BACK TO BLOG August 28, 2018

What Is A Contingency Fee?

A “contingency fee” is a services agreement that allows for the person or business providing the service to collect a portion of money collected. In the legal world, contingency fee agreements are most commonly used by personal injury lawyers and car accident lawyers. In Texas, any legal services agreement that provides for a contingency fee must be in writing.

How a contingency fee is calculated depends on the written contract between the lawyer and the client. Some agreements set the attorney’s fees percentage based upon the gross amount recovered, while others will set a percentage based upon the net recovery after case expenses are paid.

In Texas, typical contingency fee percentages can range from 33% to 45%. Some attorneys will even charge lower percentages if a case settles prior to a lawsuit being filed.

Example:  Let’s say a car accident case settles before filing a lawsuit for $10,000 and there is $1,000 of case expenses. If the contract calls for attorney’s fees of 35% of the gross recovery, then the attorney will receive $3,500, case expenses of $1,000 will be paid, and the client would net $5,500. If the contract calls for attorney’s fees of 35% of the net recovery after expenses, then $1,000 is paid for expenses, the attorney will receive $3,150 (35% of $9,000), and the client receives $5,850.

Good Things About a Contingency Agreement

Good Thing 1: No out of pocket costs to the client. Personal injury cases are expensive. There are significant up-front costs for records, experts, doctors reports, and court costs. In a typical contingency agreement, the Texas personal injury lawyer will pay those costs and treat them as case expenses.

Good Thing 2: No risk. If there is no fee, then the client is not out any money. If a jury finds no negligence or determines that the plaintiff gets nothing in his or her lawsuit, then the client is out no money for the case.

Bad Things About a Contingency Agreement

Bad Thing 1: Can Pay Higher Attorney’s Fees. Part of the risk of using a contingency fee agreement is that the lawyer can get paid more than if a client paid the attorney hourly. The higher the recovery, the higher the attorney’s fees.

Bad Thing 2: Lawyers are Very Selective on the Cases They Take on Contingency. Many lawyers are selective about where they will invest their money and their time. If the case is too difficult to prove, there is bad law, or if the damages are not significant enough, many lawyers will not accept those cases.

Not All Cases Can Be Taken on Contingency Agreement

If your car is damaged in a Texas car accident, and you reach out to a lawyer, you may hear that the lawyer does not handle property damage cases on a contingency basis. If there is only property damage, the most a car wreck lawyer can get for the client is the amount of the property damage. You cannot recover attorney’s fees in property damage only claims. If, then, the lawyer takes a percentage of the amount paid for the property damage as attorney’s fees, then the victim of the car wreck has not been made whole.

Consider when there is a recovery by a lawyer of $10,000 for property damage to a car involved in a car wreck. The lawyer is paid 35% of the recovery. The client is still $3,500 short of getting full compensation. And the law does not allow any additional types of damages in these situations.

Also consider a case, such as a case involving faulty home construction, where a lawyer will spending 200+ hours working on a case. If the maximum amount of recoverable damages is small, then the attorney’s fees recovered would be small. A lawyer may not be inclined to accept a case that will require a significant amount of the lawyer’s time for a small rate of return.