From time to time we have clients come to our office upset that the attorney who drafted their parents’ California estate plan (i.e., living trust, will, and durable powers of attorney) got it wrong or perhaps failed to properly implement the parents’ estate plan.
In a recent case we handled an attorney drafted an amendment to a Trust for a mother. The mother intended the amendment to change the distribution scheme between her children. The original trust called for an equal division amongst the children, and now the amendment called for a different division. The mother signed the amendment, and believed that the distribution changes under the amendment would be followed after she died.
After the mother’s death, it was found that the drafting attorney did not properly draft the amendment. Due to the drafting attorney’s mistake, several of the children were significantly damaged; these children would not receive what their mother intended under the amendment because it was invalidly created.
That unfortunately led to a malpractice lawsuit being filed against the drafting attorney. The balance of this blog article outlines how we communicated with the attorney’s malpractice insurance carrier to settle the lawsuit prior to going to trial.
We want to make it clear that insurance companies do not settle lawsuits for fair value—if they settle at all. The insurance industry has taken the position that they will vigorously litigate all lawsuits even if meritorious allegations are made and liability and damages are clear. In response to this position, we needed a strategy for getting the drafting attorney’s insurance company to agree to settle for policy limits—before going all the way to trial.
To implement our strategy, we needed to know what the damages were to our clients—the children harmed by the drafting attorney’s mistake. We determined the damages were in excess of $1,000,000. Next, we needed to know how much insurance coverage the drafting attorney had for legal malpractice coverage. Through discovery we found out that the policy limit for this case was $500,000. That means that the insurance company was only required to pay the first $500,000 of any judgment for legal malpractice against the drafting attorney.
Once we determined damages and potential insurance coverage, we sent out the balance of our written discovery and took the depositions we needed to establish all the elements for legal malpractice. We were now in a position to force the insurance company to settle for $500,000 or risk being on the hook for the entire $1,000,000 in damages.
We spent a lot of time on a settlement demand letter to the opposing attorney, which we copied on the insurance adjuster. The letter set out the facts, the clear liability, and the clear damages. We gave the insurance company 30 days to think about whether they would accept or reject the offer. In this case, the insurance company ultimately accepted the settlement demand. If they had not, then we would have gone after them for bad faith for refusing to settle for a reasonable amount. In this case the $500,000 settlement amount was reasonable, because the total liability was easily in excess of $1,000,000.
As you can see, when you carefully plan your strategy in a case, you can obtain good outcomes for clients without exposing them to several years of litigation, which is exactly what the insurance company wants to do. But our proactive actions put the insurance company in a difficult position—either settle for a reasonable amount now, or likely end up paying a much larger amount for the damages sustained by the mother’s children. We (and our clients) were okay with the insurance company choosing either option.
If you would like a copy of the redacted letter I sent to the insurance company, please let me know.