In my September 15, 2011, column, “Only winners are the lawyers in insurance claim lawsuits”, I promised to answer the question of why contingency fees charged by personal injury lawyers are so high.
Percentages range, but one-third is typical.
On the face of it, that sounds insane.
As a comparison, you certainly wouldn’t pay a real estate agent a one-third sales commission on the sale of your house.
With a house, though, you can pay $500.00 for an appraisal and know the value up front. Reasonably priced, and listed according to standard marketing protocols, your house is going to sell close to appraised value.
Also, the amount of work the real estate agent is going to put into selling your house is reasonably predictable.
Personal injury claims are very different.
A personal injury claim cannot be appraised.
There is no way to reliably predict how significant your harms and losses will be at the time you are hiring a lawyer. Since your claim is for fair financial compensation for those harms and losses, there is accordingly no way to reliably predict the size of your claim.
The only “appraisal” of injury is a doctor’s prognosis. In the early stages a medical prognosis is about as reliable as a weather forecast.
Even if there was a crystal ball that could accurately predict the course of your recovery and whether or not that recovery will be a full one, the real question is how your injuries will impact on your life.
Two people suffering exactly the same injury, with exactly the same pattern of recovery, will likely have very different harms and losses. One, working in a desk job, might not require any time off work. Another, a massage therapist, might never be able to return to full time work.
It is typically past the two year deadline for commencing a lawsuit to enforce your claim when your harms and losses into the future can be reliably predicted.
To illustrate this point, fair compensation for harms and losses suffered by one of my clients injured in a rear-ender crash was less than $20,000.00. At the other end of the spectrum, fair compensation in another rear-ender crash claim was over $800,000.00. Both of them had suffered whiplash injuries and each of them had an initially optimistic medical prognosis.
By the way, before you start hoping that the three cherries come up on the slot machine for you, consider that the $800K was compensation for a fellow with such serious, unrelenting pain that he is unlikely to ever work again.
In addition to a completely unpredictable claim size, there is no way to predict how much work the lawyer will have to do to achieve fair compensation.
If a lawyer billed his or her time hourly, a lawyer might spend as little as $10,000.00 worth of time on a case. At the other end of the spectrum, a lawyer might spend as much as $100,000.00 of time, or more.
The amount of time spent working on a case is not related to the size of the claim. Some of my hardest fought battles are over relatively small claims.
When I first started handling personal injury cases, approximately 15 years ago, I always offered potential clients a choice of paying me by the hour for the time I spent instead of paying me a percentage fee. I stopped offering the choice because I found I was wasting my breath; no-one was interested in the hourly rate option.
No-one wanted the hourly rate choice because they didn’t want to take the risk that my hourly rate fees would exceed the percentage, or even exceed the total value of the claim. They wanted me to take the risk instead.
That is what you are paying for when you agree up front to pay one-third of your claim to a lawyer. You are paying to eliminate that risk.
You are also eliminating the risk that, where liability is not crystal clear, your case is dismissed and there is no compensation paid at all for your harms and losses. In that circumstance, the lawyer is paid no fees at all.
Of course, if you could rely on the insurance company to pony up fair compensation for your harms and losses without having to hire a lawyer, I would be out of a job. In fact, fair compensation achieved with the assistance of a lawyer is typically several times what an insurance adjuster will offer an unrepresented injury victim.
Published January 12, 2012 in the Kelowna Capital News
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