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What is a Contingency Fee?

As a St. Paul, MN personal injury lawyer, I regularly find myself telling potential clients that they don’t need to worry about paying me as I get paid on a “contingency basis”. Frequently, the potential client smiles and nods and I continue with our conversation assuming that I was understood. However, I recently received a call from a panicked sounding client, whose case had only just begun, who wanted me to close his case because he couldn’t afford to pay; clear evidence that I had failed in explaining what a contingency basis is. Surely, that client isn’t the only one who misunderstands contingency fees thus I hope that this article helps clear up just what a contingency fee is.

 

Webster’s Dictionary defines “contingency” as:
Con`tin´gen`cy
n. 1. Union or connection; the state of touching or contact.

2. The quality or state of being contingent or casual; the possibility of coming to pass.
Aristotle says we are not to build certain rules on the contingency of human actions.
– South.

3. An event which may or may not occur; that which is possible or probable; a fortuitous event;a chance.

The remarkable position of the queen rendering her death a most important contingency.
– Hallam.

4. An adjunct or accessory.
5. (Law) A certain possible event that may or may not happen, by which, when happening,some particular title may be affected.

Black’s Law Dictionary defines “contingency fee” as:

“Fee charged for a lawyer’s services only if the lawsuit is successful or is favorably settled out of court….”

 

Although the latter definition nicely sums it up, I will break the definition down a little deeper to help ensure complete understanding. When discussing a “contingency fee”, Webster’s definitions 2 and 3 are the most appropriate. That is to say, payment to a personal injury lawyer has “…the possibility of coming to pass” or “may or may not occur” contingent upon settlement of the case. That is, unless or until a case is settled, no payment is made. Once a case settles, the “contingency” is satisfied and payment is no longer “possible” but mandatory. In short, if a personal injury lawyer says he or she is paid on contingency, you won’t be paying your lawyer until your case is settled and the lawyer’s fees are then typically a percentage of the total recovery.

Many personal injury lawyers charge a contingency fee of 1/3 of the total recovery but that number isn’t absolute. When meeting with a lawyer, it can never hurt to ask if he or she is willing to negotiate on the fee as some lawyers may be willing to accept less than 1/3 depending on the specific case. Conversely, it is important to ask what the fee is as some lawyers charge more than 1/3 and you should know precisely what it is. Additionally, I have seen lawyers use contingency fees that vary depending on how far they get into the case and how much work it has taken to get to that point so be sure to have your lawyer answer any and all questions you have regarding fees. The amount of the contingency fee can even be capped in some rare circumstances and your lawyer should be able to explain those types of cases to you. Lastly, many jurisdictions have “reasonableness rules” that dictate how much can be charged – ask your lawyer to explain this if you have questions.

The use of contingency fee payments often makes it possible for people to access the legal system without going broke in the process. By handling cases on a contingency, the injured party gets the help they need and the lawyer assumes the short-term financial risk with the plan of being paid at the end of a case. If, for some reason, there is no financial recovery, the lawyer doesn’t get paid and the client isn’t stuck with a bill.

Love them or hate them, contingency fees are here to stay. Fortunately, you can help protect yourself by having even a little understanding of these fees and asking questions. If your lawyer objects to your questions, you just might want to consider looking elsewhere.


Thanks to our friends and co-contributors from Johnston|Martineau PLLP for their insight into contingency fee structure.

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