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An attorney in a litigation is sometimes looked to by the client as something of a soothsayer. What's likely to happen? What's the verdict going to be? How is the judge going to rule? How much is this case worth? It is very routine for attorneys to offer such opinions or valuations, which may be crucial elements in determining how to try or resolve a case.

However, as many attorneys appreciate, 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 often relies on subjective factors in weighing the potential outcomes and the strength of each side's claims and defenses.

Inevitably, no matter how carefully the attorney considers the issues, there are times when the outcome or verdict may 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 relied on the attorney's valuation or advice in deciding not to settle the case prior to trial.

While having an unhappy client is challenge enough, the client could conceivably assert 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.

Below are some of the issues relevant to a determination of whether an attorney's inaccurate valuation could create potential malpractice liability.

What is the Standard?

Although bar rules are not by themselves determinative of the applicable standard of care for attorneys in Texas, they can help shape that standard. The question of whether an attorney might be liable for errors in valuing a claim implicates Rule 1.01 of the Texas Disciplinary Rules of Professional Conduct, which provides that a lawyer generally should not accept representations that the lawyer knows or should know are beyond their competence. Comment 1 to Rule 1.01 states that “[c]ompetent representation contemplates appropriate application by the lawyer of that legal knowledge, skill and training, reasonable thoroughness in the study and analysis of the law and facts, and reasonable attentiveness to the responsibilities owed to the client.”

However, what constitutes legal knowledge 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 Benefits of the Professional Judgment Rule

Attorneys facing a claim arising out of an inaccurate valuation can consider another line of defense: the professional judgment rule. The professional judgment rule provides that an attorney is generally not liable for those 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 is due some deference, especially where there are multiple options for the legal strategy. However, the rule generally will not excuse the attorney's failure to thoroughly consider the relevant facts. 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 attorney's 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.

Insurance Issues

An attorney'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 and to keep the insurer informed as to developments in the case and risks. When the insurer reviews a potential settlement of a claim against its insured, the insurer is generally called 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 analysis of the merits of the claim against the insured in order to determine an appropriate settlement value, relying on the information provided by defense counsel. Thus, the failure of defense counsel to properly or thoroughly assess the risks and liabilities facing the client could create an issue between the client and the insurer.

Luckily, 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 that the case goes south.

Shari L. Klevens is a partner at Dentons and serves on the firm's US 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 is a partner at Dentons and focuses on professional liability defense.  Shari and Alanna are co-authors of “The Lawyer's Handbook: Ethics Compliance and Claim Avoidance.”