers are willing to do this for their clients.

When entering a contingency fee arrangement, remember you will likely incur expenses that have to be paid out of your settlement in the process of bringing your case before the court. Of course, these expenses may be more or less depending on your case, and you should ask your attorney to advise you on how much to expect.

Pros and Cons of Contingency Fees

Paying an attorney through contingency fees allows you to seek compensation as the victim of an accident even if you do not have the money to pay a lawyer upfront. This type of payment also protects clients because payment is contingent on winning your case, and you don’t have to worry about getting charged by your lawyer every time you want to talk.

However, there is a drawback to a contingency fee arrangement. Lawyers may be unwilling to take on a case if they don’t think they can win the case or if the time and effort to pursue the case does not make the case economically viable considering a likely low amount of compensation.

Key Takeaways for Contingency Fees

• Hiring a lawyer on a contingency fee allows you to pursue your case without an up-front retainer and protects you from significant financial loss if you lose.
• The average contingency fee is 1/3 of your award, and the fee will increase if your case goes to trial or arbitration.
• Do not forget to consider how additional legal and medical expenses might affect your take-home compensation when making a contingency agreement with your attorney.

©2021 Idiart Law Group, LLC. All Rights Reserved.