Oct 10, 2007

Beware Tort Lawyer Scams

Many of the law firms you see advertised on TV, the internet, and billboards operate under a standard retainer contract designed to produce hefty fees for themselves and associated medical providers, and little or nothing for their clients. Here's how it works.

You have been injured in an accident--usually one involving automobiles--and are seeking a recovery from the responsible person's insurance company. You contact that flashy law firm you saw on TV. You are presented with a retainer agreement that gives the law firm 1/3 of the total recovery and you 2/3 of what's left after medical costs incurred during the course of your case are paid.

Once you are signed up, the law firm sends you to a cooperating medical provider--a medical doctor or chiropractor depending on the nature of your injuries--for diagnosis and treatment. After the medical costs have been run up to the maximum possible level, the insurance company is approached for the purpose of obtaining a settlement offer, typically a percentage of the medical costs, and any lost wages.

To see how this settlement works under the standard retainer agreement, assume the insurance company offers you $10,000 based on $4,000 in medical costs run up by a cooperating chiropractor. If you accept, the law firm will get $3,333 (1/3 of the total recovery), the chiropractor will get $4,000, and you will get the rest ($2,667).

So, what's wrong with this picture? Few if any people would anticipate that their attorney would get more than them for what turns out to be just a few hours of work to obtain most settlements. In some cases the client gets nothing because the medical costs equal or exceed the amount left over after the lawyer is paid.

While these retainer agreements give the client the right to reject the settlement offer and go to trial, the law firm will typically downplay the value of the case, obtain another offer that throws a little more money the client's way, and psychologically coerce the client into settling.

The entire subject of contingency fees and how to reform them will be treated in an upcoming article. At the very least, however, a personal injury fee agreement should either:


  • provide a warning in upper case bold letters, at the top of the agreement, that the attorney will be paid 1/3 of any settlement even if the client ends up with nothing because of the medical costs, or

  • provide that the client will receive at least one dollar more than the attorney in any settlement negotiated by the attorney.


For more information about personal injury lawsuits, check out How to Win Your Personal Injury Claim, by Attorney Joseph L. Matthews (Nolo).