Attorneys are often asked by their clients to assess a claim, provide a likelihood of success and assign a risk to the matter. The client may then take that assessment to determine how to proceed in the case (i.e., whether to settle or go to trial) or in valuing the case. Although such assessments are quite routine, they can create great risk because, as experienced attorneys know, the result in a case is rarely (if ever) guaranteed.

No matter how carefully the attorney considers the issues in providing an evaluation, 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 when the client had the opportunity to settle the case prior to trial but failed to do so in reliance upon the attorney's valuation. It may be that the attorney overlooked a critical legal factor or other detail that might have influenced the outcome; in other situations, the attorney can do everything right, but there can still be an unforeseen outcome.

Fortunately, most courts do not require that attorneys accurately predict the future when it comes to valuing claims. However, attorneys who fail to give a valuation its due consideration could create unnecessary risk in the event the case goes south. Here are some issues relevant to a determination of whether an attorney's valuation could create potential malpractice liability.

The Professional Judgment Rule

In many states, attorneys who face a claim arising out of their inability to accurately predict an outcome or assess a claim may be able to rely on the professional judgment rule. The professional judgment rule provides that an attorney is generally not liable for acts or omissions in the conduct of litigation that are based on an honest exercise of professional judgment.

The premise is 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. Indeed, if great legal minds can differ over a strategy, approach or likely outcome hindsight is typically not the same as legal malpractice.

Although the application of this rule provides some protection to attorneys engaged in valuation analysis, 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.

Thus, when preparing an analysis or valuation, many attorneys will articulate the key reasons for their 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 Standard of Care

Although bar rules are not by themselves determinative of the applicable standard of care for attorneys, they help shape that standard. The question of whether an attorney might be liable for errors in valuing a claim implicates Rule 1.1 of the Model Rules of Professional Conduct, which requires lawyers to provide “competent representation” to clients. Specifically, comment 5 to Rule 1.1 provides that: “Competent 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. It also includes adequate preparation.”

Thus, in reviewing whether an attorney did a thorough or competent job in assessing a matter, the client or a court may focus on whether the attorney appropriately inquired into the issues or adequately prepared for the analysis.  Of course, what constitutes the “methods and procedures” of “competent practitioners” could vary by jurisdiction or even by practice area. An attorney evaluating a matter pending in a specialty court, for example, may have different obligations in the analysis than an attorney evaluating a run of the mill contract action.

Typically, it is sufficient for an experienced attorney to thoroughly review the facts and, relying on her or his experience with similar cases, to make an educated conclusion regarding the client's likelihood of success. Documenting the review of the record, known facts, and applicable law can help show that the attorney met the (however attenuated) standard of care in preparing the assessment.

The Role of Insurers

Sometimes an attorney may be assessing a claim for a client whose defense is being funded by an insurance company. Although the insurance company may have its own counsel monitoring the matter, the insurance company may also be relying on the insured's defense counsel to provide an analysis of the potential liability risk.

When the insurer reviews a potential settlement opportunity on behalf of its insured, the insurer may have an obligation to consider whether trying the case instead of settling it 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 nondelegable. This usually means 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, even if the insurer is dependent or relying on the defense counsel's review.

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.

Shari L. Klevens is a partner at Dentons US in Atlanta and Washington, D.C., and serves on the firm's U.S. board of directors. She represents and advises lawyers and insurers on complex claims and is co-chair of Dentons' global insurance sector team.

Alanna Clair, also a partner at Dentons US in Washington, focuses on professional liability and insurance defense. Klevens and Clair are co-authors of “The Lawyer's Handbook: Ethics Compliance and Claim Avoidance” and the upcoming 2019 edition of “Georgia Legal Malpractice Law.”