Can a lawyer charge a contingent fee to collect undisputed medical-payments benefits under a liability policy?

Plain-English summary

The inquiry asked whether a lawyer could ethically enter a contingent fee contract to collect amounts due under the medical-payments provisions of a liability insurance policy, which pay an insured's medical expenses up to a limit without regard to fault, when there was no dispute about the validity of the medical bills.

The opinion explained that contingent fees, like all fees, must be reasonable (Rule 2.6(a)). A higher fee is generally justified where recovery is uncertain and the lawyer's right to be paid is genuinely contingent on some recovery, so the lawyer may apply a relatively high percentage to amounts recovered. But there is no justification for extraordinarily high fees where there is no risk of nonpayment; for a contingent fee to be reasonable, some real uncertainty about recovery must exist when the agreement is made. In most med-pay claims there is no significant risk the insurer will refuse payment, no question of fault, and seldom any dispute about the validity of the expenses, so the risk element that justifies an elevated contingent fee is absent, and such a fee would be unreasonable to the extent it bears no relation to the cost or value of the service. The same analysis applies to other clear-liability, undisputed-amount claims such as health insurance benefits and life insurance proceeds. The opinion added that it is not unethical to make some reasonable charge for the collection services.

Currency note

This opinion was issued in 1988, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. The provision it applies (Rule 2.6(a), reasonable fees) has since been renumbered and revised (the corresponding Model Rule is 1.5). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer charge a contingent fee to collect undisputed med-pay benefits?

A: Not at an elevated rate. The opinion concluded such a contingent fee is unreasonable where there is no real risk of nonpayment.

Q: What makes a contingent fee reasonable?

A: The opinion concluded there must be some real uncertainty about recovery at the time the agreement is made to justify the elevated fee.

Q: Can the lawyer charge anything for collecting the claim?

A: Yes. The opinion concluded it is not unethical to make some reasonable charge for the collection services.

Background and rules framework

The opinion applied North Carolina Rule 2.6(a), requiring fees to be reasonable (corresponding to Model Rule 1.5). The analysis turned on risk: a contingent fee's higher percentage is justified by the chance of no recovery, so where liability is clear and the amount undisputed, the contingency premium loses its justification and the fee must instead track the cost or value of the work.

Citations and references

Rules of Professional Conduct:

• North Carolina Rule 2.6(a) (reasonable fee)
• MR 1.5 (fees; contingent fees)

See also

• NC Ethics Op. RPC 50: nonrefundable retainers
• NC Ethics Op. RPC 148: division of fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-35/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

May a lawyer ethically enter into a contingent fee contract to collect amounts due under provisions of a liability insurance contract which provide for the payment of the insured's medical expenses up to a certain amount without regard to fault if there is no dispute as to the validity of the medical bills?

Opinion:

Contingent fees, like all legal fees, must be reasonable. Rule 2.6(a). Generally it is considered reasonable for lawyers to charge and collect higher fees than would otherwise be permitted in cases where recovery is uncertain and the lawyer's right to be paid is actually contingent upon there being some recovery. Thus, in such situations, a lawyer is justified, within reason, in computing a fee by applying a relatively high percentage rate to any amounts recovered for the client.

There is generally no justification for extraordinarily high fees where there is no risk of nonpayment. In order for such contingent fees to be reasonable and therefore permissible, there must exist at the time the agreement is made some real uncertainty as to whether there will be a recovery.

In most situations where claims are made under the medical payments provisions of liability insurance policies, there is no significant risk that the insurance company will refuse payment. There are no questions of fault to be determined and there is seldom any dispute regarding the validity of medical expenses. The element of risk which is necessary to justify the typically elevated contingent fee is not present. Such a fee would therefore be unreasonable to the extent that it bears no relation to the cost to the attorney of providing the service or the value of the service to the client. The same analysis would apply to other types of claims with respect to which liability is clear and there is no real dispute as to the amount due the claimant, such as claims for health insurance benefits and life insurance proceeds.

It is not unethical for the attorney to make some reasonable charge for services rendered in regard to the collection of such claims.