DennisBeaverNovember 08, 2009 (Original publish date) • By Dennis Beaver

If you know anyone who has had an auto accident and is considering hiring a lawyer, today’s story could easily save them thousands of dollars — money which would otherwise improperly go into the pockets of some attorneys. Not all, of course, but enough to become a real source of worry.

This week and next, we’re taking a look at the contingent fee — the way virtually all personal injury (PI) cases are handled by lawyers — with fees from 25 to 50 percent of the settlement. We say that the fee is “contingent” (conditional) upon a financial recovery. No recovery, no attorney fees are due.

But what about those times when nothing is contingent, where clients are already entitled to money after an auto accident, from the medical payments coverage under their own auto insurance policy? Is it proper for their attorney to take a fee out of those funds?

Or, assume the insurance company has made you a settlement offer, but you feel a lawyer could get more money. So, you hire an attorney and within days, the case is settled for something very close to what you were originally offered. You are still charged the full fee, meaning that you lost a great deal of money by hiring the lawyer. Is this appropriate? Does it seem unfair?

I’ll answer that question now; it’s horribly unfair and yet happens every day.

Monica’s accident

“My husband and myself were involved in a rear-ender auto accident which was not our fault, as we were stopped for a red light. The entire trunk section of our car was crushed and we both got a really bad whiplash. That evening my husband phoned one of those law firms which advertise on television. You may have seen their ads, as they feature two or three attorneys, one of them looks and sounds nasty and extremely sarcastic, like he is ready for a fight. Well, now, we are concerned that our fight could be with them,” began an e-mail from Monica, who lives in San Luis Obispo.

“The next day the law firm sent their investigator out to sign us up. I felt there was no rush to hire an attorney, as liability for the accident is clear and we have $25,000 limits of medical payments coverage. My husband disagreed, and we signed. Months later I read the retainer agreement, and I am shocked by what I see and by what has happened,” she wrote.

One third of everything

Monica sent their retainer as an e-mail attachment. Under “Attorney Fees,” this language appears: “Law Firm will be paid as a contingency fee one-third of funds received or negotiated from all sources. Client hereby assigns Medical Payments Benefits to law firm, which may, but is not required, to pay providers. If not paid by law firm, after the deduction of attorney fees, those funds will be included in final settlement amount paid to client.”

“Our case has settled, and we now see that the lawyer is taking one third of the money my auto insurance medical coverage would be paying to the ambulance, hospital, and doctors who treated us. This means that our total settlement will be reduced by thousands of dollars, since now, we have to make up that one third from our own pocket!”

“I can’t see any justification for them taking a cent of the med pay, as it is something we already were entitled to! What is your view of this situation? Are we wrong in being upset?”

Completely unethical

“Obviously, a lawyer has a right to be paid for work done which benefits the client. But if the client is already entitled to those benefits — such as their own med pay — it would be an unearned and clearly excessive fee, considered as completely unethical by the bar associations in most states,” stated Walter Olson, senior fellow at the Manhattan Institute for Policy Research, when we discussed these issues.

Olson is viewed as one of the nation’s foremost experts on legal ethics and excessive litigation.

“Lawyers should not take money if they have not really done work,” he maintains. He’s absolutely right.

“Yes, there are lawyers who will not take money on a contingency if there is no contingency, or if the lawyer is achieving what was already in the client’s pocket.”

But he warned, “Especially in these difficult economic times, there are others who will take huge, unjustified fees from their client-victims.”

Strong words? Yes, indeed, and next time we’ll tell you how you can prevent from becoming one of those victims.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.