Contingency Fee Arrangements: Why Personal Injury Lawyers Use Them

Those most in need of compensation from a lawsuit often end up being the ones least able to pursue one. For example, a single mom with three kids could get hit by a drunk driver while in a crosswalk. The average single income household with children in America would likely find paying for legal fees and hospital bills out of pocket overwhelming or impossible.

Fortunately, we have a somewhat unique feature in our legal system known as contingency fees. Most often used in personal injury cases or other torts where money is at stake, a contingency fee arrangement means a plaintiff’s legal team will delay billing until the very end of the case. If the team doesn’t make a recovery or obtain a favorable result, their client often doesn’t pay a dime.

A Little Background on Contingency Fees

This system of lawyers fronting the costs of litigation and collecting nothing if they fail has enabled millions of people in the U.S. to get justice and compensation who may have otherwise been unable to do so. Not every country allows such arrangements.

Like many aspects of American law, the concept of a contingency fee had its beginnings in British Common Law. English discussions on the subject date as far back as the Middle Ages. These debates often addressed the argument of why a legal system should not allow attorneys to front the costs of a lawsuit with the precondition that winning meant they would get a portion of the proceeds.

The British called their argument, “maintenance and champerty,” which refers to times another party not directly involved in a lawsuit will help fund it with the hope of recouping their investment, in much the same way someone might invest in company stock. They argued that if everyone, including representing lawyers, did that, then frivolous lawsuits would be rampant. Failing to have this type of scheme, however, limited access to the courts to only those who could afford an attorney and all of the expenses of asserting a claim.

Some, like DePaul University law professor Stephan Landsman, suspect that limiting access was a deliberate effect of anti-contingency sentiments, especially since the champions against contingency were wealthy, well-connected barristers — lawyers who served in Parliament or on the high court bench and had little contact with clients. On the other side of the coin were solicitors, lawyers who typically lacked the prestigious connections of barristers, but understood the struggles of clients whose stories they heard on a regular basis.

How Contingency Fees Came About in America

The English system of banning contingency fees was sparsely implemented in American law until about the 1850s, when Americans began to vocally assert their right to counsel. As lawyers began to adopt contingency fees as a means to help those without savings, the public and much of the legal community embraced the concept. By the 20th century, contingency fees were considered a norm of American law.

As Landsman states:

“Contingency strategies were with us as the American legal system was taking on its identity, are woven into the very fabric of our system and reflect some of our most basic values.” –Stephan Landsman

Transferring Risk and Increasing Access to the Legal System

Americans are entitled to access to the legal system. That is, people of all income levels should be able to pursue injustices without unfair barriers. Without arrangements like contingency agreements, low income victims of accident or injury who need to pursue a claim could effectively be invisible under the legal system and could be left without remedy.

This is especially true because those on the other side of modern personal injury lawsuits are often well-funded repeat players in the legal systems with extensive experience. For example, legal teams employed by insurance carriers spend entire careers mitigating the payouts of claims in court cases. Interestingly, these modern-day reasons to use a contingency fee arrangement echo the same reasons that contingency fees developed in Britain hundreds of years ago.

Funding a lawsuit can be expensive. There could be costs for witness travel, retention of experts, medical examinations, access to documents, depositions, court costs and many other costs.

By taking on the case, a lawyer is helping transfer some of the financial risk of loss from the victim to his or her firm. The lawyer pays most of the direct expenses associated with pursuing a claim and puts in the work to bring a good case. As a result he has an expectation that his fees will be covered as part of the outcome. What percentage of the damages a lawyer will take will depend on the risk involved in the case and the unique facts of the situation.

Modern Contingency Fees Are Limited to Certain Cases

Contingency fees are not appropriate for all areas of law. In fact, most attorneys will only use a  contingency fee arrangement in tort cases (cases that seek repayment for losses, suffering, medical expenses, property damage, or similar events that literally or conceptually take away from the purported victim).

There are practical reasons that contingency fees are used in tort cases and not others. Contingency fee arrangements cannot be used in many case types including but not limited to:

• Adoption
• Immigration
• Drafting legal documents (wills, trusts, contracts, etc.)
• Forming a business
• Registering a trademark, copy, or patent
• Bankruptcy

A contingency fee on some of these case types might be considered inappropriate for ethical implications. In regards to criminal cases, for instance, a criminal defense lawyer representing a client would not charge fees contingent on his client being found not guilty. Nor could a client offer him a higher fee contingent on being found not guilty. A criminal defense attorney is expected to defend his client rigorously and to the best of his ability regardless of the likely verdict while working within the bounds of ethical and lawful defense.

Benefit to Client

Personal injury clients benefit from a contingency fee arrangement with little risk compared to the attorney. Very few, if any, other professional relationships are structured contingent to success. For example, imagine a doctor who only charged his fees if and when the patient reached 100% recovery.

Medical Costs

Another important component of contingency fees lies in their ability to help those with significant medical debt that arose from an injury that was no fault of their own. Going back to the example of a single mother struck in a crosswalk from the introduction, this hypothetical woman may incur hundreds of thousands of dollars in emergency treatment and ICU care before she ever even wakes up from her injuries.

If she has health insurance, then the majority of the costs related to care may be covered. But she may still have deductibles and copayment obligations which could total many thousands.

If she has no health insurance, the hospital or medical facility will try to collect from the victim. A lawyer operating on contingency fee arrangement can submit a Letter of Protection to all lien holders, assuring them that they will receive their due payment no matter the outcome of the trial, but certainly if the outcome results in recovery. Issuing this letter generally halts collection efforts while a personal injury case is pending. This type of delay in paying medical bills can significantly help a personal injury victim.

Conclusion: Contingency Fees Offer a Unique Financial Mechanism for Achieving Justice

Contingency fees allow attorneys and tort victims to set the wheels of justice in motion without having a “pay to play” barrier that filters out the disadvantaged.

Benefits of contingency fee arrangements are numerous, and include:

1. Allowing those who are otherwise unable to afford the costs of pursuing a claim to do so.
2. Shifting some of the financial risks of pursuing a claim away from plaintiffs.
3. Letting clients pursue action to the fullest extent possible, not just until their attorney’s retainer runs out.
4. Permitting lawyers to represent cases they feel have a strong chance legal standing, even though the client may not be able to pay up-front.
5. Serving as a possible deterrent to entities that would otherwise take advantage of people without ready access to counsel.
6. Enabling clients with few resources to have an early evaluation of their case’s likelihood of success before they risk time and money on it.
7. Personal injury firms can assist clients in obtaining medical care before a case is closed or settled.

If you are in need of legal representation for a personal injury case, then Hughes & Coleman may be able to help. If retained, all of our attorneys represent clients on a contingency basis. Call us at 800-800-4600 today or visit one of our eight convenient locations in Tennessee and Kentucky for a free case evaluation.

Sources:

• Fact Sheet: Lawyers’ Income and Fees
• Washing University Law Review: Seven Dogged Myths Concerning Contingency Fees
• Democratic Civilisation or Judicial Supremacy? A discussion of parliamentary sovereignty and the reform of human rights laws
• Contingent Fees: Beyond the intuitive threat
• How Contingency Fees Will Affect Your Final Settlement Payout
• Journal of Criminal Law and Criminology: The Fall and Rise of the Criminal Contingent Fee
• DePaul Law Review: Enabling the Poor to Have Their Day in Court- The Sanctioning of Contingency Fee Contracts, a History to 1940
• DePaul Law Review: The History of Contingency and the Contingency of History
• Toward A History Of The American Rule On Attorney Fee Recovery