A client called me a few days ago to tell us he approached an attorney to take over the management of his wife’s non-ERISA claim. DCS recommended what we thought was a very high profile attorney in the south who would be able to assist. However, the attorney told the client “he had to look at his wife’s claim as a business and had to charge a $10,000 advance retainer fee and 40% of future benefits. Since our client worked in a public school system it is likely her claim is not pre-empted by ERISA. This family just couldn’t do it.
This client, and many others who contact us, tell DCS they cannot afford to pay future percentages charged by attorneys for litigating or negotiating disability claims. Any advance retainer fee is an additional hardship and is probably paid from withdrawals of a pension or 401(k) plan.
We have to be honest here and say that our judicial system, like the current health care process in this country, allows the wealthiest individuals access to legal protection and the best medical care only if they have the money to pay unreasonable attorney fees and the high cost of medical premiums. Access to legal assistance to fight outrageous actions of disability insurers is a privilege given only to those who can afford the 30%-40% of future benefits currently expected by attorneys.
While DCS does not approve of future percentages charged by attorneys we fully admit there isn’t anything we can do about it except encourage our clients NOT to retain attorneys who structure their fees with percentage charges against future benefits. For the most part attorneys do earn their percentages of all retroactive benefits restored to the insured, but we argue attorneys do not really “earn” future percentage charges made against future benefits.
Disability claims won in litigation are most likely forwarded to the insurance company’s extended duration unit and won’t be “risk managed again.” Having gone through their own high costs of litigation, Unum and other companies put the claim to bed and update current medical once a year. Once in a great while an insurer may pull the claim down and “take another look” at it, but most insurance companies won’t throw new money after bad litigating a claim they’ve already lost in the courts.
So, how do attorneys actually EARN their 30-40 percent cut charged on future earnings? If an attorney normally charges $200/hr for his services, then he/she should be able to calculate and prove each month how the 40% of future benefits is actually earned.
To find out, the insured could ask the attorney “to refund the benefit amount each month in the future which the attorney has not actually earned by providing continuing services on the claim.” No attorney would actually do that since they would most likely be refunding the entire 40% having NOT been required to touch the claim again since the case is won.
In other words, if the insured has a monthly benefit of $4,000 and the attorney is charging 40% of future benefits ($1,600/month) for the next 15-20 years, then the attorney (assuming a $200/hr fee) should be able to document spending at least 8 hours of his time on the claim each month. If he/she can’t prove that, then the fee has NOT been actually earned.
It appears to us that these high percentages charged by attorneys on future benefits are very similiar to the “points” charged by lending institutions which is money charged just for the privilege of having the attorney take your case.
Not too long ago we referred a client to an attorney for assistance with an ERISA case against Prudential. The attorney was able to resolve the case within 6 weeks in favor of the insured and will now collect a whopping $250,000 over the next 20 years. There is absolutely no way this attorney will actually EARN a quarter of a million dollar fee – no way at all.
Attorneys will tell you litigating ERISA claims, for example, is a lot of work. Generally, there are requests for summary judgments, answers, disclosures and writing motions back and forth. There is no jury, and no experts to depose depending on whether the judge allows new information or not. One attorney told me “there was a great deal of research” associated with ERISA claims, and that may be true, but certainly not 8 hours worth each month for the next 20 years.
Attorney fees based on future charges hurt the ERISA insured. Benefits are calculated at the rate of 60% of pre-disability income, so already the insured is receiving reduced benefits while on claim. If the claim is litigated and the attorney takes 30%, let’s say, of future benefits, the effective benefit amount received by the insured going forward is 40% or less. Try to live on that.
Future percentage charges on DI claims may also hurt the insured depending on how many policies the insured has and whether or not he/she is able to work in another occuaption. But, for ERISA folks, future cuts from monthy benefits cost the insured more than they are willing to pay, or, can afford to pay.
Attorneys defend these future percentage fees to the max by saying the amounts collected on past benefits do not cover all of their fees, nor can they get the insured to pay the costs upfront. As one attorney told me recently, “What? Am I a charity? Is this the legal aid society?” Well, no….., but offsets to future benefits that are not actually earned by the attorney in the future could be described as “highway robbery” of a societal group already in jeopardy because of a disability.
Unfortunately, sometimes insureds are placed in a position of having no other choice BUT to retain an attorney who charges against future benefits. We find this unconscionable since attorneys also know insureds need their benefits and may be willing to try to regain them at any cost. We need to question the ethics of charging against future disability benefits at all.
Attorneys relax. No one is trying to take the silver spoon from your mouth. But, we do want to make sure our clients are well aware of how much they are paying for attorney fees and what the fees are for in the future. That’s fair isn’t it?
If you have a different fee structure, that’s great; let us know and we’ll be happy to include you on our referral list – there’s lot’s of referrals to go around. If you have a different perspective of what your future percentage fees are for and how they are earned, let us know that too, and we’ll publish it here.
In the meantime, insureds who need attorneys to assist them with their claims should make a real effort to seek out the best fee deals – those without percentage charges on your future benefits. There are attorneys out there who make a real effort to be fair and frankly, some attorneys who work for large law firms do not always have control over what fees can be charged.
Due diligence on the part of the insured could save a considerable amount of money, and we strongly recommend insureds make every effort to question attorney fees and negotiate the best deals. It’s about time the middle class caught a break.
