How Personal Injury Attorneys Get Paid
Personal injury attorneys are almost always paid through a contingent fee - the attorney receives an agreed-upon percentage of the money recovered ("the recovery") for the injured person. If no money is recovered, the client ordinarily does not owe an attorney’s fee.
That basic explanation is simple. The details matter.
In those cases were the parties have agreed to a contingency fee arrangement, the percentage of the recovery to be paid to the attorney as his or her fee will be documented in a "fee agreement". The fee agreement will also confirm if, and at what point, the percentage of the recovery paid as a fee will increase, how claim expenses will be handled, and what other services are included. An injured person should understand those terms before choosing an attorney—not after the claim has been resolved.
What Is a Contingent Fee?
Under a contingent fee agreement, the injured person's obligation to pay the attorney's fee is contingent on whether or not the attorney's work results in the creation of a fund, either by settlement or jury verdict.
Suppose the attorney succeeds in achieving a settlement of $90,000 and the fee agreement calls for the attorney being paid one-third as his or her fee. The attorney’s fee may be as much as $30,000.
That does not necessarily mean the client receives the remaining $60,000. How much of that $60,000 makes it way into the injured parties pocket will depend on how the injured party and the attorney have agreed to deal with claim expenses, medical bills, health insurance reimbursement claims, or other liens
The percentage is important, but it is only one part of the financial arrangement.
The Fee Percentage May Increase
Some attorneys charge the same percentage regardless of when the claim is resolved.
Other attorneys demand different percentages if the case proceeds to certain benchmarks without settling. By example - the parties may agree the contingency percentage fee will increase if a lawsuit is filed, if formal discovery is started, or if the matter goes to trial.
Ask:
What percentage applies before a lawsuit is filed?
Does the percentage increase under any circumstances?
What are the circumstances which result in changes to the percentage?
The agreement should answer those questions clearly. The client should not have to guess what phrases such as “if litigation becomes necessary” will mean months or years later.
Attorney’s Fees and Claim Expenses Are Different
The attorney’s fee pays the lawyer for his or her legal services performed on behalf of the client.
Claim expenses are the costs of investigating, preparing, and pursuing the claim. Those expenses may include:
Medical-record charges
Court filing fees
Deposition expenses
Expert-witness fees
Accident reconstruction costs
Court reporters
Medical examinations
Document-production costs
Common industry practice in Pennsylvania is that the personal injury attorneys advance these expenses while the claim is pending and are reimbursed from the recovery. The exact process agreed upon by the injured party and his or her attorney should be spelled out clearly and simply in the fee agreement.
The fee agreement should also explain what happens if there is no recovery. Most firms absorb the expenses. Others may require the client to repay some or all of them.
Do not assume that “no fee unless we recover money” also means “no expenses unless we recover money.” They are separate issues, and you are entitled to demand that any attorney you are thinking about hiring explain both.
Are Expenses Deducted Before or After the Fee?
The order in which fees and expenses are calculated will affect how much money the client receives.
Suppose a claim settles for $100,000, the attorney’s fee is one-third, and the claim expenses total $10,000.
If the attorney’s fee is calculated on the full recovery, the fee is based on $100,000. The attorney will receive 1/3 of that amount - $33,333. The $10,000 in expenses will be deducted from the $66,667 balance leaving just $55,667 for the injured party.
If the expenses are deducted prior to calculating the attorneys the result is materially different.
In that case, the $100,000 recovery is first reduced to $90,000 when the expenses are reimbursed, the attorney fee is calculated on $90,000 rather that $100,000 and the injured party keeps $60,000 rather than $55,667.
As I'm writing I recognize the difference, $4,333, may seem small in isolation. But if you've been dealing with recovering from an accident for years, and you have ongoing expenses, having that additional money may be significant.
The difference can be much more significant, and impactful, when a claim requires expensive experts, extensive depositions, or prolonged litigation and the total of the expenses is a much larger percentage of the total recovery.
The agreement should state whether expenses are deducted before or after the attorney’s percentage is calculated.
Ask the attorney to show you how the calculation works using a simple example.
Medical Bills and Reimbursement Claims May Also Be Paid
After a settlement is reached, money may be owed to health insurers, benefit programs, or medical providers.
Medicare, Medicaid, a private health insurer, or another benefit provider may claim a right to reimbursement. A medical provider may also seek payment of an unpaid balance or assert a lien.
These payments are separate from the attorney’s fee.
The attorney may perform important work by identifying these claims, determining whether the amounts are correct, and negotiating to reduce what must be repaid. The client should ask whether that work is included in the bundle of services for which the attorney is paid a percentage of the recovery or if the client will be expected to pay an additional fee for that service.
Do not wait until the settlement funds arrive to ask.
How the Settlement Money Is Distributed
When a personal injury claim settles, the settlement funds are commonly sent to the attorney and deposited into the attorney's trust account.
Before distributing the money, the attorney generally accounts for the fee, reimburses claim expenses, and addresses known liens or repayment obligations.
The client should receive a written settlement statement showing:
The total recovery
The attorney’s fee
Each expense being reimbursed
Other payments or deductions
The amount being paid to the client
Review that statement carefully. Ask about every number you do not understand.
The money will come from the funds recovered to compensate you for your injuries and allow you to fund your medical needs. You are entitled to know where every dollar is going.
You Are Entitled to Ask About—and Negotiate—the Fee
Remember: when you meet with an attorney, you are giving that attorney an opportunity to earn your business.
You are deciding whether to give that attorney the opportunity to represent you and earn a substantial fee from your claim. You are entitled to understand every part of the proposed agreement before making that decision.
Ask what percentage the attorney will charge. Ask whether it increases. Ask how expenses are handled. Ask whether lien and subrogation negotiations are included. Ask who will actually work on the claim. Ask what happens if you become dissatisfied and want to change attorneys.
Make no mistake: you are entitled to answers to these questions and any attorney is obligated by the rules of professional conduct to provide answers. You do not need to apologize for asking any of those questions.
The attorney may explain why certain terms are important to the firm. You may find those explanations reasonable. You may also ask whether the attorney is willing to offer different terms. Heck ... you can even propose an alternative term directly..
Why would a personal injury attorney negotiate and ultimately except a lower fee than he or she requested?
Personal injury attorneys regularly pay referral fees to other attorneys for the opportunity to represent injured people. Those referral fees are typically one third of the fee paid to the personal injury attorney. While most attorneys prefer to receive the full fee without paying a referral full fee, the reality is that many would rather share part of their fee than lose the opportunity to represent the client.
That helps explain why an injured person with a viable claim may have more negotiating power than he or she realizes.
The fee agreement proposed by a personal injury attorney is not set in stone or handed down from above. It is a proposal made by the attorney to the client. Every aspect of a fee agreement is negotiable.
The Lowest Fee Is Not Automatically the Best Choice
The fee matters, but it should not be the only factor in choosing an attorney.
A lower percentage may not be a better bargain if important services are excluded, expenses are handled unfavorably, communication is poor, or the attorney is unwilling to take the claim as far as necessary.
A lower percentage is also not better if the attorney lacks the skills to achieve a reasonable result. Paying 33% and getting a $100,000 settlement is better than paying 25% and getting a $50,000 settlement.
The goal is not simply to find the lowest number. The goal is to understand the complete offer and decide which attorney provides the best combination of terms, service, experience, communication, and commitment.
That decision belongs to the injured person.
Read the Entire Fee Agreement Before You Sign
Before hiring a personal injury attorney, make sure you understand:
Every percentage that may apply
When and why the percentage can increase
Whether the attorney advances claim expenses
Who pays those expenses if there is no recovery
Whether expenses are deducted before or after the fee
Whether lien and reimbursement negotiations are included
Whether other services may result in additional charges
What happens if you change attorneys
You should expect direct and understandable answers.
An attorney who wants the opportunity to represent you should be ready to explain the agreement clearly, answer every reasonable question, and give you the information you need to make an informed choice.
A contingent fee arrangement makes legal representation available without requiring the injured person to come up with a retainer fee at the beginning of the claim and to make payments while the matter is being litigated. That has huge value.
General information—not legal advice. Paul’s Guide is not a law firm. This article provides general educational information and may not address every fact, exception, jurisdiction, or change in the law. Legal rights and deadlines vary based on the circumstances and applicable law. Reading this article, by itself, does not create an attorney-client relationship with Paul’s Guide or Paul Zimmerman. For advice about a specific claim, promptly consult a lawyer licensed in the appropriate jurisdiction.