Assigning Claim Value

While having an unhappy client is bad enough, things can get even worse, if the client asserts a claim for malpractice based on the attorney's allegedly inaccurate valuation of the claim. In some instances, it may be that the attorney overlooked a critical legal element or other detail that might have impacted the valuation; in others, the attorney can do everything right, and there can still be an unforeseen outcome.

But the question of whether an attorney may be liable in such circumstances can depend on the jurisdiction and, chiefly, whether the jurisdiction has adopted some form of the “professional judgment” rule. Below are some of the issues relevant to a determination of whether an attorney's inaccurate valuation could create potential malpractice liability.

The Standard of Care

Although bar rules are not by themselves determinative of the applicable standard of care, they help shape that standard. For instance, in Georgia, the question of whether an attorney might be liable for errors in valuing a claim implicates Rule 1.1 of the Georgia Rules of Professional Conduct, which requires that an attorney provide a competent representation to a client. Specifically, Comment 5 to Rule 1.1 provides that “[c]ompetent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners.”

However, what constitutes the “methods and procedures” of “competent practitioners” could vary based on the customs of the attorneys in the jurisdiction. For example, if jury verdict reports are widely relied upon by attorneys in a particular area, then an attorney may want to consult such reports when assessing a defendant's potential liability in a personal injury case.

At the same time, courts in some jurisdictions have noted that jury verdict reports can be of little value because it is nearly impossible to find “apples to apples” comparisons between prior cases and the case at issue. Instead, it may be sufficient for an experienced attorney to thoroughly review the facts and, relying on her or his experience with similar cases, make an educated conclusion regarding the client's likelihood of success.

The Professional Judgment Rule

In Georgia, as one example, attorneys facing a claim based on an inaccurate valuation have another line of defense: the professional judgment rule. The rule provides that an attorney is not liable for acts or omissions in the conduct of litigation that are based on an honest exercise of professional judgment.

The professional judgment rule arises from the premise that, after consideration of the facts and law, an attorney's best judgment and recommendation should not be second-guessed, especially where there are multiple options for the legal strategy. While the professional judgment rule should provide some comfort to attorneys in valuing claims, the rule generally will not excuse the attorney's failure to thoroughly consider the relevant facts. Indeed, even in jurisdictions applying the professional judgment rule, courts have stated that, to avoid liability, the attorney's judgment must be an informed one. In other words, even if the attorney's conclusion regarding the value of the case is defensible under the circumstances, it will not preclude courts from considering how the attorney reached that conclusion and reviewing whether the attorney's judgment was truly informed.

Accordingly, when providing a valuation, it is helpful for attorneys to articulate the key reasons for the opinion, and the variables that may affect the case. Having this information in writing can act as a shield in the event that the client later questions whether the attorney took adequate steps in considering the client's potential liability.

The Role of Insurers

A lawyer's potential liability for an error in a valuation can be complicated where a client's insurer is involved. Insurance policies typically require that the insured obtain the insurer's consent prior to settling a claim. When the insurer reviews a potential settlement of a claim against its insured, Georgia courts generally instruct the insurer to consider whether trying the case instead of settling would place an unreasonable risk of a judgment in excess of the policy limits against the insured.

In such a situation, the insurer may ask defense counsel to prepare a valuation for the insurer's use in determining whether to consent to a settlement. Although this could suggest some direct relationship between the insurer and the defense counsel, the fact remains that in many states, even when the insurer relies on defense counsel's valuation, the insurer's duties are non-delegable. This usually means that the insurer will engage in its own independent analysis of the merits of the claim against the insured in order to determine an appropriate settlement value.

Thus, in the event that an insured is subjected to an unexpected excess judgment, it can be a difficult question as to who should bear the potential liability between defense counsel and the insurer. Defining the role of the defense counsel — as an adviser to the insured but not counsel to the insurer — can prove helpful in limiting claims against counsel.

Conclusion

Luckily for attorneys, most courts do not require that they accurately predict the future when it comes to valuing claims. However, lawyers who fail to give a valuation its due consideration could create unnecessary risk in the event that the case goes south.

*****
J. Randolph Evans and Shari L. Klevens are both partners at Dentons. This article also appeared in The Daily Report, an ALM sibling publication of this newsletter.

In nearly every lawsuit, there comes a point when the attorney is asked to evaluate the client's likelihood of success and to assign a value to the case. Because this value will likely be used by the client in determining whether to settle or to take its chances at trial, the attorney's valuation can be a crucial element in determining the outcome of a case.

However, experienced attorneys know that the result in a case is rarely (if ever) assured. Instead, the assessment of the client's potential liability can involve a multitude of factors, ranging from an analysis of the applicable legal principles to a consideration of the likely composition of the jury. In the end, the attorney's assessment is generally subjective, weighing the different factors and the strength of each side's arguments.

Inevitably, no matter how carefully the attorney considers the issues, there are times when the outcome or verdict will dramatically differ from the attorney's valuation. In such cases, the clients (or their insurers) may blame the attorneys for “not seeing it coming,” especially where the client had the opportunity to settle the case prior to trial but failed to do so in reliance on the attorney's valuation.

While having an unhappy client is bad enough, things can get even worse, if the client asserts a claim for malpractice based on the attorney's allegedly inaccurate valuation of the claim. In some instances, it may be that the attorney overlooked a critical legal element or other detail that might have impacted the valuation; in others, the attorney can do everything right, and there can still be an unforeseen outcome.

But the question of whether an attorney may be liable in such circumstances can depend on the jurisdiction and, chiefly, whether the jurisdiction has adopted some form of the “professional judgment” rule. Below are some of the issues relevant to a determination of whether an attorney's inaccurate valuation could create potential malpractice liability.

The Standard of Care

Although bar rules are not by themselves determinative of the applicable standard of care, they help shape that standard. For instance, in Georgia, the question of whether an attorney might be liable for errors in valuing a claim implicates Rule 1.1 of the Georgia Rules of Professional Conduct, which requires that an attorney provide a competent representation to a client. Specifically, Comment 5 to Rule 1.1 provides that “[c]ompetent handling of a particular matter includes inquiry into and analysis of the factual and legal elements of the problem, and use of methods and procedures meeting the standards of competent practitioners.”

However, what constitutes the “methods and procedures” of “competent practitioners” could vary based on the customs of the attorneys in the jurisdiction. For example, if jury verdict reports are widely relied upon by attorneys in a particular area, then an attorney may want to consult such reports when assessing a defendant's potential liability in a personal injury case.

At the same time, courts in some jurisdictions have noted that jury verdict reports can be of little value because it is nearly impossible to find “apples to apples” comparisons between prior cases and the case at issue. Instead, it may be sufficient for an experienced attorney to thoroughly review the facts and, relying on her or his experience with similar cases, make an educated conclusion regarding the client's likelihood of success.

The Professional Judgment Rule

In Georgia, as one example, attorneys facing a claim based on an inaccurate valuation have another line of defense: the professional judgment rule. The rule provides that an attorney is not liable for acts or omissions in the conduct of litigation that are based on an honest exercise of professional judgment.

The professional judgment rule arises from the premise that, after consideration of the facts and law, an attorney's best judgment and recommendation should not be second-guessed, especially where there are multiple options for the legal strategy. While the professional judgment rule should provide some comfort to attorneys in valuing claims, the rule generally will not excuse the attorney's failure to thoroughly consider the relevant facts. Indeed, even in jurisdictions applying the professional judgment rule, courts have stated that, to avoid liability, the attorney's judgment must be an informed one. In other words, even if the attorney's conclusion regarding the value of the case is defensible under the circumstances, it will not preclude courts from considering how the attorney reached that conclusion and reviewing whether the attorney's judgment was truly informed.

Accordingly, when providing a valuation, it is helpful for attorneys to articulate the key reasons for the opinion, and the variables that may affect the case. Having this information in writing can act as a shield in the event that the client later questions whether the attorney took adequate steps in considering the client's potential liability.

The Role of Insurers

A lawyer's potential liability for an error in a valuation can be complicated where a client's insurer is involved. Insurance policies typically require that the insured obtain the insurer's consent prior to settling a claim. When the insurer reviews a potential settlement of a claim against its insured, Georgia courts generally instruct the insurer to consider whether trying the case instead of settling would place an unreasonable risk of a judgment in excess of the policy limits against the insured.

In such a situation, the insurer may ask defense counsel to prepare a valuation for the insurer's use in determining whether to consent to a settlement. Although this could suggest some direct relationship between the insurer and the defense counsel, the fact remains that in many states, even when the insurer relies on defense counsel's valuation, the insurer's duties are non-delegable. This usually means that the insurer will engage in its own independent analysis of the merits of the claim against the insured in order to determine an appropriate settlement value.

Thus, in the event that an insured is subjected to an unexpected excess judgment, it can be a difficult question as to who should bear the potential liability between defense counsel and the insurer. Defining the role of the defense counsel — as an adviser to the insured but not counsel to the insurer — can prove helpful in limiting claims against counsel.

Conclusion

Luckily for attorneys, most courts do not require that they accurately predict the future when it comes to valuing claims. However, lawyers who fail to give a valuation its due consideration could create unnecessary risk in the event that the case goes south.

*****
J. Randolph Evans and Shari L. Klevens are both partners at Dentons. This article also appeared in The Daily Report, an ALM sibling publication of this newsletter.