A contingent fee basis is typically used for personal injury and wrongful death cases in the US. This means that the lawyer is paid only in proportion to the amount recovered for the client. If there is no recovery then the lawyer is not paid. The lawyer is paid an agreed percentage if a recovery is effected from the other side plus reimbursement of the lawyer’s out of pocket expenses in the case. Whenever a potential client is given the option of paying an attorney by the hour or a percentage of the amount the attorney recovers, the client always chooses the percentage, even if an hourly rate is cheaper. In a typical contingent-fee agreement the “contingency” is usually the recovery of money for the client.
The obvious benefit is that a client does not have to incur any out-of-pocket expense for attorneys’ fees. This service is particularly valuable to a client who does not have the ability to pay an attorney by the hourly rate. A contingent-fee also benefits the client by effectively spreading the risk of litigation. The client assumes all of the risk in a case where the client is paying by the hour because the attorneys’ fees are a sunk cost. However, in a contingent-fee arrangement, the attorney shares that risk because he is only paid if he wins or settles the case. This system ensures that the attorney believes in the client’s case and does the work necessary to obtain a favorable outcome.
Contingent fee is a tool in the justice system that gives injured people with moderate or limited financial means a fighting chance in the courtroom against insurance companies and giant corporations. Almost anyone dealing with the effects of a major injury cannot afford to pay an personal injury lawyer on an hourly basis for the duration of a long litigation which could take up to a couple of years or more. Competent attorneys do not waste their time on lawsuits that don’t have enough merit to justify investment of their time and money. Attorneys may take a calculated risk on cases that are hard to prove where there is an honest or perhaps untested legal theory but any lawyer who bets on cases that have no value goes broke.
In a contingent fee arrangement the lawyer’s incentives are perfectly aligned with results they get for the client and the lawyer’s fees is directly proportional to the award or settlement obtained for the client. Knowing that they will not be paid in the event of a failure motivates the attorney to get the best possible result for their client. Hourly fee arrangements can encourage delays, inefficiency, and unnecessary action unless the lawyer hopes to receive future business from the same client. Lawyers that are paid on hourly bases do not have their incentives aligned with client outcomes. The expenses of litigation along with fees can often be too high for injury victims.
Lawyers working on contingent fees typically advance the expenses of litigation and are reimbursed for the costs out of money recovered for the client. Attorneys are often experienced in the estimation of costs and benefits and they know that they will get that money back only if they succeed, therefore they are motivated to spend prudently. The percentages involved in the contingent fee system typically range from 33 1/3% to 40%. Sometimes, lower percentages may be offered for cases subject to early resolution and by the same token, higher percentages may be justified when cases are risky or involve appeals after trial. It is therefore important that law students and attorneys utilize legal resources such as crush the LSAT Exam to increase their legal knowledge and improve their expertise.