The way personal injury lawyers are paid for their services has been recently changed in New York. The old rule, that lawyers get paid their contingency fee off the net recovery, not the gross, has been modified to give accident victims a choice.
What does this all mean in layman’s terms? Simple. The old rule stated that a lawyer’s fee (33 1/3%) was determined from the net settlement proceeds. For example, if a case were settled for $10,000 and the expenses on the case (usually paid for by the lawyer) were $1,000, the lawyer’s fee would be based on $9,000 as the expenses would be deducted from the gross settlement ($10,000) to get to a net of $9000. As the lawyer’s fee is 33 1/3 of the settlement, his fee would be $3,000 and the client’s share would be $6,000. In effect what was happening was the lawyer was paying 1/3 of the litigation costs.
Under the new rules, clients are given a choice as to how expenses are handled. The client can either stay with the old rule, where the lawyer pays for the expenses, or decide to pay the expenses themselves. If the client now stays with the old rule, where the attorney pays all disbursements and expenses, the lawyer’s fee will be calculated on the gross settlement. Let’s go back to the previous example; on a $10,000 settlement, the lawyer’s fee would now be $3,333 and the client’s share would be $6,667. Of course the client would pay back the $1,000 in expenses leaving a net recovery of $5,667. But there is an important new wrinkle…the client will not be responsible for paying the case expenses if no money is recovered! So if the case is lost, the client will not have to reimburse the lawyer for the disbursements and expenses!
With a client agreeing to pay all the disbursements and expenses on his or her case, the effect would be the same as the old rule; namely the lawyer gets paid on the net settlement. Once again the fee on that $10,000 case with $1,000 in expenses would be $3,000 and the client share would be $6,000.
Confusing? Not really. The bottom line is that most accident victims will continue to have the lawyer pay the expenses because most are economically unable to do so.
The new method of calculating the attorneys fees and expenses does not apply to medical malpractice cases. In those cases, the fees are lower than general personal injury cases and lawyers work on a sliding scale (the fee goes down as the settlement amount goes up.)