Personal injury lawsuits are among only a few types of cases in which attorneys are retained on a contingency basis. That is, the attorney only gets paid for his services if the lawsuit is successful and he is paid out of the proceeds. If there are no proceeds, the attorney basically donated his time in the pursuit of justice.
One of the primary reasons why personal injury lawyers accept lawsuits on a contingency fee basis is because it allows all persons equal access to the court system for negligence lawsuits. Attorneys’ specialized knowledge and skill comes with a cost. And not every individual has the financial means to pursue a lawsuit all the way to trial. Undoubtedly, if clients had to pre-pay legal fees, many potentially successful lawsuits would not be prosecuted simply because of the cost.
Contingency Fee Basics
In response to this reality (and perhaps to encourage the property and casualty insurance business), state bar associations allow for a contingency fee arrangement between lawyers and clients in certain types of cases.
Some of the advantages for clients are:
No Recovery – No Fee
The attorney has a stake in the outcome of the case.
The attorney thus has an incentive to maximize the value of the lawsuit.
Of course, attorneys also benefit from an increase of business and the ability to apply his craft and trade. And there are more widespread benefits resulting from contingency fee arrangements between lawyers and clients.
One such benefit is that the contingency fee arrangement acts as a filter of cases with merit. Since no attorney would willingly waste his time, energy and expenses pursuing a case that has little chance of winning, lawyers are naturally inclined to be more selective in their choice of clients. The attorney then, acts as a filter for lawsuits without any real chance of recovery.
Secondly and as stated above, the arrangement also provides access to the court system for all citizens. Persons who could otherwise not afford to pursue a claim are able to do so with little or no out of pocket funding. Providing access to the courts is something any civilized nation would want to provide for the citizenry.
Finally, the emergence of widespread access to the courts, means that more and more individuals were led to purchase insurance coverage to manage the risk. Widespread insurance coverage can be viewed as a social utility whose purpose is to make injured parties whole and safeguard the population against the potential for loss.
Lawsuit Funding Shares the Contingency
As stated above, if a client is represented by an attorney on a contingency basis, his fee is “contingent” on the outcome. His pay is derived from the lawsuit’s monetary awards, usually in the form of a percentage of the proceeds.
If the case is unsuccessful, the attorney does not get paid. In fact, a lost lawsuit produces an economic loss on the lawyer in the form of time and expertise. Moreover, many attorneys will front costs in contingency fee cases. Litigation costs might include filing fees, stenographers, expert retainers, printing and many others. These costs vary from case to case but are nonetheless still value invested by the attorney or law firm.
Likewise, pre-settlement funding companies share in the contingency of lawsuits. Just like the attorneys paying for filing fees or other costs, enterprises which advance cash to plaintiffs, advance those funds in anticipation of repayment at a later date. Essentially, these entities have their compensation “contingent” on the outcome of the lawsuit. If the case is unsuccessful, the lawsuit cash advance does not get repaid and the pre settlement funding company loses its capital.
Obviously, litigation costs are essential to a successful outcome of the lawsuit. Costs such as rent payments, groceries, heating bills, electricity, water and a host of other expenses are essential to the day to day survival and/or comfort of the litigant himself. Both expenditures have their purpose and repayment is contingent on the lawyers skill and the facts of the particular case.
Like any business, settlement advance companies conduct transactions to service a need and profit from the venture. Fair Rate Funding, a leader in the lawsuit finance arena, is proud to serve the needs of our clients, and do so efficiently.