Explaining Contingency Fees in Personal Injury Cases

It’s a common phrase most personal injury lawyers use – We’ll handle your case on a contingency fee basis. Most people don’t understand what that phrase means until they meet with their lawyer – and even then, clients usually aren’t certain what “contingency fee means”

Why do lawyers use a contingency fee instead of an hourly fee?

Most lawyers don’t work for free. Even lawyers who work for a nonprofit organization are usually paid for their time. Most lawyers charge an hourly fee for their time. The lawyers usually require an initial payment (called a retainer). The lawyer then keeps track of the time spent on a case and bills the client on a regular basis (such as once a month).

Accident cases are normally handled differently than other cases. Instead of charging by the hour, the lawyer doesn’t require any upfront money. The lawyer only receives a fee when the case settles or there is a verdict in your favor – the favor of the injured victim. Injury victims usually aren’t in a financial or emotional position to pay a lawyer money to handle their accident case. If you are hurt in an accident or a loved one was killed, your focus is seeing your doctors and getting healthy. Often, injury victims can’t earn a living due to their injuries.

What is a contingency fee?

A contingency fee means that the right of your lawyer to demand a fee is “contingent” on the lawyer obtaining a positive result for you. If the lawyer loses the case, your lawyer gets nothing. If the lawyer is successful (there’s a settlement or a verdict) the lawyer is entitled to a percentage of the recovery.

A contingency fee arrangement is good for the client for several reasons:

  • The injured victim doesn’t have to advance money he/she doesn’t have.
  • The lawyer has a financial incentive to obtain a good result. Simply put, the more money the client gets, the more money the lawyer gets.

The contingent fee is based on a percentage. In most personal injury cases, the contingency fee is 1/3 (33.33 percent). This means if the case settles for $90,000 or there is a verdict for $90,000 your lawyer is entitled to 1/3 of $90,000 which equals $30,000. There are some cases where the contingency fee is less than 1/3 and some cases where the contingency fee is more than 1/3.

Lawyers may consider a shifting contingency fee. A common example is when your lawyer agrees to a 25% contingency fee basis if the case settles, 33% if the case goes to trial, and 40% if the lawyer only wins your case on appeal to a higher court.

What are litigation costs and who is responsible for litigation costs in a contingency fee personal injury case?

In every personal injury case, there are some costs that must be paid to third parties. The contingency fee agreement should make clear who has the responsibility for these costs. The possible arrangements are:

  • The client pays the litigation costs
  • The lawyer pays the litigation costs
  • The litigation costs are paid first before the client or lawyer is paid

Who is responsible for litigation costs affects how much you receive when the insurance company pays the damages. For example, let’s suppose the following:

  • Your case settles for $90,000
  • The litigation costs are $6,000
  • The lawyer accepted a 1/3 contingency fee agreement.

If the client is responsible for the litigation costs, then the distribution is as follows:

  • Settlement amount. $90,000
  • The lawyer receives $30,000
  • The client receives $60,000 – $6,000 litigation costs. The client’s final payment is $54,000

Litigation costs include the following:

  • Court filing costs. This includes the cost to file the complaint, any motions, the request for a trial, and other court papers.
  • Discovery. If there are depositions, the court reporter is entitled to a fee. Some cases require multiple depositions of different parties and different witnesses.
  • Expert witnesses. Usually, your doctors charge a fee for medical reports and copies of medical bills. Doctors normally also charge a large fee to testify in court or at a deposition. If your lawyer uses a financial expert, an accident reconstruction expert, or any other expert – that lawyer is normally entitled to a fee for their time.
  • The cost to obtain documents. There may be additional fees to obtain copies of police reports and other evidence.
  • Photocopy costs. Even though a lot of legal work is done electronically, there may be some photocopy costs that can add up.

When is the lawyer paid a contingency fee?

Normally, if you’re a victim of a car accident, a truck crash, or any other type of accident; you are paid by the insurance companies for the responsible defendants. If the liable parties don’t have liability insurance or don’t have enough liability insurance, you are paid by your own uninsured/underinsured (UM/UIM) policy. When the insurance company pays you, the lawyer is paid her share.

The lawyer should prepare a schedule of distribution which identifies:

  • Your share
  • The lawyer’s share
  • The money that is set aside to pay the litigation costs
  • Money set aside to pay medical expenses

Additional contingency fee considerations in Colorado

According to the Colorado Bar Association, the contingency fee should be documented by a written agreement that both the lawyer and client sign – before any legal work is done on the case. Rule 1.5. Fees sets forth what information must be set forth in the written contingency fee agreement.

Normally, if the case involves a minor who was injured or who is a beneficiary of a wrongful death case, the court must approve any settlement – including the amount of the contingency fee payment.

In some accident cases, such as where the insurance company negotiates in bad faith, the injured victim may be entitled to legal fees. In this case, the client receives the full damage award without having to pay the contingency fee to the lawyer. The lawyer is paid her/his fees from the insurance company in addition to the damage payment.

Speak with an experienced Colorado personal injury lawyer today

At the Law Office of Anna L. Burr, LLC, our lawyers are experienced personal injury lawyers. We fight to prove liability and to obtain all the damages you are due. In personal injury cases; damages include payment for all your medical bills, your pain and suffering, any income loss, property damage to your vehicle, scarring and disfigurement, and other permitted damages. We have a strong record of success negotiating strong settlements and verdicts. To discuss a car accident or any personal injury case, call us today. You can contact me online or call 720-500-2076 for a free, no-obligation consultation. Yes. We handle personal injury cases on a contingency fee basis.

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