Blog

An attorney contingency fee agreement is a contract where the attorney receives as payment a percentage of your settlement.  The attorney does not get paid if he/she loses your case.  Some agreements can be very confusing.  Read the fee agreement carefully as it may have hidden costs.  Be careful.

CAUTION IF the attorney fees are based on GROSS instead of NET of your settlement money.

  • Fees based on GROSS will always cost you more in attorney fees.
  • GROSS means you are also paying attorney fees on the costs the attorney decides to incur on your case. (Beside filing, expert and witness fees, and photocopying, this could include travel and lodging costs.)
  • GROSS means the attorney has no incentive to keep costs down. The attorney gets a percentage on every dollar spent. The more he/she spends, the more you pay in actual attorney fees.
  • You want an attorney fee agreement based on the NET settlement!
  • Fees on NET mean YOU GET MORE money! See EXAMPLE below.
  • Under GROSS, every dollar of costs, your attorney pockets 25 to 40 cents in addition. You pay more!
  • Under GROSS, an attorney makes more for him/herself by running up costs. You pay more!

CAUTION IF the attorney asks you for “up front” money in exchange for a fee percentage reduction.

  • Asking you for money to litigate your claim could mean the attorney is underfunded or does not have enough confidence in winning your case to use his/her money for your costs.
  • Be sure the law firm has the money and qualified staff to finance and withstand multi-million dollar complex litigation.
  • An underfunded attorney can give up a lot of your money to get a quick settlement.
  • Expert costs can be very high in complex “valuation” cases like this case against Sempra and SDG&E if it goes almost to or to trial. Even extensive mediation can require experts and be costly.

CAUTION IF the attorney says he will reduce his percentage but then gives you a long attorney fee agreement with confusing clauses that could actually inflate your final legal expenses.  Attorney fee agreements should be concise and easy to understand.

Be sure to:

  1. Review and understand any attorney fee agreement before signing it.
  2. Check that fees are based on NET not GROSS fees on your award money.
  3. Check online:
  • Does your attorney and law firm have lots of their own money to fund these complex costly cases?
  • Does your attorney have the necessary successful background and experience to go against SDG&E and its gigantic Los Angeles firm, Quinn Emanuel?
  • Have you checked www.quinnemanuel.com to see why you need the biggest and best law firm?
  • What experience did the law firm have BEFORE the fires?

TIP: Fees are negotiable even after an attorney fee agreement has been signed.

EXAMPLE:  You win $500,000, the GROSS award.  COSTS of litigation are $100,000. 

Fees based on GROSS                            Gross award $500,000
 You pay 40% attorney fee before paying COSTS  - 200,000
 You pay COSTS                                               - 100,000
 YOU end up with                                                             $200,000

Fees based on NET                                    Gross award $500,000
 You pay COSTS first                                         - 100,000
                                                         Net award $400,000
 You pay 40% attorney fee after paying COSTS    - 160,000
 YOU end up with $40,000 MORE                                  $240,000


 

I was pondering the three year deadline and remembering that after our fire in '03 there were some tax deadlines that came up at the three year mark. I went looking for them and found this in our Disaster Tax Issues handout which can be found in the "Tax Handout" section of our website. The first thing I found had to do with Property Taxes (page 12, slide 66): 

  • Property tax basis can be transferred to
    another property if you purchase your
    new property within the same county.
    If the purchase price is greater than
    120% of the market value of your
    destroyed home, your property tax base
    will be increased by the amount in
    excess of 120%.
  • You have a three year period in which to
    do this. There is no time limitation if you
    rebuild your home on your vacant lot.

There are a lot of rules and calculations involved with determining whether or not you have to pay taxes on all or part of your insurance claim, so you need to take the handout to your CPA as soon as possible, but if you do have a gain and you want to reinvest the gain as opposed to paying taxes on it (page 7, slide 35):

  • You have 4 years from the end of the
    year in which you receive one more
    dollar
    from your insurance company
    than your tax basis in your home and
    scheduled personal property.
  • You have 2 years if you lost your second
    home
    .
  • You have 2 years if you lost real
    property that you used as rental or in
    your business.
  • (see the slides following for details and explanations)

 

If you're well into your insurance claim, you might have noticed that the insurance company sometimes does not give you the full "Replacement Cost Value" (or RCV) up front. In most policies they have the right to hold back the depreciation and only give you the "Actual Cash Value" (or ACV) of an item then once you've expended the money to replace the item you can recover the depreciation. The difference between the RCV and the ACV is the held back depreciation.

For example, say you had a couch that you estimated would cost $2,000 to replace, but the insurance company only gave you $1,250 as the ACV. Once you went and replaced the couch, you found the actual RCV was $2,145.35 and you have a receipt for the item at that cost. If you have a replacement cost policy, the $895.35 difference can be recovered from the insurance company if your claim was not closed by legal negotiations and you have not yet reached the limits for the coverage in question (which in the example is the personal property coverage).

Send copies of your receipts to the insurance company documenting the difference and request a check for the held back depreciation.

I hope all of the recent shaking in Southern California has been a not-so-subtle reminder that everyone should have earthquake insurance! The coverage might not be as good as your home owners insurance (with the high percentage deductable and no "guaranteed replacement" option) but time and time again I've seen that when the big one hits, some insurance is better than no insurance.

If you don't have it, call today. For our out-of-town subscribers, if earthquake insurance is not sold in your area look into flood insurance!

Here's a link to an article about the most recent quake:
http://www.nbclosangeles.com/news/local-beat/Earthquake-97985429.html

---

If you're still working on your Additional Living Expense claim, consider these items from our ALE handout.

Partial list of items covered:

  • Hotel expenses: tips, dining out, parking
  • “Moral” obligation to pay for housing with friends or relatives (according to AICPCU)
  • Additional driving mileage at a reasonable per mile rate (see current IRS mileage rates)
  • Childcare expenses above normal expenses
  • House cleaning service above normal expenses
  • Cost to install and hookup fees for cable and utilities
  • Cost to install phone and forward number to temporary addresses
  • Cell phone, telephone, postage costs above normal expenses
  • Utility bills to temporary power poles might be charged at a higher rate than normal residential rates.  The difference between your old rate and the new rate.
  • Extra supplies related to living in an RV such as toilet chemicals and difference between the price of regular toilet paper and the special toilet paper you might need to use in an RV.
  • Long distance phone calls to insurance company
  • Pet boarding
  • Meals while in hotel or moving above normal expenses
  • Laundry and dry cleaning above normal expenses
  • Costs related to documentation of dwelling, personal property losses
  • Files, paper, notebook and diary costs related to insurance claim.  (These are not personal property replacements but directly related to additional living expenses because of the loss.)
  • Expenses related to replacement of licenses, diplomas, certificates, passports
  • Storage of replacement contents

Remember: You are entitled to “like kind and quality”.

  •  House with your amenities
    o Pool
    o Landscaping
    o Workshop
    o Sewing room
    o Exercise room
    o Gourmet kitchen
  • House decorated with your “like kind and quality” furnishings
    o Art work
    o Antiques
    o Piano, pool table

Length of time for Additional Living Expenses (ALE):

  • It has been argued the time – 12 months or 24 months – listed in your policy, should begin when claim is fully settled.
  • In a large scale disaster, a 12 to 24 month ALE time limit is unreasonable, at least 30 months is more realistic.

Inspirational Quotes

Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing.

Helen Keller

Testimonials

Thank you for sharing all your knowledge and being so supportive. I do not know how things with [our insurance company] will end, but I know I am prepared as best I can be because of you.

Slide Fire Survivor, 2007