What is a Contingency Fee?
A contingency fee is a percentage of a settlement or judgment that a lawyer earns only after recovering money for the client. A client who hires an injury attorney on a contingency fee basis ordinarily does not pay a retainer or any attorney fee upfront, and if the lawyer recovers nothing, the client does not owe the lawyer a fee. When the case ends, the lawyer takes the agreed percentage out of the client’s recovery.
Contingency Fee Percentages in Texas Injury Cases
Contingency fees are most common in personal injury cases, and although they can vary, an injury lawyer’s contingency fee is typically between 33.33% and 40% of the settlement or judgment. The percentage is generally lower when a case settles before a lawsuit is filed and higher once the case goes to litigation, since a lawsuit adds depositions and trial preparation.
Work Covered by the Fee
Under a wholly contingent agreement, the client pays a percentage for the legal services covered by the agreement instead of an hourly fee. In return, the lawyer will:
- Investigate how the injury happened and who is at fault.
- Gather medical records and other proof of the client’s losses.
- Negotiate with the responsible party or insurance company.
- If the representation includes litigation, file suit and prepare for trial when appropriate. The client decides whether to accept a settlement.
Case Expenses Not Included in a Contingency Fee
Case expenses are the out-of-pocket costs of preparing the client’s case, and the client pays them on top of the lawyer’s percentage. Case expenses usually cover:
- Court filing fees
- Copies of medical records
- Court reporter charges for deposition transcripts
- Fees for expert witnesses
- The mediator’s fee when the case goes to mediation
Fee agreements generally treat case expenses in one of two ways. In certain agreements, the client pays each expense as it comes due during the case. In others, the lawyer pays the expenses as they come up and takes the amount spent out of the settlement or verdict along with the agreed percentage, and the client receives the rest.
If the lawyer does not recover money for the client, the client pays nothing for the time and work the attorney put into the case, but the fee agreement the lawyer and client sign at the start of the case sets who is responsible for the case expenses.
Liens Paid Out of a Settlement
A lien gives a creditor the legal right to be paid out of the client’s settlement. In personal injury cases, the creditors are usually medical providers owed payment for accident-related treatment and health plans seeking repayment for medical expenses they covered. Liens in Texas injury cases typically come from four sources:
- A hospital that admitted the client within 72 hours of an accident caused by another person’s negligence can claim a lien against the settlement if it meets Texas notice and filing requirements. The lien cannot exceed half of the client’s recovery, and other statutory limits may reduce it further.
- Federal law generally requires the client to repay Medicare out of the settlement for accident-related medical expenses Medicare paid.
- Under state law, Texas Medicaid has a right to recover payments for accident-related medical treatment from the client’s settlement.
- A health insurance plan may ask the client to pay back accident-related medical bills it covered when the client receives a settlement, if the health insurance contract includes that repayment requirement. For plans covered by Texas law, repayment is capped at half the total settlement or the amount the plan paid for treatment, whichever is less. The client pays back less to account for the plan’s share of attorney fees and case expenses. Self-funded health plans that employers run under federal law follow a different set of rules.
Generally, the lawyer takes the contingency fee and case expenses off the top, then pays each creditor that holds a lien out of the money that remains, and the client receives the balance.
An Example Contingency Fee Applied to a Sample Settlement
In a sample case with made-up numbers, the at-fault party’s insurance company agrees to pay the client a $150,000 personal injury settlement before the lawyer files a lawsuit. The client’s fee agreement sets the lawyer’s contingency fee at one-third of the full settlement, and the lawyer spent $6,000 on case expenses while working on the case. The hospital that treated the client has an $18,000 lien on the settlement.
| Where the money goes | Amount |
| Settlement | $150,000 |
| Attorney fee at one-third | $50,000 |
| Case expenses | $6,000 |
| Hospital lien | $18,000 |
| Client receives | $76,000 |
If the fee agreement has the lawyer subtract the expenses before taking the fee, the fee is one-third of $144,000, or $48,000, and the client receives $78,000. The lawyer deposits the settlement check in a trust account kept separate from the firm’s own money and pays out every amount in the table from the trust account.
Downsides of a Contingency Fee for the Client
A contingency fee makes it possible for an injured client with no savings to hire a lawyer, since the client pays no attorney fee until the case settles or ends in a judgment. The lawyer’s pay rises with the amount recovered, so the lawyer has a direct financial reason to pursue the largest recovery the case supports. On the other hand, a contingency arrangement can have downsides, especially for a client who could have afforded to pay a lawyer by the hour
- The lawyer receives the full percentage even if the case only required a few hours of their time.
- A lawyer may decline a case when the likely recovery does not justify the expected work and expenses.
- A client whose case ends without a recovery still owes the case expenses under certain fee agreements.
Terms Texas Requires in a Contingency Fee Agreement
The Texas Government Code requires all contingency fee agreements to be in writing and signed by both the lawyer and the client. The Texas Disciplinary Rules of Professional Conduct add five more requirements:
- The Fee Method. The agreement has to state how the lawyer will calculate the fee.
- The Percentage at Each Stage. When the percentage differs for settlement, trial and appeal, each percentage has to appear in the agreement.
- The Case Expenses. The lawyer is required to list the expenses that will come out of the recovery and say whether the lawyer deducts them before or after calculating the fee.
- The Closing Statement. At the end of the case, the lawyer owes the client a written statement showing the outcome, the client’s share and how the lawyer arrived at that share.
- Fee Sharing Between Firms. Before a second firm joins the case and shares the fee, the client has to approve in writing which lawyers will share it and how much each firm receives.
Before signing, the client is free to ask the lawyer how the percentage changes at each stage and how the agreement treats case expenses.
Negotiating the Contingency Fee Percentage
Texas law does not set a contingency fee percentage for injury cases, so the percentage in each fee agreement is whatever the lawyer offers and the client accepts. The 33.33% to 40% range is what Texas injury lawyers typically charge, and a client is free to propose a different percentage before signing. The Texas Disciplinary Rules of Professional Conduct only bar a fee that no competent lawyer could believe is reasonable.
A client with serious injuries and clear proof of fault is in a position to negotiate for a lower flat percentage, 25% for example, or a sliding scale that applies one-third to the first part of the recovery and a lower percentage to everything above it. The lawyer has no obligation to accept a lower rate, and before agreeing, a lawyer generally considers the risks the case still carries, a dispute over fault for example, or an at-fault party whose insurance policy is too small to cover the client’s injuries.
Frequently Asked Questions
Are contingency fees legal in Texas?
Contingency fees are legal in Texas personal injury cases. The Texas Disciplinary Rules of Professional Conduct bar a lawyer from charging an unconscionable fee, or a fee no competent lawyer could believe is reasonable, and the rules bar contingency fees for defending someone charged with a crime.
What happens to the fee if I change lawyers?
A client has the right to fire a lawyer at any time, but the first lawyer may still have a claim for payment. If the client fires the lawyer without good cause, the lawyer may seek payment for the reasonable value of work already done or claim the agreed percentage of money the client later recovers. If the client fires the lawyer for good cause, the lawyer may still seek payment for prior work, but serious misconduct can cause the lawyer to lose some or all of the fee.
Is a contingent fee different from a contingency fee?
The terms “contingent fee” and “contingency fee” are interchangeable, and both refer to a lawyer’s fee that depends on recovering money for the client. Texas statutes and the Texas Disciplinary Rules of Professional Conduct use “contingent fee,” and lawyers and clients generally say “contingency fee” in conversation.
Loewy Law Firm Explains Its Fees Before Taking a Case
Loewy Law Firm represents injured clients in Austin on a contingency fee basis and collects no attorney fee unless the firm recovers money for the client. Before a client signs the fee agreement, the firm’s personal injury lawyers explain the percentage the firm takes if the case settles and the percentage it takes if the case goes to litigation. The firm’s lawyers also tell the client up front who pays the case expenses after a loss.
An injured client who calls for a free consultation gets answers about their case and the fee before deciding whether to hire a lawyer.
The content on this website is for general informational purposes and should not be considered legal advice. Laws change, and case outcomes depend on specific facts. Viewing this material does not establish an attorney-client relationship. For legal guidance on your specific situation, consult a qualified attorney.