Pursuing a personal injury claim can be a long road. From a slip and fall claim to a car accident lawsuit, you can expect to wait months or years before you get compensation for your injuries and other losses.
The day that you finally reach a settlement or receive a court award is a relief. But the process isn't quite over. You still have to settle up with your lawyer and pay other bills related to your claim before you can deposit the remaining balance in your bank account.
Let's take a look at a sample bill from a car accident case. The plaintiff, Eric Taylor, injured his neck when the defendant, Mary Logan, rear-ended his car. Eric filed an insurance claim on his own, but couldn't reach a settlement with State Farm, Mary's insurance company. So he hired a lawyer, Ashley Johnson, who filed a personal injury lawsuit and quickly negotiated a $35,000 settlement. Here's a breakdown of Ashley's final bill.
Personal injury lawyers who are hired to pursue a claim or lawsuit (called "plaintiffs' attorneys") typically work on a contingency fee basis. Under a contingency fee agreement, the attorney doesn't receive a fee unless the client gets a settlement or court award. If the client gets compensation, the attorney gets a percentage of the recovery.
Contingency fee percentages vary based on many factors, including how far along the case has moved. For example, if a case settles before trial, the fee percentage might be in the 25% to 40% range, often 1/3 or 33% of the client's total compensation. But if the case goes all the way to trial, the attorney's fee might increase to as high as 50% of whatever the client recovers.
Attorneys typically take their percentage off the top of the total money received. Some attorneys might be willing to agree to take their fee percentage after deducting other costs and expenses, which increases the client's portion of the pie. Whatever you decide should be clearly stated in your fee agreement along with the attorney's contingency fee percentage.
In our example, Eric and his attorney agreed that she would get 33% of his settlement and that she would deduct her percentage from the total settlement and then deduct costs and expenses.
You may have seen lawyer ads that say, "I don't get paid until you get paid." Under a contingency fee agreement, it's true that if the client gets nothing, the lawyer gets nothing (33% of zero is zero). But clients who get no compensation can still be on the hook for some or all costs and expenses. You should negotiate this issue with your lawyer at the start of your case and make sure to include it in your written fee agreement.
It's not just your lawyer who gets a piece of your settlement or court award. Your lawyer's fee is the amount you owe for your lawyer's time and expertise. You'll also potentially have to pay for:
Attorney fees are a big piece of the pie, but they aren't the only deduction from your settlement. You'll also have to pay for litigation costs. In a typical car accident case, costs and expenses might include:
Costs and expenses vary widely from case to case, but they can add up quickly, easily reaching thousands of dollars. You should talk with your lawyer about anticipated costs at the start of your case and ask your lawyer to consult with you before taking on any major costs, like hiring an investigator or expert.
In our car accident example, the total costs and expenses add up to $512.50. Expenses would be much higher if the case had gone to trial or required expert witnesses.
Learn more about handling costs and expenses in your case.
When you get a settlement or court award you might have to pay subrogation claims. A subrogation claim is an insurance company's attempt to recoup what it paid out to you when you were harmed because of someone else's negligence.
For example, let's say you broke your arm in a slip-and-fall accident at a grocery store. The accident was the store's fault. You go to the hospital and your health insurer covers your treatment, including X-rays and surgery, at a cost of $10,000. Your health insurer now has subrogation rights, meaning it will expect repayment of most or all of that $10,000 if you recover money from the store in a settlement or court award.
The good news here is that most companies holding subrogation rights will cut you a break based on the attorney fees involved. Returning to our slip and fall example, let's say you've agreed to pay your lawyer 30% of whatever you recover. Your health insurer will likely accept $7,000 (or 30% off the $10,000) to resolve its interest in the case. The idea is that you shouldn't have to pay the insurance company in full and cover your attorney's fee when the insurance company did nothing to help you win your lawsuit.
Attorneys don't have to resolve these subrogation issues, but given their experience and ability to negotiate, you should ask for your attorney's help. Better yet, make resolving subrogation claims part of your fee agreement.
In our car accident example, University Hospital has a subrogation claim on Eric's settlement. Eric probably owed University Hospital more than $4,000, but his lawyer was able to negotiate his debt down to that amount.
Health insurers don't always cover a patient's entire medical bill. Many people have deductibles, for example, or require care that isn't included in their policy. And some people don't have health insurance at all. You don't have to deal with outstanding medical bills related to your personal injury case when you settle up with your personal injury attorney, but you can't avoid bill collectors forever. If you allow medical providers to take a cut of your settlement or court award, your lawyer might be able to negotiate a discount. Ask your lawyer to make negotiating and settling outstanding medical bills part of your fee agreement.
In our car accident example, Eric had to settle up outstanding medical bills with his physical therapist ($1,200) and chiropractor ($1,000).
When you switch attorneys, you may end up owing money to the first attorney you worked with. That attorney can get an attorney's lien, which places you and your new attorney on notice that the first attorney has some interest in the settlement and will expect some fees.
Your new attorney might agree to resolve these fees from the attorney's portion of the settlement or award money you receive rather than your portion. Often, the first attorney has performed work on the case that made the new attorney's job easier or less time-consuming.
Learn more about considerations when firing a personal injury lawyer.
Each lawyer and law firm will have its own way of preparing a bill, but personal injury lawyers who work on a contingency should prepare a bill that clearly explains exactly what money came in, how much the lawyer has to pay out in costs and expenses, and what's left for the client.
You should sit down with your lawyer and review all the terms of the bill when you receive it. Most lawyers will have their clients sign the bill or an attachment acknowledging that the client understands the final bill and the rights and responsibilities that go with it. While clients are often more interested in getting their checks than in asking questions, this kind of meeting is a great chance to work out any issues. Many lawyers aren't exactly mathematicians, so a second look at the numbers involved is never a bad idea.
You can see in our sample bill that Eric got a $35,000 settlement, but that isn't the amount that reached his bank account. After his lawyer took her 33% off the top ($11,666.67), she deducted costs ($512.50) and subrogation interests and unpaid medical bills ($6,200). Eric was left with $16,620.83, less than half of his total settlement, which is pretty typical in personal injury cases.
Some clients are surprised or disappointed when their settlement check is smaller than they expected, but Eric wasn't. He had a detailed fee agreement with his lawyer that addressed the fee percentage she would receive and the types of costs and expenses that she would deduct, including subrogation interests and unpaid medical bills.
Eric also asked his lawyer about the tax consequences of personal injury settlement and was relieved to learn that the compensation he received for his neck injury isn't taxable.