Managing Personal Injury Lawyer Costs and Expenses

Concerns over costs are a common source of friction between personal injury lawyers and their clients. You might be able to spare yourself any unwelcome surprises in your car accident or personal injury case by getting your fee arrangement—and the specifics of how costs and expenses will be handled—clear at the beginning.

What Is a Contingency Fee Agreement?

It's difficult for most people to come up with a lot of money in advance to pay a lawyer. And most potential clients would find it difficult to pay a lawyer on an hourly basis throughout the course of a personal injury claim, especially if things proceed to the civil lawsuit phase.

So, lawyers who take on most types of injury cases typically require no money from a client to begin a case, and instead take a percentage of the client's final settlement or court award as a fee for legal service. This arrangement, known as a "contingency" fee agreement, can be extremely useful to clients and lawyers alike.

Contingency fees aren't cheap—they reflect the fact that the lawyer is taking a risk by taking on your case, while you're 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.

Personal Injury 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.

Take a look inside a typical personal injury lawyer's bill.

Should You Hire a Personal Injury Lawyer on Contingency?

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 adjuster has refused to pay you any compensation at all, or only a token "nuisance value" amount, but the injuries and other losses ("damages") you've suffered are significant, it's 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 handle it on your own, even taking it yourself to small claims court or mediation.

The decision will depend on several factors, including:

• how comfortable you are going to small claims court or mediation without a lawyer
• how complicated the issues, evidence, and the insurance company's defense might be, and
• whether a lawyer is willing to take your case and is confident of getting you a certain range of compensation.

Learn more about handling your own personal injury claim or hiring a lawyer.

Be Realistic About How Much Your Personal Injury Case Might Be Worth

If the insurance company has offered you an injury settlement that you think is too low, it might make sense to measure what they've 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're guaranteed no less than you would have received had you just settled with the insurance company on your own.

Understand the "Costs" of Your Personal Injury Case

In legal parlance, "costs" don't refer to the fees paid to your accident lawyer. Instead, they're 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'll 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 get the insurance company's full attention, the fee for filing that lawsuit is a necessary cost. If your claim doesn't 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.

Personal Injury Case Costs Versus Lawyer Fees

If your personal injury lawyer is working under a contingency fee agreement, the contract must clearly state whether costs are to be deducted from your final compensation amount before or after the lawyer calculates the fee percentage.

This matters because 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 Contingency Fee Calculation Before and 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.

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 $10,333.

This second method of calculating fees and costs left the client with $1,000 less in recovery. Obviously, it's 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. If a lawyer you're considering insists on calculating their fee before costs are deducted, you're free to insist on taking your case elsewhere.

You Can Agree on Some Personal Injury Case Costs in Advance

Many costs in a personal injury case are predictable and somewhat standard, and often a lawyer's initial written agreement will include them. These normal and unavoidable expenses typically include document preparation, court filing fees, and court reporter/transcript costs. Other expenses may not be so crucial—but can add up. 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.

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This article was adapted from the book, How to Win Your Personal Injury Claim, by Attorney Joseph Matthews (Nolo).