Legal Malpractice Liability

A perfect example of the kind of liability an attorney faces in the settlement of a personal injury case is the Grillo case.  The Grillo case was a 2001 Texas settlement of a legal malpractice claim.  The underlying case was a medical malpractice claim for a birth injury.  Christine Grillo was born with cerebral palsy and was receiving Medicaid benefits at the time her personal injury lawyers settled her case.  The medical malpractice case was settled on a lump sum basis for $2.5 million.  As a result of the lump sum settlement, the child lost Medicaid coverage and once the settlement was invested, taxes had to be paid on the gains.  After the settlement, a legal malpractice claim was brought against the plaintiff attorney.  The main allegation was that the:

"Plaintiff attorney failed to employ or consult "competent . . . experts in taxation, trusts and/or structured annuities . . . to secure competent direction and guidance on how to best maximize the value of the minor plaintiff's settlement."

If you fail to advise the client of their options as to the form of settlement, what is your defense to this argument?  The legal malpractice case was settled for $1.6 million against the plaintiff attorney.  There was also a $2.5 million settlement in a separate suit against the guardian ad-litem.

If a lawyer fails to discuss the form of the settlement and then the client sues for legal malpractice, there are demonstrable damages.  The loss of protection of settlement proceeds from creditors, judgments, family and friends.  The loss of cost-free financial management for the client that probably needs it most since 25 to 30 percent of personal injury victims dissipate their settlement within two months of recovery and ninety percent spend it all within five years.  Without knowledge of the tax law, the client can lose the power of a significant tax exemption offered for structured settlement recipients.  He or she can lose out on the opportunity for a safe investment with competitive rates of return.  Finally and potentially the most damaging, the client can lose public assistance eligibility.

The Grillo decision demonstrates why a lawyer must counsel clients regarding the "form" of settlement to avoid causing a potential loss to the client.  Grillo's message to plaintiff lawyers is to employ or consult competent experts in taxation, trusts and structured settlements prior to settlement.