Wednesday, July 23, 2014

Contingency Fees in Personal Injury Claims

Almost all personal injury claims involving a lawyer in BC are taken on a contingency basis. A "contingency" fee literally means that the lawyer's fee is contingent on the lawyer obtaining monetary compensation for the client. In all cases the fees are based on a percentage of the compensation that is obtained.

First, it is important to understand that all lawyers have only one thing to sell you: their time. They use that time to implement their expertise in resolving your claim. Normally, lawyers charge by the hour and they require up-front retainers to guarantee their fees.  This can be very expensive for most people and would prevent them from pursuing a claim for personal injuries against large insurance companies, such as ICBC.

A contingency fee is really just a different way for lawyers to sell their time. Rather than charging by the hour, the lawyer takes a percentage of the compensation obtained for the client.  Sometimes this can result in a fee which would be more per hour than their regular rate.  Sometimes this can result in the lawyer receiving considerably less per hour than their hourly rate.  This can often depend on how the contingency fee is structured.

Contingency fees amongst law firms vary, with some firms offering flat percentage, while others offer an incremental scale.  There are potential advantages and disadvantages to both systems.

Flat Percentage Fee

If a firm offers a flat percentage fee, they will receive only a fixed percentage of the compensation obtained, no matter how much work they are required to do.  For example, if a firm were to charge a flat percentage of 20% no matter the stage of litigation, the lawyer's effective hourly rate might be reasonable if the matter settles before any court filings are necessary.
However, what if the client should really proceed to trial in order to get a fair result.  In that case, the fixed percentage fee results in the lawyer being required to do a tremendous amount of work, but his/her fee rate remains at 20%.  The effective hourly rate in such a case would be considerably lower.

The question becomes: How likely is the lawyer going to be motivated to take a case to trial when his effective hourly rate decreases the more work he has to do?

Incremental Percentage Fee

Many forms offer an incremental percentage fee, with typical arrangements allowing for small increases in the percentage rate at the following stages of litigation: filing the lawsuit, conducting the examination for discovery, and conducting a trial.

This system recognizes that conducting a trial takes essentially all of the lawyers time during that period, and that there should be compensation in keeping with that commitment.

The question in this case becomes: How likely is the lawyer going to be motivated to take a case to trial when his effective hourly rate reasonable no matter how much work he/she has to do?


Why is this important?  Because there are many times when a case should be taken close to or through a trial in order to obtain fair compensation.  It is therefore important to know that your lawyer will be motivated to take a case to trial if necessary.

While a flat percentage fee may seem attractive, incremental percentage fees can be more effective in a situation where litigation, including a trial is necessary. 

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