Limits On Collection Fees

When an attorney accepts your personal injury case, the usual fee agreement only allows the attorney to collect if they win your case. You will not pay a dime if the claim is not won. This agreement effectively “opens the courthouse doors” to those who might otherwise not be able to afford litigation. The arrangement, called a “contingency fee,” holds that the attorney will be entitled to a percentage of the damages awarded if they can successfully argue the case. That percentage may be fixed, or it may be subject to change.

Contingent Fee Agreements in Medical Malpractice Claims

Some cases require more work than others. For example, some cases are mediated outside of court, never moving to the trial stage while still requiring the services of a lawyer. Some cases go to trial, and some may require multiple expert witnesses in addition to the single mandatory expert. Some cases are exceedingly complex and tackle questions greater than the dispute at the heart of the case – these may be appealed all the way to the Supreme Court. While an attorney can roughly gauge the amount of work the case will entail, they are not fortune tellers and cannot say with exact certainty what path that case will take. To account for this lack of certainty, some attorneys will increase the contingent percentage, as the amount of work put into the case increases.

This does not deviate from most other professional compensation arrangements; the more hours worked, the more the individual is paid. Because personal injury and medical malpractice lawyers work without a fee until the conclusion of the case, there is no equivalent “hourly wage.” It is the percentage that must be adjusted accordingly. For this reason, courts have imposed certain limits on the collection of lawyer fees, to ensure that their cut of the damages does not exceed a reasonable sum. However, plaintiff attorneys for personal injury and medical malpractice suits are unique in the amount of risk they absorb when they take on a case. Regulating collection fees is a delicate endeavor because it must account for the risks incurred by the attorney and the best interest of the plaintiff. The states regulate attorney fees differently, but there is generally a limit to how much a medical malpractice attorney can recover from prosecuting a case. This helps ensure that the majority of damages are awarded to the person who actually incurred the harm.

State Regulation of Contingent Fee Agreements

The contingency fee percentage imposed by most attorneys usually ranges between 33.3% and 45%. Generally speaking, it will not exceed more than half of the settlement or damages awarded. The legal disposition toward the provisions of contingency is fairly uniform between states. We may look at Pennsylvania contingency fee law as an example, which reads:

Rule1.5(c): A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) or other law. A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

The states are concerned with regulating, among other aspects, the ethics of contingency fees but must also fairly protect the attorney and ensure the services they provide to the plaintiff are fairly compensated. To balance these interests, sixteen states have regulated contingency fee caps, not unlike the damage caps imposed in medical malpractice cases. Some of these caps are flat rates, such as 33.3% of the total settlement. More common is the “sliding scale” for damage amounts. For example, 40% over the first $50,000 of recovered damages, 33.33% over the next $50,000, 25% over the next $500,000 and 15%.

It must be noted that plaintiff attorneys in these cases take on a considerable risk of financial loss when they choose to fight for an injured party. Defense firms that represent negligent healthcare providers are at no financial risk. Legal defense costs are advanced by the liability insurance company on behalf of the defendant provider. They are paid up front, and their fees are not contingent upon the outcome of the case. Conditional fees benefit the plaintiff in the sense that the plaintiff attorney is all the more motivated to present a powerhouse case to win the claim, but doing so comes at a cost (expert witnesses, depositions, etc). The better the case they present, the greater the financial risk they incur. This risk is compensated by the contingency fee percentage deducted from potential winnings.