Continued from page one.
In legal parlance, "costs" does not mean fees paid to your accident lawyer. Instead, costs refer to the expenses paid by the lawyer's office in investigating your accident or injury claim, conducting settlement negotiations, and pursuing a personal injury lawsuit.
Depending on the agreement you reach with your lawyer, you will have to repay the lawyer for these costs, usually out of your final settlement amount. Some costs are unavoidable. For example, if the lawyer must file a lawsuit to protect your rights, the fee for filing that lawsuit is a necessary cost. If your claim does not settle in early negotiations with the insurance company and the lawyer must proceed with a lawsuit, these costs often include the hiring of experts and the expense of recording depositions (see below), and can mushroom rapidly into thousands of dollars. There are several matters pertaining to costs that you and your lawyer need to discuss and spell out clearly in your written agreement (see the first page of this article).
If you are paying a personal injury lawyer a contingency fee, the fee agreement must state clearly whether costs are to be deducted from your final compensation amount before or after the lawyer calculates the fee percentage. If the lawyer calculates the fee percentage first and then costs are deducted, the lawyer's fee is larger and the compensation you finally receive is smaller than if the costs are deducted before the lawyer's percentage is calculated.
Example of a Contingent Fee Calculation Before & After Costs
A lawyer is to be paid a 33.3% contingency fee in a case with $3,000 in costs and a settlement of $20,000. If costs are deducted before fees are calculated, the $3,000 is first deducted from the $20,000 settlement, leaving $17,000. Out of that the lawyer takes 33.3%, or $5,667, leaving the client with $11,333. On the other hand, if the fee is calculated before costs are deducted, the lawyer first receives 33.3% of the full $20,000, or $6,667. Costs of $3,000 are then deducted from the remaining $13,333, leaving the client with only $10,333. This second method of calculating fees and costs left the client $1,000 poorer. Obviously, it is to your advantage to have the costs deducted before the lawyer's fee is calculated. And many lawyers operate this way as a matter of course. However, a lawyer you are considering hiring might tell you that fees are "always" calculated first. If you hear this, tell the lawyer that you know from other accident lawyers that costs are usually deducted first. And that if this lawyer insists on fees first, you'll insist on taking your case elsewhere.
Many costs in a personal injury case are quite standard, and often a lawyer's initial written agreement will include them. These normal and unavoidable expenses are such things as copying, long-distance telephone calls, and court filing fees. Other expenses may not be so crucial—but can be expensive. So, you and the lawyer should spell out what costs the lawyer must ask you about before going ahead and incurring them.
These might include such things as depositions, hiring investigators or experts, and scheduling special court proceedings. The simplest way to handle the issue of costs is to set a dollar limit beyond which the lawyer must get your approval for any costs.
This article was adapted from the book, How to Win Your Personal Injury Claim, by Attorney Joseph Matthews (Nolo). We highly recommend it, whether you handle your own claim or hire a lawyer.