Contingency Fees: 7 Truths You Should Know
Personal Injury attorneys in Austin and elsewhere predominantly work on a contingency fee basis, meaning that attorney fees are set as a certain percentage of a client’s potential settlement recovery. Here are a few things to consider before entering into any contingency fee arrangement with a law firm:
- Higher contingency fees do not signal higher quality representation
- Higher contingency fees do not always correlate to an attorney’s actual amount of risk
- Higher contingency fees do not always indicate a higher amount of effort
- Higher contingency fees do not signal higher gross settlement values
- Case expenses, settlement trends, and medical liens can significantly affect a client’s net recovery and should be a decision-driving factor
- Contingency fees are always negotiable
- Lower contingency fees in non-high risk cases may signal attorney awareness and client-centered concern
Higher contingency fees do not signal higher quality representation.
Before internet reviews and independent quality accolades (Super Lawyers, Avvo), lawyers had little to use to signal their quality to potential clients besides word of mouth reputation and fee amounts. Before reviews and accolades, a lawyer may charge higher fees to indicate and promote (or overpromote) his experience, relying on the “higher price means higher quality” assumption in potential clients. In the past, potential clients had little outside data to rely upon when selecting an attorney compared with today.
Now, potential clients have immediate online access to State Bar information, Google reviews, and a number of independent attorney ranking sites (usually with additional reviews). A Super Lawyer ranked and well-reviewed attorney who charges 40% and a Super Lawyer ranked and well-reviewed attorney who charges 30% are probably practically equal in terms of competence, skill, and experience. In the end, both attorneys will most likely accomplish highly similar or identical case results, as their reviews and accolades would predict. The only difference between the two lawyers that substantial impacts the client is the fee agreement, with the client potentially receiving significantly more for herself with the latter rather than the former attorney.
Higher contingency fees do not always correlate to an attorney’s actual amount of risk.
I believe that higher contingency fees in Medical Malpractice cases, especially here in Texas, absolutely reflect the actual amount of risk assumed by the law firms that handle such cases. Medical Malpractice cases are procedural minefields, and it takes highly skilled lawyers who are willing to take risks to guide clients through. Higher contingency fees may also make sense in highly contested cases, where the client knows and understands up front that she is asking a lawyer to invest time and money on her behalf in a truly risky venture.
For the vast majority of car accident cases with mostly clear liability, legitimate injuries, and reasonable medical treatment, there is little risk assumed by the lawyer. In such cases, the predominant risks to the attorney are related to client behavior. In most standard cases, attorneys run the risk of discovering too late that they signed up lying clients (“sorry, I forgot to mention I have four felony fraud convictions”), pathologically entitled clients (“no matter what you do I’ll be angry and unhappy because of my raging sense of entitlement”), and mental-capacity impaired clients (“This week I know everything in the universe and I know that my case is worth one million dollars, despite what anyone else says.”) Client-behavior associated risk can be best handled through stricter client-screening techniques (background checks and mental health intake questionnaires) and withdrawing from representation promptly when conflicts arise. Outside of these rare problem-client scenarios, there is little actual risk to the attorney where well over 95% of cases will settle for a reasonable amount without ever going to trial.
Higher contingency fees do not always indicate a higher amount of effort.
More and more of the legal profession is becoming streamlined and automated. There are forms for everything. Documents can be generated and sent from anywhere in the world to anywhere else in the world with a few clicks. Most routine case work does not require an attorney, and the majority of case development tasks (ordering medical records, answering discovery responses, generating correspondences) are performed by assistants, paralegals, and third party services. Experienced attorneys should be able to streamline their firms’ processes and eliminate any and all work that doesn’t actually add value to a client’s case. Higher fees combined with a highly efficient law firm that does exactly and only what needs to be done to get the maximum results for clients creates a greater margin for the firm’s profits, but does not translate into a higher net recovery for the client. There are many personal injury attorneys who seem to believe that their worth is tied to how much busywork they can generate in a case, such as running to the courthouse for unnecessary hearings, taking lengthy depositions of defendants who have already admitted fault for an accident, and developing elaborate multi-media mediation presentations for basic cases. However, the vast majority of this legal busywork rarely increases the value of a client’s case, generates unnecessary case expenses, and in most situations actually decreases the settlement value because the lawyer earns a bad reputation with the defense attorneys and insurance carriers and therefore loses the power of influence in negotiation.
The sweet-spot seems to be a highly efficient and effective process that does not generate unnecessary case expenses for the client’s case combined with a lower, reasonable fee structure that shows sensitivity for the client’s net recovery. A well-honed and streamlined process allows law firms to maintain healthy profit margins while passing along increased benefit to the client’s bottom line (aka “best interest of the client”).
Higher contingency fees do not signal higher gross settlement values.
As I have discussed in other posts, most highly-ranked, well-experienced personal injury attorneys will accomplish very similar results on similar cases. In most cases, the differences in gross settlement outcomes among all of the top-ranked lawyers in an area will be marginal, at best. For a case that is valued at $100,000, one should expect that settlement values among all experienced and capable lawyers to be at or around $100,000. There is no such thing as a particular law firm, the mere mention of which, that would cause insurance companies to shell out significantly more than the $100,000, despite what the misleading television ads try to lead consumers to believe.
Case expenses, settlement trends, and medical liens can significantly affect a client’s net recovery and should be a decision-driving factor.
Due to tort reform legislation, cases are statistically settling for less than 10 and 20 years ago. Insurance companies very rarely part with a dime that they don’t have to let go. Here in the more conservative counties of central Texas, settlement values and jury verdicts are not as high as they were in recent decades due to a large number of legal and social factors. On top of a tightening of case values, the expense of developing cases has been steadily rising, with court filing fees, deposition costs, medical record charges, and mediation fees consistently going up each year. As if that weren’t enough, hospitals and health insurance companies have powerful mandatory reimbursement (subrogation and lien) rights that they did not possess in decades past. What this all means for any potential client is that there are more people sitting at the table waiting for their slices of the settlement pie.
Knowing these factors should throw the importance of attorney fee percentages into the spotlight. If cases are settling for less and costing more, with more medical providers requiring reimbursement, then why is the amount of attorney fees not the primary decision-driving factor among potential clients?
The answer is that potential clients do not know these factors, or how to evaluate between attorneys…until now.
Contingency fees are always negotiable.
Negotiating fees should be done up front while the attorney-client contract is being discussed. Do not wait until the end of the case to try to manipulate the lawyer into a lower fee. Negotiate, don’t manipulate. For a client who is confident in the facts of his or her case (i.e. liability is clear, there are legitimate injuries, and there is reasonable and significant medical treatment), then the client is in the best position to negotiate for a better rate. If the case does not present significant risk to the attorney, then why pay the high risk contingency rate? Insist on a rate that makes sense for your case. If the attorney is not willing to budge on a 40% fee simply because that’s his or her policy, then consider looking elsewhere for representation.
Lower contingency fees in non-high risk cases may signal attorney awareness and client-centered concern.
An attorney who is willing to offer contingency fees at lower rates may be attempting to signal deeper awareness of modern case dynamics and hold more client-centered concerns than higher priced law firms. As we have seen, higher fees do not signal higher skill, higher gross results, or higher effort. In many cases, higher fees translate into diminished net results for clients, especially when mandatory medical lien repayment and increased case expenses are taken into consideration.
When selecting the best personal injury lawyer for your case, keep these factors in mind as you research and interview potential attorneys. Choosing the best law firm for your accident case is largely a financial decision, and one that we hope you are now much better equipped to make.