Contingency fees: how car accident lawyers get paid

How a contingency fee works#

With a contingency fee, you do not pay the lawyer by the hour. The lawyer's fee is a percentage of the money recovered for you, paid at the end out of the settlement or judgment. If nothing is recovered, there is usually no fee, although you may still owe some case costs, depending on the agreement.

The percentage is not fixed by national law. It is agreed between you and the lawyer, and it often changes with the stage of the case: the ABA model rule expects the agreement to state the percentage that applies if the case settles, goes to trial or is appealed. A case that settles early may carry a lower percentage than one that needs a lawsuit.

Every fee also has to be reasonable. Under the ABA rule, a lawyer may not charge an unreasonable fee or an unreasonable amount for expenses. The factors include the time and skill the case needs, the fee customarily charged in the area, the amount involved and the results obtained, and whether the fee is fixed or contingent.

A contingency fee does not hand the lawyer control of the case. Under the ABA rules, the client decides whether to settle, whatever the fee arrangement.

What the written agreement must cover#

The fee agreementFee agreement. The written contract that hires a lawyer. It says what work the lawyer will do, how the fee is worked out and who pays the costs of the case. Glossary is where the percentage, the costs and the order of deductions are set. Under the ABA model rule it must be signed by you and must state the percentage the lawyer takes if the case settles, goes to trial or is appealed, the expenses to be deducted, and whether they come out before or after the fee. It must also tell you clearly about any expenses you must pay whether or not you win.

States add their own requirements. In Texas, a contingent fee contract must be in writing and signed by the attorney and client. California requires the contract to say that the fee is not set by law but is negotiable, and one that leaves out required terms is voidable at your option, and the lawyer is then limited to a reasonable fee. In Florida, the lawyer must give you a signed Statement of Client's Rights for Contingency Fees before you sign.

Our guide to lawyer fee agreements walks through each clause in more detail.

Fees versus case costs#

The fee pays for the lawyer's work. Case costsCase costs. Out-of-pocket expenses of pursuing a claim, such as filing fees, medical records, expert witnesses and court reporters. They are separate from the lawyer's fee. Glossary are the out-of-pocket expenses of building the claim, such as court filing fees, copies of medical records, expert witnesses and court reporters for depositions. The agreement says who pays these as the case goes along and whether they are taken back from the recovery at the end.

The order of those deductions matters, and the ABA rule requires the agreement to say whether costs come out before or after the fee is calculated. Here is the same recovery handled both ways. The round numbers show the arithmetic only; they are not a typical fee or claim value.

New Jersey settles the question by court rule: the fee is computed on the net sum recovered after deducting case costs. Elsewhere, it depends on what your agreement says.

Fee caps written into law#

For most car-crash cases, the fee is set by the agreement and the reasonableness rule. Some laws go further and set a ceiling.

Claims against the federal government. If a federal employee caused the crash while on the job, for example in a mail truck or a military vehicle, the claim falls under the Federal Tort Claims Act. Its fee cap is 20% of a settlement reached with the agency and 25% of a judgment or settlement after a lawsuit is filed.

Florida. In personal injury cases, a fee above the Florida Bar's schedule is presumed clearly excessive. Before the defendant files an answer, the schedule allows 33 1/3% of any recovery up to $1 million. After an answer is filed, that first tier rises to 40%. For larger recoveries the schedule allows 30% of any part between $1 million and $2 million, plus 20% of any part above $2 million, and an extra 5% once an appeal begins.

New Jersey. For claims based on someone else's wrongful conduct, the court rule allows at most 33 1/3% of the first $750,000, 30% of the next $750,000, 25% of the next $750,000 and 20% of the next $750,000. On amounts above $3,000,000, the lawyer must ask the court to set a reasonable fee.

These are limits written into law, not typical outcomes. Rules differ by state, and your state bar can tell you whether a cap applies to your case.

The closing statement and where the money goes#

Settlement money usually goes into the lawyer's client trust accountClient trust account. A bank account a lawyer must keep separate from the firm's own money. Settlement checks and other client funds go into it until they are paid out. Glossary, held in a separate account, apart from the lawyer's own money. From there, the lawyer pays the fee, repays case costs, pays any liens and sends you the rest. The lawyer must promptly pay you the funds you are entitled to and, if you ask, give a full accounting.

At the end of a contingent fee case, the ABA rule requires a written statement of the outcome and, if there is a recovery, what you receive and how it was worked out. This closing statementClosing statement. A written breakdown given at the end of a contingency fee case. It shows the amount recovered, the lawyer's fee, each cost and lien paid, and what the client receives. Glossary should list the amount recovered, the fee, each cost, each lien paid and your share. Read it line by line before you sign it, and ask about any cost you do not recognize.

Questions to ask about a contingency fee#

1. What is the percentage, and does it change? Ask whether it rises if a lawsuit is filed, if the case goes to trial or if there is an appeal.
2. Are costs taken before or after the fee? The table above shows why the answer matters.
3. Which costs do you expect, and who pays them if we lose? The agreement must say which ones you owe either way.
4. What is the fee charged on? Ask whether it applies to the property damage claim or to benefits from your own insurer, such as personal injury protection.
5. Will another lawyer share the fee? Under the ABA rule, a split between firms requires that you agree in writing, including the share each lawyer will receive.
6. How will liens be handled? Ask who will check and negotiate them, and whether you will get a written closing statement.
7. Is any of this negotiable? In California, the contract itself must say the fee is negotiable.

More questions are in our guide to questions to ask a lawyer. If you are weighing whether to hire anyone at all, see handling a claim without a lawyer.