What is a Contingency Fee?

What is a Contingency Fee?

What is a Contingency Fee?

On your search for the best lawyer to help you with your personal injury claim, you probably came across variations of the phrase “if we lose the case, you won’t have to pay us anything.”

This is a contingency fee arrangement, which means that your lawyer won’t receive payment unless you recover compensation from the liable party for your injuries. A contingency fee agreement makes hiring a lawyer possible for injured victims who don’t have the money to fight insurance companies and pursue the compensation they deserve for their losses.

How Does a Contingency Fee Agreement Work?

When you work with a lawyer on a contingency fee basis, your personal injury lawyer will receive a specific percentage of the compensation you get from the liable party rather than an hourly rate. So when a lawyer agrees to take on your case, you won’t need to pay the lawyer’s regular hourly rate, and the lawyer’s fees come directly from your damages award. However, this will only apply if your lawyer secures a settlement from the liable party’s insurance company or wins your case in a lawsuit.

Depending on where you reside and the specific details of the contingency fee agreement, the contingency fee could range from ten percent to 50 percent (with 33 percent being the most common) of the compensation you recovered. This means that your lawyer’s payment or fee is contingent or dependent on your lawyer winning your case.

Although your lawyer doesn’t receive payment unless you recover compensation, you may still need to pay for some fees related to your case. For instance, you will need to pay for court fees, expert witness fees, discovery costs, and other related fees. In most cases, however, the lawyer shoulders these costs first and then subtracts them from the compensation award before taking payment for the case.

Personal Injury Lawsuits May Require Higher Contingency Fees

Arbitration and lawsuits generally require more money, time, and resources. More time could pass before your case can go to trial. Your lawyer will likewise need to spend more time working on strengthening your case than negotiating with the liable party’s insurance provider to secure compensation.

Trial prep requires:

  • Preparation and filing various legal pleadings
  • Depositions of witnesses and liable parties
  • Attending court hearings

Deposition expenses required for certified copies, court reporters, and travel expenses could easily add up for every deposition. The services of expert witnesses can likewise be costly, depending on the expertise needed and the specific type of case. It’s crucial to note that your lawyer is duty-bound to do everything possible to ensure that your legal rights are protected. This means that your lawyer may prepare for a court battle, even if your case will most likely settle before or during the trial.

Personal injury claims that settle typically come with higher compensation amounts because insurance providers know that they’ll be spending way more money in court than settling. This is why most personal injury claims settle before going to trial.

When Lawyers Can and Cannot Use Contingency Agreements

Contingency fee agreements are practical in cases where the injured victims don’t have sufficient funds but have “winning” cases. In winning cases, liability is clear and simple to prove, and there are viable means to collect a settlement or judgment. Otherwise, a lawyer might not take on the case with a contingency fee agreement. If you’re unsure whether you have a winning case, personal injury attorneys should offer free initial case reviews.

In general, lawyers typically use contingency fee agreements in workers’ compensation insurance and personal injury cases.

But some lawyers offer their services on a contingency fee basis in certain cases, including:

  • Bankruptcy
  • Professional malpractice
  • Wage dispute and employment discrimination claims
  • Sexual harassment
  • Debt collection
  • Class action lawsuits

Likewise, professional ethics rules prohibit lawyers from working with clients on a contingency fee basis in cases involving criminal law or family law since this would seem to encourage or condone criminal acts or divorce. In addition, depending on state laws, lawyers may not use contingency fees in bankruptcy and immigration cases or for legal services such as drafting trusts, wills, contracts, and other legal documents.

The Lawyer’s Fee Agreement

A lawyer’s fee agreement, likewise known as a representation or retainer agreement, is a contract that specifies the lawyer’s fees and the terms of your working relationship. It must clearly specify how your lawyer receives their fees and related expenses, especially if your case goes to trial. The agreement must also state what percentage of your settlement or judgment your lawyer would take and whether it would change if your case proceeds to trial.

Fee agreements also usually cover whether your attorney can receive a percentage of the compensation award if you fire your attorney before the conclusion of your case. They also typically include the specific situations in which you or your attorney could end the working relationship, as well as the rules of conduct to ensure a clear and professional working relationship. Once you receive the contract, you can take some time to review it so you can understand everything it covers.

Ivan Diamond personal injury lawyer
Ivan Diamond, Personal Injury Lawyer

If you’re going over the contract by yourself, note all of your questions and any legal passages or terms you don’t understand. You should also pay close attention to the specific clauses regarding compensation. Common clauses include how your lawyer will deduct related costs and/or medical liens from the compensation award and the net compensation amount you stand to receive. When you meet with your lawyer, ask your questions and make sure that you understand everything before signing the contract.

Keep in mind that a fee agreement is a binding contract. And as with all contracts, you should only sign it if you’re certain that you fully understand and are happy with all the terms. Yes, contracts could be confusing, but an experienced lawyer can explain the terms to you in a clear and easy-to-understand manner, so don’t hesitate to ask for further clarifications if necessary.