How Does a Personal Injury Lawyer Get Paid?
Personal injury lawyers do a lot of great work. Many are motivated to practice this area of law because of their own personal experience dealing with an unexpected injury. They’ve seen, first-hand, how tough it can be for an injury victim to go up against powerful, manipulative, stingy insurance companies. Once they graduate from law school, they dedicate their practice to helping victims fight to assert their rights and hold insurers and defendants accountable.
In doing so, personal injury attorneys actually take quite a big risk - financially speaking. That’s because the vast majority of personal injury lawyers work on a contingency basis. The simplest way to explain this is to say that personal injury lawyers only get paid if they win their client’s case. Their fee is contingent - or dependent - upon the successful procurement of a financial award.
In a very broad sense, that’s how personal injury lawyers get paid. Let’s break it down a little bit to understand how it really works.
Understanding Contingency Fees
So, how do contingency fees work? Generally speaking, it works something like this. A lawyer agrees to represent a client and handle their personal injury case in exchange for a percentage of whatever financial award they obtain. That percentage is agreed upon before the attorney is hired. The client knows from the start that their lawyer will get anywhere between 25 percent and 40 percent of their settlement or award.
Now, it’s important to note that different states have different rules and regulations regarding attorney fees. Some states have very precise rules regarding fee structures and calculations. Others give attorneys more leeway when determining how to charge their clients and arrange a contract. However, there’s one very clear rule - attorney fees can never be unreasonable.
The American Bar Association (ABA) has Model Rules of Professional Conduct. MRPC Rule 1.5 concerns attorney fees. It explains that “a lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” Different factors have to be taken into account when determining a fee. These include, among other things, the amount of time and labor the case will require and the case’s degree of difficulty.
Attorneys also have to consider what other attorneys of similar experience and reputation would likely charge to handle the same case.
At the end of the day, the average fee for a personal injury case is between 25 and 40 percent of the award.
A Lawyer’s Fee Can Hinge on Whether the Calculation is Based on the Gross or Net Award
So, handling a personal injury lawsuit involves more than a lawyer’s time and labor. It also includes filing fees, court costs, and administrative expenses. Other costs can include expert witness fees, investigative expenses, and consultation fees. Most personal injury lawyers front these costs. That’s done with the expectation that they’ll be repaid - or essentially reimbursed - once the case is resolved in their client’s favor.
How case-related costs are paid can affect how much the lawyer is ultimately paid. There are two ways to structure a fee - based on the gross recovery or net award.
The gross award is how much the client agrees to settle the case for or the amount they’re awarded by a jury. If a contract says that a lawyer gets a percentage of the gross award, that means that the lawyer’s fee is first calculated without considering case-related costs. So, if a car accident lawsuit settles for $10,000 and the contingency fee was 40 percent of the gross award, the lawyer’s payment is $4,000. That leaves $6,000 for the client.
However, with a gross-based fee, the issue of costs still has to be addressed. Does the client have to pay those back out of their own award? Does the firm absorb the costs in exchange for a higher fee? Those are issues that have to be addressed before a contract is ever signed.
The net award is the gross award, reduced by case-related costs. So, let’s say that the same case settles for $10,000. The attorney fronted $2,000 in costs. Using the net-award formula, that $2,000 is repaid right off the top. Then the attorney’s fee is calculated using the net recovery of $8,000. So, the lawyer is paid $3,200 and the client takes home $4,800. However, there’s no need to worry about figuring out how the fees will be recouped or absorbed.
Many states actually have laws requiring attorneys to use a net-award calculation.
The Importance of Free Consultations in Personal Injury Cases
Working on a contingency basis means that personal injury lawyers have to bet on themselves. They have to bet on the fact that they’ll be able to successfully obtain a settlement offer or secure a jury award at trial. That’s one reason why initial consultations are so important.
Yes, free consultations are a great way for clients to learn about an attorney. At the same time, they’re a wonderful opportunity for lawyers to gauge the strength of a prospective case. That’s why it’s really important for an attorney to ask a lot of questions and try to gain as much insight as possible into the case and the client.
Here are some things an attorney might try to ascertain when asking questions during a case assessment:
Is the client being honest and forthcoming?
Is the client providing a lot of details?
Does the client share any blame or responsibility for their injury?
How severe are the client’s injuries?
Is the client’s ability to work or earn a living compromised because of their injury?
Is fault clear, or will liability be heavily contested by defendants and insurers?
The answers to these questions can be really helpful in guiding an attorney’s decision about whether or not to take a case.
A case might seem like a slam dunk, but if the projected recovery is quite low, it might not be worth the time and labor to take it on.
Similarly, a lawyer might decide that there’s too much risk involved in taking a case if a client clearly shares responsibility for their injuries. Sharing fault can bar or limit a victim’s financial recovery, depending on applicable state law. If a recovery is barred or reduced, that directly impacts how much the lawyer will be paid.
On the other hand, an attorney might decide that a case is challenging, but worth the risk because the client’s injuries are quite severe and that lawyer has extensive experience handling that particular area of personal injury law.
So, in the end, a personal injury lawyer typically gets paid when they successfully resolve a case in their client’s favor. How much they get paid ultimately hinges on how much the case is worth, their pre-agreed upon fee, and how the fee is calculated.
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