How Will My Personal Injury Lawyer Get Paid?

In personal injury cases, attorneys and their clients have a fair amount of freedom when it comes to choosing a fee arrangement. How a personal injury attorney gets paid is usually dictated by which side of the case the attorney represents: the plaintiff (the injured person bringing the claim) or the defendant (the person who is alleged to have caused the injury).

Personal Injury Attorneys Representing Plaintiffs

The most important thing to know here is that the vast majority of plaintiff's attorneys practicing personal injury law will receive payment under a contingency fee agreement.

This means the attorney doesn't receive a fee for legal services unless the attorney is able to obtain a recovery for the client. Typically, this fee amounts to a certain percentage (around 33%) of the amount recovered from a personal injury settlement or court judgment after trial.

While the contingency fee arrangement is relatively straightforward, there are a number of variations, such as:

• Mixed hourly/contingent: The attorney receives a reduced hourly rate for work completed, even if the plaintiff loses. However, the attorney will receive a "bonus" that is contingent on winning or settling the case. This bonus can be an additional hourly fee and/or a small percentage of the total amount recovered.
• Sliding scale contingency: This works like a straight contingency fee arrangement, except the fee percentage is on a sliding scale, with the percentage going up as the litigation progresses. For example, if the case settles before a lawsuit needs to be filed, the fee percentage may be 25%. But if the plaintiff wins after a lawsuit is filed and the case goes all the way through trial, the attorney's fee may be 40% of the judgment awarded to the plaintiff.
• Contingency hourly: Like the straight contingency fee arrangement, the plaintiff's attorney doesn't get paid unless a recovery is obtained for the client. But unlike a straight contingency fee arrangement, the amount the attorney receives depends on the amount of time the attorney spends working on the case. This type of arrangement is unlikely in a personal injury case unless the plaintiff will have the ability to recover attorney's fees from a losing defendant.

Personal Injury Attorneys Representing Defendants

For attorneys who defend their clients in personal injury lawsuits, the majority of fee arrangements revolve around the billable hour. For example, if an attorney spends 32.5 hours on a case and charges $250 per hour, the attorney's fee will be $8,125.

Like the contingency fee arrangement, hourly billing is fairly simple, although modified hourly fee arrangements exist, including:

• Retainer: Before starting work, the client pays the attorney a lump sum payment which is kept in a special bank account separate from the firm's account. As the attorney completes work on the case, the attorney withdraws funds from the retainer.
• Blended hourly: If more than one attorney will work on the case, the hourly rate may be a blend of a less-experienced attorney's lower hourly rate and a more experienced attorney's higher rate. So instead of charging $200 per hour for all the work a junior associate does, and $300 per hour for all the work the senior partner does, the client pays a flat $250 per hour for all work.
• Hourly cap: This works just like the straight hourly fee arrangement, but there is a cap on the maximum amount of money the attorney will be able to bill the client for a particular legal matter. This limit is in place even if the attorney spends a larger than expected amount of time on the case.

Who Actually Pays the Personal Injury Attorney?

On the plaintiff's side, because most plaintiff's attorneys work on a contingency basis, if the plaintiff obtains a recovery from the defendant, the plaintiff's attorney's fee comes from the amount paid by the defendant to settle the case (or the amount the defendant is ordered to pay by the court after a trial).

On the defendant's side of personal injury litigation, if a liability insurance policy applies to the underlying accident, the policy will not only indemnify the defendant for any judgment or settlement they must pay the plaintiff (up to policy limits, of course), it will also provide a legal defense in case the defendant gets sued. That means the insurance company will choose and pay for an attorney to represent the defendant.

If no insurance policy covers the underlying accident, the defendant will need to pay out of pocket for an attorney's services.

The Insurance Company's Duty to Defend

Most liability insurance policies, such as those purchased by individuals and businesses to protect their vehicles, homes, and businesses, include a duty to defend provision. This requires the insurance company to provide a legal defense to the policyholder if they become involved in a lawsuit concerning an event that triggers coverage.

This duty to defend is very broad. It requires the insurance company to pay for the policyholder's defense attorney in lawsuits even if there is only a chance that the underlying cause of action falls within the insurance policy's scope of coverage. Until it's clear the policyholder is being sued for conduct that is not covered by the policyholder's insurance policy, the insurance company usually must pay for the policyholder's defense attorney.

This duty to defend can sometimes create a conflict because the defense attorney may have two interests to consider. On the one hand, the defense attorney owes a duty to the policyholder. But it's the insurance company that actually pays the attorney, and the attorney probably wants to keep the insurance company happy (so they continue sending more work the attorney's way. And on occasion, what's best for the policyholder is not necessarily best for the insurance company. It's important to keep in mind that in this scenario, the attorney is ethically and professionally obligated to do what's best for the client (the policyholder) and not the insurance company.

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