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How Do Lawyers Get Paid If They Lose a Case?

Posted in Personal Injury on April 22, 2019

Losing a lawsuit is a challenging issue for clients and attorneys alike; a lost cause is not only demoralizing but may also lead to financial hardships for both parties. The vast majority of personal injury attorneys face an especially high risk due to their contingency fee policies; if a client loses, the attorney may not recover any fees at all or only reimbursement for out-of-pocket expenses incurred during a case.

Billing Per Hour

Some attorneys use the traditional billing practice of charging clients by the hour and for expenses as they accrue. Most attorneys who follow this type of billing practice will not wait until the case ends to charge clients; they may send weekly or biweekly invoices for time and expenses spent during each invoiced period. If the attorney loses the case, the client is still responsible for legal fees as stipulated in the original retainer contract. Some attorneys may agree to withhold billing until the end of a case, but they will still expect payment regardless of how the case ends.

Personal injury cases are generally less complicated than large-scale corporate litigation or criminal cases, so personal injury attorneys simply cannot justify using traditional billing methods in most cases they handle. Most personal injury claimants are average citizens who need legal assistance to recover from damages caused by other parties’ negligence. They cannot afford astronomical legal fees, especially for claims that may only amount to a few thousand dollars. Contingency fee billing makes legal counsel more accessible to those who need it but cannot pay for it out of pocket.

Contingency Fee Billing

When an attorney offers a contingency fee agreement, this will generally work out in the client’s favor. However, many different types of contingency fees exist, and not all contingency fee agreements fully release clients from financial responsibility after their attorneys lose their cases.

Some attorneys charge a flat percentage as a contingency fee. The client pays no up-front, out-of-pocket costs and instead pays a percentage of the final settlement or cash award as a legal fee. Other attorneys may require a tiered contingency fee, with the percentage changing for each set amount of compensation the client wins. For example, an attorney may receive 30% of the first $200,000 of a claim’s value, and then 40% of the next $200,000, and so on. Some states also uphold laws specifically pertaining to contingency fees and how much attorneys may charge.

Most contingency fees operate with the assumption that if the attorney loses the case the client does not pay legal fees. However, this is not always entirely true. A contingency fee agreement may stipulate that the client must repay out-of-pocket expenses the attorney incurred during the case, such as court fees and copying costs.

Benefits of Contingency Fees

The most obvious benefit of contingency fees over traditional billing is the client generally faces an overall lower financial obligation for legal fees. Contingency fees also benefit attorneys because they essentially guarantee the attorney will recover fees for winning cases. This, in turn, benefits clients as attorneys have a clear incentive to do their best work and to take the cases with the most merit. Contingency fees also increase productivity among legal teams as they know their fees are only recoverable if their clients win their cases.

Potential personal injury clients should understand the difference between fees, costs, and expenses and carefully review their retainer contracts so they know which billable factors apply to each. Carefully review a retainer agreement before signing it. Clients should have a firm understanding of their financial obligations for legal representation. A contingency fee generally offers a plaintiff the most flexibility, but not all contingency fees work the same and may potentially interfere with a client’s recovery.

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