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The Logic of the Contingent Fee System in Injury Cases

Fairfax Injury Lawyer Brien Roche Addresses The Logic of the Contingent Fee System In Injury Claims

Brien Roche

As is true with many things associated with trial lawyers, there is a great deal of controversy associated with the contingent fee system in regards to injury claims.

The contingent fee is exactly that i.e., the fee is contingent upon the outcome.  If there is no money recovered for the client then the lawyer does not get paid for the time expended.  The logic of the contingent fee system is that it allows people that may not have the financial resources to pay their lawyers to still pursue their claims.

Although the contingent fee system is most often used in regards to injury claims, it can be used in regards to any type of claim.  The claim may be a contract claim, a constitutional claim or other type of claim.  Inherent in the fee arrangement is the fact that the lawyer’s fee is result-driven.  If the lawyer doesn’t produce a good result or at least a result that generates income for the client then the lawyer does not get paid.

The Contingent Fee System Is Not Without Flaws

The flaw in the contingent fee system is that unscrupulous lawyers may use this fee system to try to extract settlements from companies that in fact may not owe anything.  The insurance industry and the so-called “tort reformers” would have you believe that problem is rampant.  It probably is not.  Lawyers are no different than any other business person.  They’re in business to make money.  If a claim does not have some degree of merit associated with it then typically the defendant is going to fight it.  There is very little financial reward for a lawyer to pursue a claim simply to extract a settlement out of a defendant knowing that the expenditure of time is not going to justify the potential fee that might be received.  That doesn’t mean that there have not been some abuses over the years.  Clearly there have been.  However the abuses probably go both ways i.e., the insurance industry and corporate entities frequently fight claims that they should not fight.  What I mean by that is that it’s not unusual for insurance companies to stonewall claims that are meritorious simply to see what the plaintiff and the plaintiff’s lawyer are made of and if it appears that they have the mettle to pursue the claim to the end then the insurance company gets serious about a resolution.

Another factor that can skewer the entire contingent fee system against injured parties is caps on liability.  Where there exists a cap on liability that is imposed by law then that means that the insurance company and/or the entity being sued cannot be made to pay more than whatever that cap amount is.  If the cap is $350,000 or whatever the number is then that means that the insurance company is never going to offer that amount typically in any case because that’s their worst day in court.  What that means is that the plaintiff’s lawyer then has to fight very hard simply to get something that is under the cap.  That is the undisclosed and unknown insidious aspect of statutory caps on liability.  Really they’re not caps but rather they are “super caps” because the real cap on liability is considerably less than what the statutory cap is because the insurance company will never pay the full statutory cap to resolve a case.

Contingent Fee Lawyers As Heroes: You Decide

Some judges and legal commentators have described lawyers who take cases on a contingent fee basis as being the heroes within the legal system.  There is some justification for that description.  That is, an attorney who takes on a difficult case and pursues it for a lengthy period of time with no compensation for the attorney’s time may well be a hero.  To some extent that was seen in regards to the tobacco litigation years ago.  Tobacco litigation was essentially spearheaded by a group of plaintiffs’ trial lawyers who took on the tobacco industry at a time when the tobacco industry was thought to be invincible.  The tobacco industry had more money than God.  They were committed to fighting all claims.  They did fight many of the claims and over a period of time they were worn down to the point where they not only settled but agreed to make concessions as far as warnings and advertising restrictions in terms of promoting their deadly product.  Another more recent example of that is the lawyers who took on the claims against the Iranian government brought by persons who had been held hostage by the Iranian government.  Those claims were thought to be a reach, not only because Iran is a foreign country and therefore may have immunity but also because its assets are in Iran and not here.  It so happens that there were certain assets that the Iranian government had in the U.S. which after nearly 20 years of litigation were unfrozen and resulted in payments to these hostages.  The lawyers who took on those cases waited for 20 years for a payday.  The payday was a handsome one but it was probably well-deserved.

One critique of the contingent fee system that is probably meritorious is that even though lawyers are required to make the client responsible for the expenses associated with litigation, frequently lawyers advance those expenses.  What that results in is that the plaintiff has a free lawyer, not only as far as the lawyer’s time but also as far as the expenses associated with that litigation.  That can create a somewhat dangerous situation because having a free lawyer and in effect having a free ride can cause some plaintiffs to be somewhat reckless in terms of pursuit of claims.  What some lawyers do in that regard is to make the client pay the expenses associated with the litigation.  The expenses associated with the litigation are such things as expert witness fees, filing fees, fees associated with the service of court process and fees associated with the taking of depositions.  That does inject into the attorney-client relationship some degree of financial reality for the plaintiff and also may make the plaintiff more sensible in terms of any potential resolution of the case i.e., recognizing that they do have some financial skin in the game.  Most state bars require that ultimately the client be responsible for these expenses.  That is a requirement that quite frequently is handled with a “wink and a nod”.  What I mean by that is that although the state bar requirement is that the client be responsible for these fees, that requirement is soft-pedaled by many lawyers on the representation that of course the case is going to generate sufficient money, any expenses will be paid out of that money and therefore the client will not have to pay anything out-of-pocket.   The end result is that sometimes the state bar requirement is circumvented.

Variable Contingent Fees

The most common contingent fee that is used by attorneys is a 1/3 fee.  There are attorneys who charge more than that i.e., sometimes as much as 40% or 45%.  

There are also attorneys who utilize a lesser fee schedule frequently as a come-on.  That is, some attorneys will charge 20% or 25% if the case settles within a certain period of time before trial.  I’ve always viewed that as simply being a come-on meaning that any substantial case, if it settles at all, is probably going to settle within 30 days of trial.  As such leading the client to believe that they’re going to save some money by an initial fee of 25% when in fact the attorney knows that the case will probably never settle sooner than 30 days before trial and then charging a 1/3 or higher fee at that point I think is somewhat misleading.  There certainly is nothing wrong with that arrangement if in fact that is what a client wants but to me that is simply a come-on and may well be somewhat deceptive because most cases that have any significant value are in fact not going to settle until they get very close to trial.

As is true with most things, there are pros and cons to the contingent fee system.  The contingent fee system however overall is a mechanism to help increase the access that worthy plaintiffs may have to the court system.  Without that fee system many worthy plaintiffs would go uncompensated for their injuries.For more information on contingent fees see the pages on Wikipedia.

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The Logic of the Contingent Fee System in Injury Cases

Fairfax Injury Lawyer Brien Roche Addresses The Logic of the Contingent Fee System In Injury Claims

Brien Roche

As is true with many things associated with trial lawyers, there is a great deal of controversy associated with the contingent fee system in regards to injury claims.

The contingent fee is exactly that i.e., the fee is contingent upon the outcome.  If there is no money recovered for the client then the lawyer does not get paid for the time expended.  The logic of the contingent fee system is that it allows people that may not have the financial resources to pay their lawyers to still pursue their claims.

Although the contingent fee system is most often used in regards to injury claims, it can be used in regards to any type of claim.  The claim may be a contract claim, a constitutional claim or other type of claim.  Inherent in the fee arrangement is the fact that the lawyer’s fee is result-driven.  If the lawyer doesn’t produce a good result or at least a result that generates income for the client then the lawyer does not get paid.

The Contingent Fee System Is Not Without Flaws

The flaw in the contingent fee system is that unscrupulous lawyers may use this fee system to try to extract settlements from companies that in fact may not owe anything.  The insurance industry and the so-called “tort reformers” would have you believe that problem is rampant.  It probably is not.  Lawyers are no different than any other business person.  They’re in business to make money.  If a claim does not have some degree of merit associated with it then typically the defendant is going to fight it.  There is very little financial reward for a lawyer to pursue a claim simply to extract a settlement out of a defendant knowing that the expenditure of time is not going to justify the potential fee that might be received.  That doesn’t mean that there have not been some abuses over the years.  Clearly there have been.  However the abuses probably go both ways i.e., the insurance industry and corporate entities frequently fight claims that they should not fight.  What I mean by that is that it’s not unusual for insurance companies to stonewall claims that are meritorious simply to see what the plaintiff and the plaintiff’s lawyer are made of and if it appears that they have the mettle to pursue the claim to the end then the insurance company gets serious about a resolution.

Another factor that can skewer the entire contingent fee system against injured parties is caps on liability.  Where there exists a cap on liability that is imposed by law then that means that the insurance company and/or the entity being sued cannot be made to pay more than whatever that cap amount is.  If the cap is $350,000 or whatever the number is then that means that the insurance company is never going to offer that amount typically in any case because that’s their worst day in court.  What that means is that the plaintiff’s lawyer then has to fight very hard simply to get something that is under the cap.  That is the undisclosed and unknown insidious aspect of statutory caps on liability.  Really they’re not caps but rather they are “super caps” because the real cap on liability is considerably less than what the statutory cap is because the insurance company will never pay the full statutory cap to resolve a case.

Contingent Fee Lawyers As Heroes: You Decide

Some judges and legal commentators have described lawyers who take cases on a contingent fee basis as being the heroes within the legal system.  There is some justification for that description.  That is, an attorney who takes on a difficult case and pursues it for a lengthy period of time with no compensation for the attorney’s time may well be a hero.  To some extent that was seen in regards to the tobacco litigation years ago.  Tobacco litigation was essentially spearheaded by a group of plaintiffs’ trial lawyers who took on the tobacco industry at a time when the tobacco industry was thought to be invincible.  The tobacco industry had more money than God.  They were committed to fighting all claims.  They did fight many of the claims and over a period of time they were worn down to the point where they not only settled but agreed to make concessions as far as warnings and advertising restrictions in terms of promoting their deadly product.  Another more recent example of that is the lawyers who took on the claims against the Iranian government brought by persons who had been held hostage by the Iranian government.  Those claims were thought to be a reach, not only because Iran is a foreign country and therefore may have immunity but also because its assets are in Iran and not here.  It so happens that there were certain assets that the Iranian government had in the U.S. which after nearly 20 years of litigation were unfrozen and resulted in payments to these hostages.  The lawyers who took on those cases waited for 20 years for a payday.  The payday was a handsome one but it was probably well-deserved.

One critique of the contingent fee system that is probably meritorious is that even though lawyers are required to make the client responsible for the expenses associated with litigation, frequently lawyers advance those expenses.  What that results in is that the plaintiff has a free lawyer, not only as far as the lawyer’s time but also as far as the expenses associated with that litigation.  That can create a somewhat dangerous situation because having a free lawyer and in effect having a free ride can cause some plaintiffs to be somewhat reckless in terms of pursuit of claims.  What some lawyers do in that regard is to make the client pay the expenses associated with the litigation.  The expenses associated with the litigation are such things as expert witness fees, filing fees, fees associated with the service of court process and fees associated with the taking of depositions.  That does inject into the attorney-client relationship some degree of financial reality for the plaintiff and also may make the plaintiff more sensible in terms of any potential resolution of the case i.e., recognizing that they do have some financial skin in the game.  Most state bars require that ultimately the client be responsible for these expenses.  That is a requirement that quite frequently is handled with a “wink and a nod”.  What I mean by that is that although the state bar requirement is that the client be responsible for these fees, that requirement is soft-pedaled by many lawyers on the representation that of course the case is going to generate sufficient money, any expenses will be paid out of that money and therefore the client will not have to pay anything out-of-pocket.   The end result is that sometimes the state bar requirement is circumvented.

Variable Contingent Fees

The most common contingent fee that is used by attorneys is a 1/3 fee.  There are attorneys who charge more than that i.e., sometimes as much as 40% or 45%.  

There are also attorneys who utilize a lesser fee schedule frequently as a come-on.  That is, some attorneys will charge 20% or 25% if the case settles within a certain period of time before trial.  I’ve always viewed that as simply being a come-on meaning that any substantial case, if it settles at all, is probably going to settle within 30 days of trial.  As such leading the client to believe that they’re going to save some money by an initial fee of 25% when in fact the attorney knows that the case will probably never settle sooner than 30 days before trial and then charging a 1/3 or higher fee at that point I think is somewhat misleading.  There certainly is nothing wrong with that arrangement if in fact that is what a client wants but to me that is simply a come-on and may well be somewhat deceptive because most cases that have any significant value are in fact not going to settle until they get very close to trial.

As is true with most things, there are pros and cons to the contingent fee system.  The contingent fee system however overall is a mechanism to help increase the access that worthy plaintiffs may have to the court system.  Without that fee system many worthy plaintiffs would go uncompensated for their injuries.For more information on contingent fees see the pages on Wikipedia.

Contact Us For A Free Consultation

Contact Us For A Free Consultation