Managing Lawyer Costs and Expenses in a Personal Injury Case

Disagreements over costs are one of 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.

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 – here are some tips for doing so.

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.

Costs

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).

Relation Between Costs and Lawyer Fees

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.

Costs You Agree on in Advance

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.