What Is a Contingency Fee?

What Is a Contingency Fee?

PA Personal Injury Lawyers After an accident, the last thing you want to do is expend precious financial resources on an attorney. You’re already worried about paying bills since you are going to be out of work. However, when you hire a personal injury attorney who offers to take a case on contingency, you don’t pay anything unless you win your case; you pay for services contingent upon the attorney recovering compensation on your behalf.

An accident could cause you to miss work for a few weeks, a few months, or if the accident injuries lead to long-term or permanent disabilities, for years. You already have to figure out how to feed your family, pay your mortgage, and pay your other bills. The last thing you need is to pay an attorney out of what little income you may receive, if any. You also likely have medical expenses to think of on top of everything else.

Most personal injury attorneys offer to take cases on a contingency basis, so you don’t have to worry about paying an attorney to help you recover compensation for the full cost of your injuries, including lost wages and pain and suffering. Hiring an attorney on a contingency basis allows anyone who doesn’t have the financial means to enter settlement negotiations or litigate after an accident to have the ability to collect needed compensation and to fight the insurance companies with the help of an experienced attorney.

If the insurance companies refuse to come to a fair and reasonable settlement, and you choose to litigate, the contingency agreement stays in place. Finally, if multiple defendants share in the liability for your injuries, the cost of litigation generally goes up because of the extra work in the case. In this situation, an attorney can cover those up-front expenses for you and ensure that you name every at-fault party as a defendant in your claim.

What Expenses Does the Attorney Cover?

In most cases, when attorneys take a case on contingency, they don’t charge you anything upfront. The firm pays for its services and any expenses, including filing fees for the case and fees for depositions, arbitration, expert witnesses, and investigations. When the attorney reaches a settlement or wins at trial for you, then the attorney takes the fees for legal services and reimburses the firm for the expenses incurred in your case.

How Is a Contingency Fee Different From a Regular Retainer Fee?

When attorneys charge an hourly fee, they usually have you pay a retainer upfront. The attorney keeps track of the time worked on your case and subtracts it from the retainer. When your retainer drops to a certain amount—depending on the firm—the attorney will ask you to pay a refurbishing retainer.

When you sign a contingency contract, on the other hand, the attorney charges a percentage of your winnings to cover the legal services. The attorney still keeps track of his rate and the expenses on your case for his accounting and your case records. Some attorneys will charge a percentage for their services and will add on the expenses. Always discuss the contingency fee with your attorney and ask if the expenses are over and above the percentage.

Contingency Fee Agreements

Your attorney will have you sign a contingency fee agreement. Always be sure to read it carefully and make sure that you understand it. The Model Rules of Professional Conduct require that an attorney outline a contingency fee agreement in writing before retention.

The agreement must state:

  • The percentage the attorney is entitled to if he or she wins your case; and
  • The expenses and fees you must pay at the end of your case.

The contingency fee agreement might have other mandates as well.

The Pros and Cons of Contingency

Contingency fee agreements have both pros and cons. Before choosing an attorney, you should be comfortable with how the attorney is going to handle your case and feel confident that the attorney will do everything possible to win your case, including going to trial if an insurance company offers a pittance for a settlement.

The pros of a contingency fee agreement include:

  • Injured individuals who cannot afford representation after an accident can hire quality attorneys to help recover maximum compensation.
  • A contingency agreement gives the attorney the incentive to obtain the best possible result for each case.
  • The contingency agreement allows the attorney to shoulder the risk of losing instead of the client.
  • You know exactly how much you pay in attorneys’ fees. Under the hourly rate structure, if your case doesn’t settle or litigation takes longer, your attorney will continue to ask for refurbishing retainers. With a contingency fee agreement, you won’t know the exact dollar amount that you will pay when your case completes, but you will know that it will constitute a certain percentage of what you win.
  • You can also rest assured knowing that the attorney who takes your case thinks he or she has a very good chance of winning your case. If the attorney loses, he or she doesn’t get paid for the time put into your case, which could be quite extensive. While even an experienced attorney can read a situation wrong and still lose because of the possible unknown circumstances with a case, it doesn’t happen too often.

The cons of a contingency fee agreement include:

  • Contingency fees could encourage frivolous lawsuits. However, if an attorney does not think the client has a case, he or she is generally not going to risk-taking that case and losing money. The critics of contingency fees likely have never had to retain an attorney and haven’t gone through the case evaluation process with a good attorney who knows the law.
  • On the client side, it might prove more difficult to find an attorney to take a case if the attorney doesn’t believe the client has a strong enough case or if the attorney believes that the client shares a large percentage of fault for the accident.
  • A contingency fee could incentivize an attorney to settle a case for too little money. This is where you, as a client, must know your case and must communicate with your attorney. If you believe you should recover more than what the defendant is offering, you do not have to take the offer. You can opt to go to court. This is why it is pertinent to retain an attorney who is not afraid to go to court and who has extensive litigation experience.

How Does the Attorney Determine a Contingency Fee?

The attorney chooses a percentage, usually between 20 percent and 50 percent, depending on the amount of work involved in a case. For example, if the attorney can settle a case, the contingency fee is usually lower than if the attorney must go to court, because settling requires less work. If a case has several defendants, such as is common in commercial truck accidents, the contingency fee percentage might increase because of the extra work involved.

Some of the factors that an attorney takes into consideration when setting a contingency fee include:

  • The time and effort the attorney has to put into a case. Some cases have plenty of documentation and evidence to support your claim. Some do not. Either way, the attorney takes the risk of losing money if he or she can’t win your case in litigation.
  • The difference between preparing for a settlement and litigation is stark. Settling a case, while often quite involved, doesn’t compare to the work of preparing for litigation, not to mention the time spent arguing on your behalf during the trial. This is why the contingency fee percentage is often higher if your attorney has to litigate your case.

How Does the Contingency Fee Work?

You already know that the attorney gets paid only if he or she wins your case. Some other expenses that the attorney pays upfront include court filing fees, deposition fees, travel costs, fees for investigators, document procurement fees, arbitration/mediation fees, fees for expert witnesses, andany other fees that your case may involve.

The attorney has a good reason to win your case. If he or she covers these expenses, the firm will lose that money unless the attorney wins. If the attorney agrees to pay these expenses upfront, but expects you to reimburse the firm for expenses upon losing, you might have to pay out of pocket for these expenses. The attorney must list any expenses not covered by the contingency fee in your agreement. These are separate from an attorney’s fees for services. The expenses covered depend on each case and the firm’s policies.

Does Pennsylvania Cap Contingency Fees?

No, Pennsylvania does not cap contingency fees, but market forces tend to keep them low. Additionally, an attorney cannot enter into a contingency fee agreement on a divorce case or a criminal case.

What Is the Difference Between Fees and Costs?

In many contingency cases, the attorneys will expect the costs back. The attorney charges fees for his or her services, and the contingency agreement covers them. The contract might list certain costs the contingency fee might not cover. This is why you must read a contingency fee contract and ask the attorney questions if you do not understand how the attorney charges for costs (expenses).

However, if you win your case, the defendant often has to pay your attorney’s costs. By the same token, if you lose, you could be on the hook for the defendant’s fees and costs, so you, as the client, do shoulder some of the risks of losing, even on a contingency fee basis.

Keeping the Costs of Your Case Low

While you can negotiate the cost of attorneys’ fees, or you can shop around to find an attorney who will take your case for a lower amount, keep in mind the old adage: You get what you pay for.

Always check the quality of the firm by:

  • Go over reviews, both on the attorney’s website, Google, and social media.
  • If the attorney has a results page, review the results page. If not, ask the attorney how many cases he or she has settled, how many have gone to litigation, how many like yours have settled or gone to litigation. Also, ask what about some of the outcomes in dollar amounts for the types of injuries that you have suffered.
  • Never be afraid to ask an attorney about different payment arrangements. All the attorney can do is say no, but if he or she says yes, it might benefit you.
  • You can also cut some costs (expenses) by doing some of the busy work yourself, such as gathering accident reports and other documents the attorney needs or keeping your file organized. If you have reams of evidence, you collate it, clearly mark the documents, and make copies for all of the defendants, you could save money by saving time. The attorney can review the documents quickly, since he or she won’t have to look through a messy pile for related documents.

Contingency Fees for Certain Federal Cases

If you have a personal injury case or another case that allows contingent fees against certain entities, federal law might limit the percentage of your recovery that the attorney can take. For example, if you have a lawsuit against the United States, a lawyer is barred from requiring you to pay more than 25 percent, regardless of how complex the case is or might become. Certain administrative actions allow the attorney to charge just 20 percent.

If you were in an accident, whether a car accident, an incident of medical malpractice, a slip and fall accident, or lost a loved one to wrongful death, contact an experienced personal injury law firm for a free case evaluation.