Not All Contingency Fees Are Equal

Most personal injury attorneys work on a contingency fee basis. This means that the lawyer does not get paid for his time (his fee) unless he recovers for you in the case. However, not all contingency fee agreements are equal.

Contingency fees are not set by law, accept in certain cases. Different attorneys are free to charge different percentages. Usually, the attorney charges less if the case settles before the need to file a lawsuit, more if it settles at mediation or arbitration, and more if it goes to trial. Typical fees, for example, are 33 1/3 % for settlement prior to filing a lawsuit, 37% for mediation or arbitration, and 40% for trial. By comparing the percentages lawyers charge as a contingency fee at various parts of the case you can assure yourself that you are getting a fair rate.

One other major difference among contingency fee agreements concerns the definition of what is a recovery. California State law requires that this be spelled out clearly in any contingency fee contract. The question is whether the attorney gets his percentage on the full amount recovered, or on the full amount after costs are deducted.

"Costs" are funds expended to pay for your case, for example court costs, deposition fees, expert witnesses, and other expenses. These costs are often fronted by the attorney, but remain the responsibility of the client at the end of the case, win or lose. In most cases that settle prior to the lawsuit being filed, the costs are fairly low. However, by the time a case goes to trial and during trial, costs can rise dramatically. A good rule of thumb is that a simple case will cost $10,000 or more to go to trial.

Therefore, the question of when the attorney's fees are computed is very important to clients who want to maximize their recovery as opposed to attorney fees. For example, if a case goes to trial and costs are $10,000, and the attorney charges 40% contingency fee for trials, what are the attorney fees if the jury award is $30,000? More important, how much goes to the client? If the attorney takes his fees first, before deducting costs, then he gets $12,000 in fees (40% of $30,000), and then takes back the $10,000 in costs he laid out to fund the case, leaving $8,000 for the client (who still must pay back medical insurance in most cases). If the attorney deducts the costs first, and then takes his fees off the "true recovery", he takes his $10,000 in costs first, leaving $20,000, of which he gets $8,000 in fees (40% of $20,000) leaving $12,000 for the client. In this example the client received 50% more money in recovery where the attorney determined his fees after costs were deducted from the recovery.

Clearly, you want to have a contingency fee agreement where costs are deducted before the attorney gets his fees, so that his fees are only on the "true recovery". Read and review your attorney's contingency fee agreement carefully, and make sure that you are getting the deal you think you are. Not all contingency fee agreements are equal.