How Do We Pay You? How Contingent Fees Work

Legal fees are a touchy subject and often keep people who have a valid legal claim from pursuing it. However, most personal injury cases involve a contingent fee agreement. What does this mean, and how do contingent fees work?

What Are Contingent Fees?

In a contingent fee agreement, the lawyer’s fees are deducted from the settlement or judgment.

If the parties settle before trial, the fees come out of that amount, or, if the case goes to trial, the payment comes from the total final verdict.

The client and attorney usually discuss this arrangement before going forward on the case, and a percentage is agreed upon. If the client does not get any money from the case, the attorney is not normally paid.

Determining the Fee Percentage

The contingency fee varies based on the type of case involved, the attorney hired, and the state where the case is filed. Some states put a percentage cap on how much the attorney can take on the case while others do not set limits.

In Michigan, the fee for personal injury cases is set at 33 1/3 percent after deducting the file costs.

Who Covers Costs and Expenses?

Certain legal expenses come along with a personal injury case.

These expenses include payment for medical records, police reports, filing fees, fees for expert witnesses, depositions and postage costs. Some personal injury attorneys will charge the client as the expenses as they come due and will not move forward until the client makes payment for them.

Depending on the attorney or firm, they may cover the costs and expenses and then reimburse themselves from the client’s share of the settlement.

The costs can be high if discovery is extensive. If the client is asking for large number of damages or unusual requests that require expert testimony, these fees can be a lot.

Regardless, they are a necessary part of litigation. It is important to ask the attorney up front as to how these will be handled before beginning litigation.

Settlement Before Filing Legal Suit

Most states institute shifting fee limits set by the sage of the case. The very first step of any litigation is the lawyer sending a demand letter to the individual who caused you injury.

This letter will state the basis for the case and will issue a demand for payment. Most personal injury cases settle without going to trial, and often it is this step of the game that scares the other side into settling. Many times, a formal legal case is not even needed.

Settlement Post Filing Lawsuit

However, not all cases settle before litigation begins. That initial letter may not have the intended effect it was meant to have on the individual at fault in the accident, and, if the case is still strong, the attorney will then proceed to litigation and filing a formal complaint.

If the parties able to come to an agreement post filing the lawsuit, the lawyer will still recover the 33 1/3 percent contingent fee rate per the Michigan Rules of Professional Conduct for Attorneys.

Ensuring Payment Occurs

In order to ensure that the lawyer receives payment, a settlement check is normally sent directly to the attorney. It is for this reason that the lawyer can pay himself or herself before distributing the remainder of the fees to the client.

A risk always exists in any legal matter that the attorney will never receive full payment for his or her services, and when it comes to contingent cases, that risk is even higher.

Sending the settlement check to the attorney instead of the client simply helps take away part of that risk. Otherwise, most attorneys would shy away from taking on a case that involves so much work with such a high risk of never being paid.

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