You may have suffered injury in a car accident or worksite accident. Now you can’t work. The medical bills are piling up. You are thinking about calling a personal injury lawyer. But you don’t know anything about the legal system – such as how lawyers get paid in personal injury cases. You need to learn how this works – and quickly.
So how do you pay a personal injury lawyer to represent you for injuries you suffered in a car or worksite accident? Usually through a contingency fee agreement.1 The attorney receives a percentage of any recovery as a legal fee, with reimbursement of the case costs. The client pays the attorney at the end of the case from the recovery. If the case fails, the client does not owe the attorney a legal fee, or unless the client chooses otherwise, case costs.
Note two key terms – legal fees and case costs. Legal fees are what attorneys charge for their services. Case costs are expenses that the attorney lays out in the personal injury case. These are for court filings, experts, exhibits, medical records, and depositions, among others.
In New York state contingency fee agreements, the legal fee is usually one third of the recovery in a personal injury case. (See 22 NYCRR § 806.27). Medical malpractice cases have lower fee percentages. (See Judiciary Law § 474-a). Other states have different percentages and rules.
New York clients possess choices on fees and costs. This includes who pays the case costs if the case fails. For example, the attorney lays out $15,000 for case costs. The jury finds against the injured client. There is no recovery. Does the client pay the $15,000 in costs?
Well, it depends. The injured client may not possess the financial resources to pay these costs if the case fails. In that case, the contingency fee agreement would provide that the attorney lay out the $15,000 in costs, and take full responsibility for them. Therefore, the attorney – not the client — takes the financial risk of losing that amount if the case fails. In return for this risk, the attorney’s one third legal fee is calculated on the gross recovery. This is usually called Option 2 in New York personal injury contingency fee agreements.2 Many clients choose this option. They do not want to be responsible for the case costs.
There is also an Option 1. Under it, the client must pay all case costs if the case fails. Why do some clients choose this option? Because under New York state court regulations, under Option 1, the attorney’s one third legal fee is calculated from the net recovery. (See 22 NYCRR § 806.27 (c)(1)).
To see how these options work, consider the following example. The attorney works on a case intensively for two years. It settles favorably for the injured client shortly before trial for $300,000.00. The attorney’s firm has laid out $10,000 for case costs. The client has chosen Option 2, so the client is not responsible for case costs. The legal fees under Option 2 are one third of $300,000 (the gross amount) or $100,000. The attorney also receives back the $10,000 in case costs from the recovery.
What if the injured client selected Option 1? The client is responsible for the $10,000 in case costs if the case fails. From the $300,000 recovery, the $10,000 in costs are deducted before calculating the legal fee. That legal fee would be one third of $290,000 or $96,657.00. The costs would be paid from the recovery.
So which option is better? It depends on the client. The client under Option 1 received $3,343.00 more from the settlement. But the client also risked paying back the case costs if the case failed. Under Option 2 the client received $3,343.00 less from the settlement. However, she was never responsible for paying the case costs if the case failed.
In our experience, as indicated, many clients chose Option 2 because of the case costs. Some do not, however. Our contingency fee agreements lay out both options. We are pleased to answer questions about these options and our contingency fee agreements. Please call us at 518-489-1098 or contact us online with questions.
1 Clients can hire an attorney on an hourly basis. The client pays for legal fees and costs on a monthly basis, whether or not the case succeeds of fails. In 35 years, no personal injury client has hired us on an hourly basis.
2 This option is not available in medical malpractice actions.