Potential Risks to Be Aware of When Valuing Claims

When hiring attorneys, clients may not only expect them to have knowledge of any relevant legal procedures but to also provide counsel regarding the risks and possible outcomes of a matter. In the case of litigators, it may mean that the client expects an evaluation of their potential liability or recovery in connection with a lawsuit. In most litigations, settlement is usually at least considered at some point or another, and this requires the client to consider their case’s strengths and weaknesses in formulating a settlement position.

Many attorneys do their best to assist clients in making informed decisions but predicting results can be less than certain. There are many factors that can impact the result of a case besides the facts and the applicable legal principles; they may include a mix of objective data, such as jury verdict reports, and subjective factors, such as assessing the tendencies of the judge assigned to the case. Due to the volatility of these factors, experienced attorneys are generally aware of at least one instance where a verdict comes in for an amount that is totally unexpected based on the facts of the case.

Even if that is the case, clients won’t find it much helpful being told by their attorneys that “anything can happen” in a litigation. As such, there can be a certain tension between trying to provide clients guidance in evaluating a case and accounting for the inherent unpredictability of lawsuits.

There is a risk that if the outcome differs from the attorney’s prediction, the client or their insurer may blame the attorney for not accurately predicting it, especially if the client had the opportunity to settle before going to trial but chose not to based on the attorney’s prediction.

Whether or not attorneys’ valuations in these circumstances constitute legal malpractice can be fact-specific. Sometimes the attorney may have overlooked critical elements or details that might have affected the valuation, and other times they can do everything right and the outcome might still be different from what was expected. As we’re going to see, there are several ethical and legal considerations that can vary by jurisdiction and that may impact attorneys’ potential liability for inaccurate evaluations.

Consider the Applicable Standard of Care

In California, for example, the Rule 1.1 of the Rules of Professional Conduct requires lawyers to provide a competent representation to clients. Competence in performing legal services is defined party as the “learning and skill … reasonably necessary for the performance of such service.”

What constitutes as the necessary learning and skill, however, can vary based on the customs of the lawyers in the jurisdiction and the type of practice. For example, if lawyers widely rely on jury verdict reports in a particular area, then a lawyer may want to consult such reports when they are assessing a defendant’s potential liability in a personal injury case.

In some jurisdictions, however, courts have noted that jury verdict reports may be of little value as it is very difficult to find “apples to apples” comparisons between prior cases and the current case. Many lawyers choose to review the facts and law in detail of rely on their experience with similar cases to make educated conclusions regarding the client’s likelihood of success.

The Judgmental Immunity Doctrine

In California, for example, lawyers who face a claim based on an inaccurate valuation may have another line of defense: the judgmental immunity doctrine. The doctrine “relieves an attorney from a finding of liability even where there was an unfavorable result if there was an honest error in judgment concerning a doubtful or debatable point of law […].”

Lawyers wishing to invoke the judgmental immunity doctrine must show:

  1. “that there were unsettled or debatable areas of the law that were the subject of the legal advice rendered;”
  2. that the “advice was based upon ‘reasonable research in an effort to ascertain relevant legal principles and to make an informed decision as to a course of conduct based upon an intelligent assessment of the problem.’”

Making a judgment call will not always be adequate to avoid liability; lawyers typically have to ensure that their exercise of judgment was well informed based on the reasonable research and consideration of the applicable legal principles.

Also, when providing a valuation, lawyers may find it helpful to explain the key reasons for their opinion and the variables that may end up affecting the case. Having that information in writing may protect the lawyer in case the client later questions whether they took the adequate steps in considering the client’s potential liability.

Valuations for Insurers

A lawyer’s potential liability for errors in a valuation can be even more complicated if a client’s insurer is involved. Typical insurance policies require that the insured consult with the insurer and get their consent before settling a claim. In these circumstances, insurers may ask defense counsel to prepare a valuation which will help them determine whether to consent to a settlement.

The insurer may consider the defense counsel’s opinions, there are many states which hold that the insurer’s duty to perform an independent analysis of the merits of the claim against the insured is non-delegable. As such, if an insured is subjected to an unexpected excess in judgment, it can be difficult to decide who should bear the potential liability between defense counsel and the insurer.

Valuing claims may sometimes seem like nothing more than educated guesses, lawyers can still try to make predictions for their clients in a way that reduces their overall risk.