Disagreements over costs are the most frequent sources of friction between personal injury lawyers and their clients. You may save yourself considerable grief at the end of your car accident or personal injury case by getting your fee arrangement, as well as matters relating to costs and expenses of handling your case, clear at the beginning.
Caution: Get Your Fee and Expenses Agreement in Writing
A written agreement about fees protects both you and your lawyer in case you have a disagreement later about who gets how much. Most lawyers are careful about putting any fee agreement in writing, and the laws in many states require a lawyer to do so. Both you and the lawyer should sign your written agreement. If it is made on the law office’s standard form, make sure that it has been modified to reflect any specific arrangements you have made with the lawyer. The agreement should also address costs—the expenses of conducting negotiations and, if necessary, a personal injury lawsuit. Lawyers have a tendency to run up costs without thinking too much about it. And that can be a problem for you, because it is you, the client, who must pay those costs out of the settlement amount.
Contingency Fee Agreements
It is difficult for most people to come up with a lot of money in advance to pay a lawyer. And most people would find it difficult to pay a lawyer on an hourly basis through the entire pursuit of an injury claim and possible lawsuit.
So, lawyers who take on accident or injury cases have developed an alternative payment system in which they require no money from a client to begin a case, and instead take as their fee a percentage of the client’s final settlement or court award. This arrangement, known as a “contingency” fee agreement, can be extremely useful to clients and lawyers alike.
Contingency fees are not cheap—they reflect the fact that the lawyer is taking a risk and that you are not paying anything up front. In personal injury cases, a lawyer’s fee is usually 33% to 40% of the amount the lawyer gets for the client. And by the time expenses are also subtracted, the client sometimes takes home much less than the amount the lawyer actually got from the insurance company. Keep in mind, you can always try to negotiate a personal injury lawyer’s fee
A Typical Contingency Fee Example
You sign a contingency fee agreement with a lawyer in which you agree to pay the lawyer 33.3% of whatever compensation the lawyer obtains for you. That 33.3% is calculated after the lawyer has been reimbursed for whatever costs were run up processing your case. If the lawyer has spent $1,000 on costs and gets a settlement of $10,000, the $1,000 would first be subtracted from the $10,000, leaving $9,000. The lawyer would then take 33.3% of that remaining $9,000, leaving you with $6,000.
Should You Pay It?
In deciding whether to hire a lawyer on a contingency fee basis, you have to figure out whether the economics of your accident or injury case make it worthwhile.
For example, if the insurance company has refused to pay you any compensation at all, or only a token “nuisance value” amount, but the potential damages in your case are fairly large, it is probably worth your while to hire a lawyer on a contingency fee basis. You have little to lose and much to gain.
On the other hand, if your claim is relatively small, it may make more sense to continue handling the case on your own, even taking it yourself to small claims court or arbitration.
The decision will depend on how comfortable you are going to small claims court or arbitration without a lawyer, on how technical the insurance company’s defense is, and on whether a lawyer is willing to take your case and is confident of getting you a certain range of compensation.
And finally, if the insurance company has offered you a substantial settlement amount but you believe it is still too low, you must measure what they have offered against how much more a lawyer could realistically expect to get. If a lawyer can expect to get only an additional 25%, it wouldn’t make sense to hire the lawyer and pay out 33% of your settlement. In that case, you might try to negotiate with the lawyer for a reduced contingency or hourly fee arrangement. But if the lawyer believes there’s a good likelihood of getting enough added compensation to overcome the lawyer’s fee, hiring the lawyer may be a good idea.
In this situation, try to structure a fee arrangement so that whatever the compensation amount, you are guaranteed no less than you would have received had you just settled with the insurance company on your own.