LEGAL ETHICS OPINION #1641        MEDICAL PAYMENTS; FEE
                                   AGREEMENTS; INCLUSION OF CLAUSE
                                   IN FEE AGREEMENT PROVIDING FOR
                                   LEGAL FEE IN MED PAY

You have presented a hypothetical proposed fee agreement for Med
Pay cases and wish to know which of three forms of payment, if
inserted in the proposed fee agreement, is ethically acceptable. 
The three forms of payment, only one of which will be adopted by
the law firm for inclusion in its retainer agreements are:

(a)  a Ten Percent (10%) Administrative fee charged to the client
     consisting of Ten Percent of any medical expense proceeds
     collected by the firm on the client's behalf;

(b)  a flat fee based on the estimated actual cost of having a
     paralegal assist the client; or

(c)  an hourly fee based on the paralegal's standard hourly rate of
     $65.00.

You propose to insert one of these three payment provisions into
the following paragraph of the retainer agreement:

     "Med Pay: In addition to your personal injury claim, you
     may be entitled to reimbursement of your medical expenses
     under a medical expense reimbursement provision of your
     automobile insurance policy, or any other applicable
     policy.  Very often, the application process for this
     reimbursement is ministerial and payment automatic.  You
     are encouraged to apply for and receive those funds
     without the assistance of this office.  In the event you
     desire the firm to collect for you those funds:  [INSERT
     EITHER A, B OR C AS LISTED ABOVE]   

     In the event it becomes necessary to appeal any denial or
     partial denial of benefits under a med pay provision,
     then the firm will charge a total amount of 33 1/3% of
     any monies collected on your behalf after an appeal is
     initiated, whether collected by settlement, compromise or
     litigation."

As stated above, you wish to know which, if any, of the three
proposed insertions is acceptable under the Code of Professional
Responsibility.  The Committee understands that only one of the
proposed forms of payment will be offered to the client and the
client will not have the option of selecting which of the three
forms of payment he or she desires.

The appropriate and controlling Disciplinary Rules related to your
inquiry are DR 2-105(A) & (C) which state respectively that "A
lawyer's fees shall be reasonable and adequately explained to the
client" and "A fee may be contingent on the outcome of the matter
for which the service is rendered, except in criminal cases or
other matters in which a contingent fee is prohibited by law.  A
contingent fee arrangement shall state the method by which the fee
is to be determined, including the percentage or percentages that
shall accrue to the lawyer in the event of settlement, trial, or
appeal, the expenses to be deducted from the recovery and whether
expenses are to be deducted before or after the contingent fee is
calculated.  Upon conclusion of a contingent fee matter, the lawyer
shall provide the client with a closing statement showing the fee
and the method of its determination."

In LEO 1461 the committee considered the propriety of charging a
contingency fee in the collection of medical payments under
standard medical reimbursement provisions of insurance policies
like the ones to which the above fee agreement would apply.  The
committee opined that it is improper to charge a contingency fee in
purely ministerial cases, and ordinarily Med Pay cases are purely
ministerial.  The committee believes that while the facts presented
in your hypothetical situation are somewhat different from those
presented in LEO 1461, that opinion is dispositive of your inquiry
concerning the ten percent administrative fee. 

Though denoted an administrative fee, the fee of 10% of all med pay
funds recovered is still a contingent fee raising the same issues
and concerns addressed in LEO 1461.  In some instances, such a fee
may well exceed any reasonable overhead incurred by the law firm in
collecting med pay proceeds.

The committee is concerned that an attorney charging a contingent
fee may fail to consider the elements necessary to determine a
proper fee and the reasonableness of a fee listed in Ethical
Considerations 2-19 and 2-20.  The primary justification for a
contingent fee is that it allows a client an opportunity to seek
justice without having to spend substantial amounts of his own
resources to cover legal fees.  A second factor justifying a
contingent fee arrangement is that the attorney assumes some risk
of loss in earning no fee at all.  If there is no risk of loss in
a proceeding, it would ordinarily be improper to charge a
percentage fee on a contingency of recovery basis.  Therefore, the
committee opines that the ten percent administrative fee as
described in insertion (a) of the above proposed fee agreement
would clearly be improper.  However, a fee calculated pursuant to
an hourly rate or a flat fee similar to examples (b) and (c) would
not be per se improper provided that these payment provisions
include appropriate language indicating that all paralegal activity
will be under the supervision of an attorney in the law firm.  See
DR 3-104(D) (The lawyer shall examine and be responsible for all
work delegated to nonlawyer personnel).  

[DR 3-104(D); ECs 2-19, 2-20; LEO #1461]

Committee Opinion 
November 28, 1995