Walking the Tightrope: Defending Low Limit Legal Malpractice Cases

Editor’s Note: The author of this post heads the Professional Liability department of his firm’s Los Angeles office.

By Vincent S. Green, of Kaufman Dolowich & Voluck

What are the most difficult legal malpractice defense cases? They are not what you think. It is not the high exposure case or the overly involved client. Rather, it is the very low, usually $100,000, depleting limits policy cases.

A depleting limits policy means the cost of defense is deducted from the amount available to fight the case. The more vigorously an attorney defends the case, the less there is available to settle or try the case. This is especially tricky when there may not be enough money left on the policy to try the case to the end or to cover a damage award and the financial burden then falls on the attorney client.

These policies require hard decisions at the outset concerning discovery and motion practice. For example, how much pre-trial discovery can be done and yet still maintain enough money on the policy to cover a damage award. Likewise, should the policy be spent working up a summary judgment in the hopes of disposing of the case knowing that if it is unsuccessful, the client may be bare of coverage once the matter proceeds to trial. Also, once the policy is depleted, the attorney will need to arrange for the client to pay his or her fees.

We generally take the approach in these cases of focusing less on written discovery, while concentrating instead on critical witnesses’ depositions with a demand for production of documents. If the case is complex and documents are critical to uncover what occurred, this requires a hard conversation with the client explaining why the discovery is necessary and that he or she may be required to pay out of pocket for defense and damages.

Filing a motion for summary judgment in these cases requires a higher prediction of success than a normal case. A dispositive motion can eat up a quarter, possibly more, of the available policy limit. The attorney client wants a very high degree of probability of prevailing before bringing the motion, and, of course, no guarantees can be made as to how the court will rule. Even if a motion for summary judgment only has a fifty-fifty chance of prevailing, it may still be worthwhile for leverage in settlement discussions. However, that option may not be available with these low limit policies.

The low limit policy can be ripe for an exaggerated policy limit demand by the plaintiff. If the plaintiff can pencil out damages greater than the policy limits and makes a demand for the policy, the plaintiff may try to create a wedge between the carrier and the policy holder. It is also the reason it may be prudent to make a very early settlement offer before significant discovery is conducted.

These cases require an early discussion with the client about available options as well as the client’s ability to pay fees and damages if the policy is depleted. Cases in which the client normally might want to fight the claims and clear their name, simply may not be financially feasible.