Understanding the Contingent Fee

Today, the contingent fee contract is the industry-standard for personal injury attorneys across the country. People who are new to the legal system might be unfamiliar with the structure and terms of a contingent fee agreement.

A contingent fee is simply any fee for services provided where the fee is payable only upon result. In the law, it is defined as a “fee charged for a lawyer’s services only if the lawsuit is successful or is favorably settled out of court.”[1]  As applied to personal injury cases, a contingent fee means that the client doesn’t have to pay their lawyer until their case is resolved and money is received from the at-fault party’s insurance carrier. Once the payment arrives, a portion of the total recovery is taken out to pay the attorney. By deferring compensation until successful resolution of the claim, the contingent fee structure reduces the risk to the client and places it squarely on the shoulders of the lawyer. Failure to resolve the claim results in zero fees.

While a no risk, all reward concept may appear unequivocally appealing, not everyone is a fan of the contingent fee structure. In 1952, an article appeared in Reader’s Digest magazine criticizing the contingent fee system.[2] Since its publication, the central premise of that article has become a veritable battle cry for critics of America’s tort system and proponents of personal injury reform. The essential criticism is that contingent fee contracts allow attorneys to finance frivolous litigation that individuals could not otherwise afford. Opponents argue that this may encourage attorneys to solicit only low-risk, high-return cases to the detriment of the public at-large. The end result: a decrease in the quality of representation because the lawyer becomes “a partner in the lawsuit rather than an impartial advocate for his client’s cause.”[3]

The fundamental problem with this broad based and largely academic criticism of the contingent fee structure is that it ignores the realities of practicing law for individuals who are injured through no fault of their own.

These realities start with the understanding that every lawyer in Virginia has an obligation to adhere to the stringent rules of ethical practice and the code of professional conduct. This is enforced and monitored by the Virginia State Bar. Essentially, this means that lawyers participating in frivolous lawsuits are acting in direct violation of the Rules of Professional Conduct and contradicting the notion of fundamental competency. A violation of these requirements can result in financial sanctions awarded against the attorney, public reprimand by the State Bar, or loss of an attorney’s license to practice law.

In addition to the insistence on general competence, Rule 2.1 states: “In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.”[4] This rule requires the lawyer to refer to the law as well as other considerations such as moral, economic, social and political factors that may be relevant to the client’s situation. While a contingent fee agreement does put the lawyer in the same boat as their client in terms of financial recovery, the ethical requirements that govern the relationship demand that the lawyer maintain their independent judgement throughout the duration of their representation.

Putting the ethics of the practice of law aside, the most obvious validation of contingent fee agreements comes in real time and from the perspective of the client.  Out-of-pocket expenses are often one of the most pressing concerns for people who are injured through no fault of their own. After an accident, many people miss time from work, face a mountain of medical debt, and have to deal with replacing or repairing a damaged vehicle. The prospect of paying a lawyer in addition to these already substantial burdens is, for many, a practical impossibility. Deferring the costs of an attorney until financial recovery is realized allows injured people to obtain the high quality representation they deserve in the direst times.

For all of these reasons, employing a contingent fee structure is permitted under the Rules of Professional Conduct in Virginia[5] and is employed by the attorneys of Allen & Allen. We understand that for many, carrying the burden of attorney’s fees at the outset of a personal injury case, with no guarantee of recovery, is unfair and impractical. Without a contingent fee contract hundreds, if not thousands, of injured Virginians would have no means to obtain the full and fair compensation they deserve and would instead be left at the mercy of the insurance industry.

Here at Allen & Allen, a consultation with any of our experienced personal injury attorneys is always free of charge. By employing the contingent fee model and forgoing upfront costs and expenses, we are able to provide quality representation to injured people and fight to get them the compensation they deserve.

About The Author: Kathleen is an attorney with the Allen Law Firm whose practice is focused specifically on personal injury cases. She has a wealth of courtroom experience which provides her with a competitive advantage when representing her clients. In addition to defending the rights of people who have been victims of someone else’s negligence, Kathleen also serves as an adjunct professor at Strayer University.

[1] Black’s Law Dictionary (8th ed. 2004) p. 338.

[2] Velie, And Then – Sudden Ruin, Reader’s Digest, Sept., 1952 at 79.

[3] Kraut, Arthur L., Contingent Fee: Champerty or Champion? Cleveland State Law Review, 1972 at 16.

[4] Rule 2.1, available online at: http://www.vsb.org/pro-guidelines/index.php/rules/conselor-and-third-party-neutral/rule2-1/ .

[5] See Rule 1.5, available online at: http://www.vsb.org/pro-guidelines/index.php/rules/client-lawyer-relationship/rule1-5/ .