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What Is a Contingency Fee?

Contingency Fees Explained in Detail


What Is a Contingency Fee?

You’ve sustained injuries as a result of someone else’s careless or reckless actions. Your injury has resulted not only in huge medical expenses, but also has caused you to miss work and prevents you from enjoying hobbies that you enjoyed before the accident.

You know a legal process exists in which you can obtain compensation for your injuries, and that a personal injury attorney can help you with your claim. However—for obvious reasons—you feel like this doesn’t present the best time to hire (and pay for) an attorney. You’re not even sure you could come up with the money to afford a lawyer, even with the help of family and friends.

Should you try to file your personal injury claim on your own? Should you wait until you have the funds to pay the lawyer’s fee? We answer both of these questions with a resounding no. Filing your personal injury claim on your own deprives you of the knowledge and experience that an attorney can bring to your case, which can result in a higher settlement or award.

Your attorney can also prevent errors in your case that could cause you to miss out on compensation for which you qualify.

Waiting to raise the funds to pay for your lawyer’s services places you at risk of running into the statute of limitations, which represents the state’s deadline for filing this type of claim. In California, personal injury claimants only have two years to file their claim in court, and failing to do so within this deadline generally results in the court refusing to hear the claim.

Instead of representing yourself or waiting until you feel more confident that you can afford an attorney, read on for more information about a contingency fee and how you can obtain services from a top-rated personal injury lawyer without any upfront cost.

Contingency Fees Explained

As explained by Cornell Law School’s Legal Information Institute, a contingency fee constitutes a type of billing method used by some attorneys in which the attorney obtains a percentage of the settlement or award that the court or insurance company awards the injured individual after the case, as opposed to charging an hourly rate. As such, the lawyer does not get paid for the legal services unless and until he or she achieves a positive outcome in the case.

You will agree to a contingency fee arrangement in writing when you retain your lawyer. The agreement covers not only what portion of the settlement or award the attorney will receive, but can also include provisions regarding what happens if the client decides to quit using the attorney partially through the case. When entering into a contingency fee arrangement with your attorney, you should ensure that you completely understand the agreement and how your attorney will receive payment.

Contingency fees are particularly common for attorneys working in certain areas of the law, such as personal injury, employment, and worker’s compensation cases. Some types of attorneys cannot use contingent fees, such as attorneys who represent clients in divorces and those who represent criminal defendants.

Benefits of a Contingency Fee Over Other Billing Methods

The main benefit of a contingency fee billing method—particularly in personal injury cases—is that it allows individuals to access the services of an attorney without requiring a hefty upfront investment. Individuals who have sustained serious injuries and now face enormous medical expenses, while also having to miss work, likely cannot afford to pay an upfront fee for assistance from an attorney. For this reason, many people attempt to pursue compensation for their injuries through the courts without the benefit of an attorney.

Having an experienced attorney working on your case constitutes a crucial element of a personal injury claim, as the at-fault party’s insurance provider will likely pay the compensation for the expenses and impacts of the injury. Insurance companies exist to make money, and they do this by avoiding large payouts on personal injury claims.

Insurance companies use many tactics that experienced attorneys know to expect and how to counter. Additionally, the assistance that an attorney can provide in matters such as gathering evidence, deposing witnesses, and negotiating a settlement can save the claimant many hours of frustration caused by a process that lawyers spend years obtaining the training and education to engage in.

Other benefits of contingency fee billing include:

  • An increased incentive for the lawyer to work diligently to resolve the case.
  • A shift of the risk of losing the claim from the claimant to the lawyer. In other words, by providing a contingency fee billing method, the attorney somewhat assumes the financial risk of pursuing your claim.

What Benefits Do Contingency Fee Arrangements Present Attorneys?

Lawyers also benefit from the contingency fee billing method, as it enables them to begin working on the case and performing the necessary services to obtain a favorable outcome without having to wait for the client to come up with the money to pay for those services.

On the flip side, however, the law firm handling the case must have sufficient resources to stay afloat and perform the work even though it can take up to a year or more to resolve the case. Because of this issue, we encourage those seeking the services of an attorney to look at attorneys with a proven track record of success and ample resources to support this billing method.

How Much Does a Lawyer Take From the Settlement or Award Under a Contingency Fee Agreement?

California has laws regarding how much attorneys can charge for their services. According to state law, lawyers cannot charge an unconscionable or illegal fee. The law deems a fee unconscionable by considering the failure of a lawyer to disclose material facts to the client, if the lawyer engaged in fraud or overreaching when determining the fee to charge the client, whether the fee was proportionate to the services provided, and whether the lawyer obtained informed consent for the contingency fee agreement. Informed consent only exists if the client understands how the agreement works and what it entails.

Lawyers who operate under a contingency fee billing method generally obtain between 20 and 50 percent of the settlement or award they obtain on behalf of their client. In California, you rarely see a contingent fee agreement where the lawyer takes more than 40 percent of the proceeds. Higher percentages may exist for medical malpractice cases, which often involve a lot more work to prove than other types of personal injury claims.

What Happens if I Lose My Case?

Because you only have to pay a contingent fee upon a positive resolution to the claim, if you receive nothing in your case, you generally won’t have to pay your lawyer anything for the work he or she has completed. However, the receipt of any amount of compensation entitles the attorney to the percentage outlined in the contingent fee agreement. In other words, the higher the settlement or award that your attorney recovers on your behalf, the more compensation the attorney will receive.

What Happens if I Fire My Attorney Before the Resolution of My Case?

Legally, you can end your attorney-client relationship with your lawyer at any time. However, if your lawyer has already performed services for your case, you still must pay for those services.

In recent years, the American Bar Association (ABA) has issued opinions on the proper process in these situations and has used a hypothetical situation to illustrate the issue. This hypothetical involves a client who has a written contingency fee agreement with a lawyer, which entitles the attorney to one-third of the settlement or award received on the claim.

Without cause, the client fires the original lawyer during the legal process, obtains secondary counsel, and enters into a new contingent fee agreement with secondary counsel. Unfortunately, this second agreement doesn’t mention the participation of the original attorney in the case or the entitlement of that attorney to payment through a portion of the proceeds that the plaintiff eventually wins.

The ABA holds that in this type of circumstance, the secondary legal counsel must ensure that the new agreement includes provisions to cover payment to the original attorney for services rendered. The ABA found that the successor attorney must determine the provisions of the original attorney’s contingency fee and notify the client, in writing, of a potential claim the original attorney could have against the settlement or award. The ABA determined that this does not constitute an undue burden on the successor attorney.

It’s important to note that if the client fires an attorney with cause, the attorney generally will lack standing to pursue compensation for the work that he or she did on the case. Some reasons that constitute a cause for terminating the services of your attorney include the attorney not returning your calls, the attorney appearing unprepared or unqualified to handle the case, and the attorney engaging in unethical conduct—such as mishandling funds or sharing confidential details about your case with others.

Can You Negotiate Your Contingency Fee?

You can certainly attempt to convince an attorney to agree to a lower percentage of the settlement or award as payment for their services. In some cases, the attorney will negotiate the fee with you.

An attorney may accept a lower percentage because:

  • Liability in the claim appears obvious, and you will likely win the case without an extensive amount of work required by the attorney.
  • The case includes strong evidence, and thus, you will undoubtedly obtain a significant award.
  • You will help do some of the legwork of proving your claim on your own, including gathering evidence.

Sometimes, lawyers will entertain billing methods with varying contingent fees. An example would include an attorney who charges 25 percent of the proceeds if the case settles before trial and 30 percent if the case goes to trial. Another arrangement would involve variable percentages based on the value of the settlement or award, such as 30 percent of the first $100,000 compensation received and 25 percent for an amount over $100,000.

Importantly, not every attorney will negotiate his or her contingency fee. Some attorneys have a set fee that they never change. As such, you should ask your attorney during your initial consultation about this.

The Services Your Attorney Will Provide for a Contingent Fee

Understand that contingency fees don’t represent a low-income option open only to those who can’t afford the cost of a personal injury attorney. Clients who enter a contingent fee agreement with an attorney don’t receive a lower class of services. Contingent fees actually represent the billing method preferred by personal injury attorneys for all the reasons outlined above.

What services do attorneys perform on a contingent fee basis?

Here are a few examples:

  • Determining all sources of liability and the insurance policies held by the liable parties that you can access to provide you compensation.
  • Determining a value to your claim based on the severity of your injury, the expenses and impacts it has already caused, and the expenses and impacts your injury will likely cause in the future.
  • Settlement negotiations with the at-fault party’s insurance carrier.
  • Filing of your personal injury lawsuit in a civil court in the proper jurisdiction within the statute of limitations.
  • Appearance and representation at all pre-trial conferences and hearings involved in your claim.
  • Gathering evidence and witness testimony that you can use to prove your case in court.
  • Guidance regarding what constitutes a fair settlement offer and the pros and cons of accepting any settlement that the insurance company offers to you.
  • Litigation services.
  • Assistance collecting your settlement or jury award.0

Getting answers to your questions about the contingency fee billing method will not cost you anything upfront either, as most attorneys will discuss their fees with you during your free case evaluation, which also provides time to learn more about the facts of your case and to provide you with more information about the services we offer. For your free case evaluation, contact an experienced personal injury attorney online today.

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