Learn how attorney contingency fees, medical bills and legal costs are deducted from your injury compensation, and how to determine your final payout.
When you’ve been seriously injured because of someone else’s negligence, you’ll likely need a skilled personal injury attorney to get the full amount of compensation you deserve.
Fortunately, you won’t have to pay upfront for legal fees and expenses when you’re hurt and can’t work.
Attorneys who specialize in defending criminals or advising businesses are usually paid by the hour, beginning with a down payment called a “retainer” fee.
Some attorneys charge a flat fee up front for services like writing a will, real estate closings, or handling an uncontested divorce.
Paying a personal injury attorney is different. Most attorneys who handle injury claims won’t charge legal fees unless your case settles or you win a verdict in court.
What Comes Out of Your Injury Compensation?
How much money comes out of your total injury compensation will depend on your medical expenses, the amount or percentage you’ve agreed to pay for attorney fees, and the amount of legal costs that have accumulated.
It helps to understand the difference between legal fees and costs:
Fees are the wages paid to an attorney for their work. Fees may be paid on an hourly basis, as a flat amount for the job, or as a percentage of compensation recovered for the client.
Costs are the expenses incurred to move the client’s case forward, like copy costs, court filing fees, hiring expert witnesses, deposition expenses, travel expenses, and more.
Your legal fees and costs will depend on the severity of your injuries and the complexity of your case. For example, some types of injury cases are:
- Vehicle Accidents
- Slip and Fall
- Premises Liability
- Work Injuries
- Dog Attacks
- Medical Malpractice
Car accident, slip-and-fall, and dog bite cases are often settled out of court with the at-fault party’s insurance carrier. In addition to the attorney fees, cases settled directly with the insurance company will typically have medical expenses to be paid, copy costs and small fees for things like the police report.
Workers’ compensation cases may have more in the way of costs, like medical expert expenses, especially if the workers’ comp insurance company is fighting a disability claim. On the other hand, most states limit attorney fees for workers’ comp cases.
Some of the most expensive case types, like birth injury cases and other forms of medical malpractice (that almost always end up going to trial), are also the kinds of cases that can result in compensation awards reaching hundreds of thousands of dollars.
Legal Costs to Prepare Your Case
Costs are the expenses your attorney pays while preparing and negotiating your case. Legal costs can be low or high, depending on the complexity of your case and if a lawsuit must be filed.
Costs might include office and copying costs, deposition expenses, expert testimony, court document filing fees, travel expenses and more. Costs are deducted from the total settlement after a case is won and before the attorney fees are calculated.
There are three ways legal costs can be handled:
- The attorney may require the client to pay a small deposit towards costs at the beginning, and the remainder is deducted from the settlement or verdict award.
- Some attorneys may require the client to pay costs as they occur.
- Most personal injury attorneys advance all legal costs that are later deducted from the settlement. If your attorney isn’t successful at settling your case or winning it at trial, you won’t have to pay any of these costs.
Be sure the contract with your attorney spells out how legal costs are handled if you don’t get a settlement or win in court.
Medical Liens Against Your Settlement
Your attorney is legally obligated to deduct and pay all medical liens before you receive any settlement money. These liens can come from medical providers you still owe, and from insurance companies who paid your injury-related medical bills.
Some health insurance companies won’t foot the bill for injuries caused by a car accident or workplace accident.
Your medical providers may not be willing to treat you without a Letter of Protection from your attorney promising to pay them for your treatment out of your settlement funds. They will wait for payment until your case settles.
On the other hand, Medicare, Medicaid, and other insurance carriers will cover your medical expenses with the expectation of being repaid under state and federal subrogation laws.
Subrogation means your insurance company has the right to recover what they paid on your behalf from any settlement you collect from the negligent party.
About Contingency Fee Agreements
You may have learned that personal injury attorneys aren’t paid unless they win your case. If they lose, you owe them nothing. This No Win/No Fee arrangement is called a “contingency fee agreement” between you and your attorney.
Contingency fee agreements make it possible for injury victims to afford experienced legal representation against corporate giants and ruthless insurance companies. With a contingency fee agreement, there are little or no charges for the client to pay until the case is over.
Most personal injury clients think a contingency fee means their attorney will get one-third of the final settlement, and the client will get the other two-thirds. But it’s a little more complicated than that. Medical liens and other costs can take a big bite out of your final payout.
Your attorney should explain exactly how the attorney’s fees will be calculated, and what else will come out of any potential settlement or court verdict.
Attorneys are legally required to explain their fee structure, but you’re responsible for reviewing and understanding the fee agreement before you sign it.
The attorney fee agreement is a legal contract that sets out the exact amount of your attorney’s fees and should also explain how any other expenses are deducted. Once you sign it, you’re bound by its terms.
Some attorneys are better than others at explaining the terms of their contingency fee agreements. Contracts can be confusing to anyone, so don’t be afraid to ask questions.
When you’re given the contract, take your time and read it thoroughly. You can even take it home overnight to review. As you do, write down any questions about legal terms or passages you don’t fully understand.
Pay Attention to Payout Clauses
Carefully read the entire agreement, paying especially close attention to the clauses that control your payout. Remember, if you have questions about these clauses or any others, ask your attorney for a full explanation before you sign the agreement.
Typical clauses found in contingency fee agreements cover the deduction of costs and medical liens, as well as the net amount a client will receive.
Costs Clause Example:
“Attorney will advance all Costs in connection with Attorney’s representation of Client under this agreement. Attorney will be reimbursed out of the client’s gross settlement amount, court verdict, or arbitration award before any money is paid to the client.
If there is no settlement or award after a trial or arbitration hearing, or if the amounts of the settlement, court verdict, or arbitration award are insufficient to reimburse Attorney in full for costs advanced, Attorney will bear the loss and Client will owe nothing.”
Medical Liens Clause Example:
“Items which are not Costs, but which must first be paid out of the client’s settlement, court verdict or arbitration award before any money is paid to the client are any medical or therapeutic treatment expenses incurred by Client which have not yet been paid and which are directly related to the client’s treatment.
These medical and treatment expenses include, but are not limited to: physicians, hospitals, therapists, chiropractors and other like providers.”
Net Amount to Client Clause Example:
“Client will receive the amount remaining after costs, attorney fees and medical or other legitimate liens are deducted from the “total amount” of the settlement, court verdict or arbitration award. That amount will be considered the “net amount” which is due and payable to Client.”
Typical Attorney Contingency Fees
Personal injury attorneys typically charge contingency fees ranging from 25 percent up to 40 percent of your settlement after expenses are deducted.
Attorney contingency fees aren’t set in stone. If you’ve already done a lot the legwork for your injury claim, you can always negotiate the fees for your case with the attorney during your initial consultation.
The most common contingency fee arrangement is one-third, or 33.3 percent, with an increase to 40 percent if a lawsuit is filed.
Lawsuits and arbitration require additional time and money. It can take months for a case to be brought to trial and requires many more hours of the attorney’s time than negotiating a settlement directly with the insurance company.
Preparing for trial or arbitration always requires pre-trial discovery and litigation activities, such as:
- Preparing and filing extensive legal pleadings
- Attending court hearings
- Depositions of the at-fault party and witnesses
Legal costs also increase during litigation. Deposition expenses for court reporters, certified copies, and attorney travel expenses can add up to hundreds of dollars for each deposition.
Expert witnesses are also expensive. Depending on the type of case and expertise required, an expert witness can cost thousands of dollars to prepare an opinion and testify at trial.
Your attorney is obligated to do everything they can to protect your interest. A good attorney will do everything necessary to prepare for trial, even if the case will likely settle along the way.
Cases settled before trial are usually for much larger amounts of compensation, precisely because the insurance company recognizes the attorney was prepared to fight.
Example of Fee Breakdown at 33.3 Percent (of Settlement)
Example of Fee Breakdown at 40 Percent (of Court Award)
Video: How Contingency Fees Affect Your Payout
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