What is a Contingency Fee?

In most kinds of law practice, attorneys receive compensation for the legal services they provide. Law firms are businesses after all. But after a car accident, slip and fall, or other incident that causes you harm, you could find yourself in need of legal representation, and without the money to pay for an experienced personal injury lawyer. The "contingency fee" arrangement between attorney and client exists for exactly this reason. But how exactly do these agreements work? Read on for the details.

The Basics of Contingency Fees

A contingency fee is a type of payment to your attorney that only occurs when you receive some kind of monetary recovery in your case -- your personal injury case settles or you win your case at trial. To put it another way, with a contingency fee, payment for your attorney's services is "contingent upon" your receiving some amount of compensation.

Your attorney will take an agreed-upon percentage of your recovery. This percentage is often around 1/3 or 33%. The exact amount your attorney gets paid will depend on a variety of factors. The two biggest are:

• the complexity and risk involved in your case, and
• who pays for litigation costs and when.

Complexity and Risk

The more risky or complex a case is, the higher contingency fee percentage your attorney is likely to request. A riskier or more complicated case may require you to pay a higher percentage of the recovery, say 35% to 40%. On the other hand, a relatively straightforward case that's highly likely to end in recovery may result in a lower contingency fee percentage, perhaps 20% or 25%.

Litigation Costs

Even if an attorney is willing to work for free (also known as "pro bono"), there are always costs associated with bringing a personal injury lawsuit. These costs can include:

• Court and filing fees. For example, it costs about $400 to file a complaint in federal court.
• Discovery costs. For example, a deposition requires hiring a court reporter and paying for a deposition transcript. A deposition lasting eight hours can easily cost up to $1,000, and many civil lawsuits require several depositions.
• Expert witnesses. Expert witnesses can potentially charge as much as your attorney. You can expect one expert witness to charge at least a few thousand dollars to review your case, prepare a report and testify at trial.
• Obtaining evidence. Getting copies of public documents, medical records, etc. can add up to a few hundred dollars in a single case.
• Overhead and incidentals. In a case involving many documents, copying and postage costs can add up to a few hundred dollars.

If you win your case, you will usually be the one to pay these costs. However, whether your attorney takes the contingency fee percentage before or after these costs are paid can make a significant difference in how much you and your attorney ultimately receive.

For example, let's say you win your case after trial and the jury awards you $100,000. Your litigation costs are $15,000 and your attorney's contingency fee percentage is 30%. If you pay for litigation costs before your attorney takes the contingency fee percentage, your attorney gets $25,500 (30% of $85,000) and you get $59,500 ($85,000 - $25,500).

But if you pay for litigation costs after your attorney takes the contingency fee percentage, your attorney gets $30,000 (30% of $100,000) and you get $55,000 ($70,000 - $15,000). The timing of litigation cost payments results in a $4,500 difference.

Drawbacks of a Contingency Fee Arrangement

The fact that you don't have to pay unless you win is great if you don't have any upfront money to pay for an attorney. But there are a few drawbacks.

First, a contingency fee arrangement will sometimes result in an attorney getting paid more money than if you paid the attorney by the hour. This is especially true in relatively clear-cut cases that might only require a few phones calls and letters to settle.

Second, because the attorney gets nothing if you lose your case, attorneys may be unwilling to take a less-promising case even though it still has a chance of success.

Contingency Fee Variations

Two common variations of the traditional contingency fee arrangement are contingency hourly and mixed hourly-contingent.

In a contingency hourly arrangement, you do not need to pay your attorney until there is a recovery. However, your attorney will keep track of the hours worked, and if you receive compensation you will pay your attorney an hourly rate. For instance, if you win your case, your attorney charges $250 per hour and your attorney spent 10 hours on the case, you will pay your attorney $2,500. You do not pay this $2,500 amount unless you obtain a recovery.

The contingency hourly arrangement is typically only used when your lawsuit is subject to laws that allow the winning side to recover attorney's fees from the losing side.

In a mixed hourly-contingent arrangement, you are only immediately required to pay for part of your attorney's normal hourly rate, with the remainder paid only if you obtain a recovery. For example, if your attorney bills you at $250 per hour, you may only need to pay your attorney $50 per hour until you obtain a recovery. Only from your monetary recovery do you pay the remaining $200 per hour to your attorney.

With a mixed hourly-contingent set up, your attorney will also probably get a percentage of the recovery on top of the attorney's hourly rate. However, this percentage will usually be significantly smaller than a typical contingency fee percentage.

Learn more about Getting Help from a Personal Injury Attorney.