How Do Contingency Fees Work? (Am I Getting Scammed?)

How Do Contingency Fees Work? (Am I Getting Scammed?)

Civil cases that are filed as a result of personal injuries have expenses associated with them. These may include attorney fees, copying and deposition costs, expert witness fees and many other case-related fees. In the U.S., most personal injury and wrongful death cases are entered into on a contingency basis. Merriam Webster defines contingencies as happenings that are uncertain, tentative, or doubtful. Black’s Legal Dictionary says a contingent expense is one that is dependent on a future event. Attorneys accept these cases on a contingency basis to provide a means for injured parties to seek justice without requiring them to pay much (if any) money at the onset of the case. The attorney is compensated when an award or settlement is obtained.

Upfront Costs

Contingency fee agreements may be the lone option for personal injury victims with little to no financial resources to pursue a claim. Cases of increasing complexity may begin to accumulate a significant amount of costs. The lawyer is basically taking a chance by representing the client in the matter, hoping to recover the costs by prevailing at the end of the case with an award or settlement.

Litigation Spending

In many personal injury cases, defendants are insurance companies and other entities that may have significant resources at their disposal to defend claims; therefore, a contingency structure is important for the injured client. An attorney on a case contingently may be inclined to strategically minimize litigation costs, knowing that there is a chance that they will not be reimbursed for them. This is an additional benefit for clients when having to reimburse for these costs after an award or settlement occurs.

Attorney Compensation

A provision within the contingency agreement states the amount, typically as a percentage, that the attorney receives from a settlement. Any costs incurred by the attorney necessary to further the case are also reimbursed at this time. The attorney will likely receive the settlement funds directly and then disburse the remaining funds accordingly. A common range of the percentage that the attorney will receive is between 30 and 40 percent, which may vary depending on the circumstances and jurisdiction.

Provisions Prohibited in Contingency Agreements

  • Any provisions that are unreasonable or unfair
  • When prohibited according to the Colorado Rules of Professional Conduct
  • In cases of marital separation or dissolution
  • Compensation may not be tied to obtaining an acquittal or favorable outcome in a criminal matter

Contingency Agreement Requirements

The contingency agreement should be clear and unambiguous. It should outline the responsibilities of all parties as well as other information as follows:

  • Must contain names and contact information for the client(s) and attorney(s) involved
  • A statement regarding the nature of the claim or services
  • A statement explaining the percentage of compensation (pay) that the attorney is eligible to receive
  • An explanation of any co-counsel arrangement and the proportional allocation of fees
  • A statement that the client is liable for expenses incurred
  • A provision specifying the manner disbursements are to be handled
  • Authority for the attorney to incur expenses up to a maximum amount; client consent in writing is required in order to exceed this predetermined limit.

Withdrawal or Termination

An attorney who removes themselves or is terminated prior to a judgment or settlement typically is able to obtain reasonable compensation for work performed according to quantum meruit. This equitable theory states that a party who provides a service for another may recover losses. Time estimates may be used as a guideline for courts but is not a requirement. The agreement should inform the client of the prospect of this occurring.

According to Colorado law, persons who are injured as a result of the negligent or careless actions of another party may pursue redress for related damages. Attempting to enter these actions without retaining an attorney is not recommended, as many aspects of the process are complex and the opposing party is likely to have seasoned representation. The fact that these cases are generally taken by the attorney on a contingency basis has several advantages. Keep in mind that an attorney is unlikely to proceed with a claim if they feel it lacks merit.