How Do Legal Malpractice Settlements Work?

All relationship-based professions carry a considerable risk of facing malpractice claims. Whether we are talking about medical practitioners, brokers, accountants, or lawyers, a certain level of service is expected. And when clients believe that this level of expected services has not been honored, it’s not uncommon for clients to file malpractice claims against the provider of those services.

A single mistake from a lawyer, however small or insignificant it may appear, can motivate a client to file a legal malpractice claim. According to the Insurance Journal, the top four practice areas that receive the most legal malpractice claims are business transactions, corporate and securities, real estate, and trusts and estates, closely followed by personal injury attorneys.

Oftentimes, a client can become disgruntled if the outcome of their case isn’t the one they expected. If they lose a case in court or think they could have got more money in a settlement, the person that clients almost always believe is to blame for that outcome is the lawyer that they hired to represent them.

However, it’s important to remember that the legal landscape is a complex one, which means that it’s also very common for lawyers to truly make mistakes in their work that could be grounds for a client-filed claim against them.

What Professional Errors Most Commonly Lead to Legal Malpractice Claims?

Some of the most common legal risks that lead to malpractice claims involve administrative errors and missing critical dates, such as the statute of limitations or the deadline for filing court documents. Clients also often complain about their lawyer’s working knowledge of the law in their practice areas and their ability to apply that knowledge.

Claims that fall into the “client relations” category include misuse of the client’s finances, failure to follow instructions, or acting without consent. It may be difficult to imagine that in a digital-first world, communication could be a serious problem.

However, it’s not uncommon for lawyers, especially those that represent many clients at the same time, to fail to answer their client’s phone calls, emails, or messages, and fail to update their clients on the case progress and vital developments.

Lawyers can also be held liable should they fail to investigate a client’s legal actions properly. When taking on a case, lawyers take on the responsibility to discover key pieces of evidence and witnesses in the process, as well as to carefully plan all actions related to handling the case. Having a proper strategy can be crucial for a positive outcome, and should a client suffer any losses due to their lawyer’s inadequate planning, clients can and will sue for professional negligence.

When your clients sue you for malpractice, their goal is to try to recover what they allegedly lost as a result of your actions. Most claims are resolved with the following four scenarios:

• The plaintiff (former client who is suing your business) drops the charges if they realize they don’t have a case.
• The case is settled without going to trial.
• The case is dismissed because of administrative errors.
• The case goes to trial.

It’s important to note that the two sides can agree to settle at any point, even if the case is already in court. That would imply that the lawyer being sued would need to pay the agreed settlement amount and their attorney’s fees.

The best-case scenario for lawyers is when the charges get dropped or dismissed. In such a case, you would only need to pay your lawyer’s fees. Such a scenario would bode best for your professional reputation and your future legal professional liability insurance costs.

However, if you need to decide whether to settle out of court or go to trial, you should weigh the options carefully and make a decision after analyzing every legal option available.

Going to Trial vs. Settling: Pros and Cons

No matter how long you’ve been an attorney, having to face a malpractice claim is never fun. A surge in legal malpractice claims usually happens after an economic downturn, so it is expected that another will happen in the aftermath of the global COVID-19 crisis.

When a legal malpractice claim against you arises, the first thing you should do is notify your insurer. They will assist you with looking into the claim and deciding the best course of action.

No matter how much assistance you receive from your broker, it is still not easy to decide whether to settle or go to court, so let’s look at some of the most common pros and cons of both scenarios.

Going to Trial

As a lawyer, you are aware of what it means to take a claim to court. You also know that every case is different, and you should analyze every case thoroughly before making your final decision. Here are some pros of going to trial:

• You are confident that you did nothing wrong and that you can prove that beyond any doubt in the trial.
• Trials are public, so you may get some good publicity if proven innocent.

On the other hand, trials also bring some risks:

• A trial can be a lengthy process that drags on for months. Given that attorneys usually charge by the hour, you risk losing a lot of money.
• Should the jury rule in favor of the plaintiff, the damage they award to your former client can be expensive.
• If you lose the case in trial, it will affect your reputation since trials are public.

Settling

Since settling implies that the claim is resolved out of court, it certainly brings some benefits to both sides. Sometimes lawyers decide to settle a malpractice claim regardless of their culpability because the cost of a settlement might be lower than the cost of taking the case to court. These are some of the advantages of settling:

• It takes much less time to agree on a settlement than it does to take the claim to court, go through the trial, and wait for a verdict.
• You control the outcome of the claim.
• There is no admission of guilt when a claim is settled.
• As already mentioned, a settlement should cost you less than a drawn-out legal process.

When it comes to the downsides of legal malpractice settlements, there are a couple of things lawyers should consider:

• You may end up paying more than you would if the jury found that you were not guilty.
• A settlement is permanent. You can appeal a court’s decision, but you cannot renegotiate a settlement once it’s been reached.

If you are still unsure whether you should settle or go to court, here are some questions to ask yourself that could help you decide what to do:

• Is the claim against you viable?
• How much do you risk losing by going to court?
• How would the trial affect your reputation and the future of your practice?

Answer these questions truthfully and make sure you provide your insurer with all the necessary information they need to advise you on how to handle your case.

It should also be important to note that historical data confirms that a majority of legal malpractice claims do end in a settlement, so take that fact into consideration as well.

How Legal Malpractice Settlements Work

As in any other case you have worked on as a lawyer in your career, a settlement for a legal malpractice case is reached when both sides agree on the amount for which they are prepared to settle. As noted before, this can happen even when the claim is already in court, should both sides (you and the plaintiff) change their minds and decide to settle the errors and omissions claim brought up against you without a trial.

Settlements are written agreements that clearly state all the negotiated terms and conditions between the parties. Some cases involve a third party that is partially responsible for the damage inflicted on the plaintiff. In that case, your insurer could initiate a process of reclaiming some of the settlement money they will pay to the plaintiff. That process is called subrogation.

If necessary, you can include a provision to the legal malpractice settlement agreement that obligates the plaintiff to keep certain aspects of the case secret.

Serious problems can arise if you don’t have legal professional liability insurance to cover the settlement costs for you. In that case, you can negotiate a structured settlement with the plaintiff and their attorney to pay the agreed amount in installments. However, because some states carry restrictions around LPL, such as California standards, it’s best to be prepared for any and all malpractice claims.

Payments in some lawsuits can include more than a lump sum, especially if the initial case involved an injury to a child. In such instances, the two sides agree on additional payments, usually on a fixed schedule over the following years. A court can get involved in claims like that to ensure that the settlement amount is justified and appropriate.

Further Considerations When Handling Legal Malpractice Claims

A famous adage says: “If you are your own lawyer, you have a fool for a client.” There are a few different versions of this quote, but they all mean the same thing: The best course of action is to hire a lawyer to work the case for you.

The only situation in which it could be beneficial for you to handle the case yourself is when it’s almost certain that a motion to dismiss would be the outcome. Otherwise, it is in your best interest to hire a lawyer to represent you.

Why is that? First of all, it is tough to remain objective when a former client files a claim against you. Lawyers tend to take pride in having a detached, impartial view of their client’s case, which allows them to see the bigger picture. When they are the ones being sued, the case becomes personal and they lose that objectivity.

Most lawyers aren’t even litigation lawyers, so it wouldn’t be a good idea for them to defend themselves in the case of a malpractice claim against them.

And here’s another benefit of having professional liability insurance coverage: Insurers would assist you and hire a lawyer to work your case themselves.

For the best possible outcome, behave like you would expect a model client to behave. Make sure you are completely candid with your legal representation. Offer your opinion when you think it could be helpful, but try not to overstep or interfere too much with your colleague’s strategy.

If you, however, do decide to represent yourself in a legal malpractice claim case, it still might be a good idea to consult with another experienced lawyer. It would help you see the issue from a different perspective and gain another expert opinion on the matter.

In the end, it can’t be stressed enough how vital it is to have a legal malpractice insurance policy in place (and other insurance policies for your firm). If you would like to purchase one or need to renew your policy, don’t hesitate to reach out to our expert brokers from our legal practice or sign up to the Embroker platform and get your legal professional liability insurance quote online.