An old adage about legal strategy goes something like this: when your case is weak on the law, pound the facts. When your case is weak on the facts, pound the law. And when your case is weak on the facts and the law, pound the table.
We often are confronted with professional liability claims or cases where the defense on liability is weak and where the claimant can clearly articulate a set of damages and alleges negligence, i.e., the lawyer plainly missed the deadline and the underlying case was dismissed; the audited financial statements are clearly wrong, and someone lost a lot of money; or the insurance broker failed to procure the policy that they agreed to procure so the policyholder had to pay the claim out of their own pocket. When confronted with these types of claims or lawsuits, and when they include these devastating facts, we are inclined to throw up our hands and pay the claim or the settlement, often for the full value of the claimed loss. From a defense perspective, the facts seem to indicate that the case is a loser.
NOT SO FAST.
The question of negligence does not end with establishing a breach of duty and the existence of an injury. The claimant also must prove the combined elements of causation and damages to win the case. And sometimes, even with an obvious and indisputable mistake, that element – that the mistake caused the injury – can effectively be challenged.
In the first scenario listed above, even though the lawyer missed the deadline and the underlying case was dismissed, we still must determine if the underlying case could have been successful. If the merits of the underlying case can be effectively challenged, then the lawyer's mistake did not cause any actual loss to the plaintiff.
As an example, I defended a lawyer years ago who failed to timely file papers seeking a visa for a foreign national client to remain in the country, and she was deported. However, even though there was no question that the lawyer failed to do what was required, the case was thrown out by a Cook County, Illinois, judge because I established that the foreign national did not qualify for the visa sought or any other visa allowing her to remain in the United States, even if the visa papers were timely filed (the lawyer never took any payment for the work because of the mistake).
Similarly, an accountant who fails to properly audit financial documents such that there are clear errors in those documents will not be liable for accounting malpractice if the third party receiving the faulty documents cannot link any damages to its actual reliance on them. In other words, if the conduct that led to the damages was not based upon reliance on the financial records, and instead, the damages are based upon the poor performance of the company, a defense to the accounting malpractice claim may exist notwithstanding the clear breach of duty by the accountant.
For example, a bank may receive audited documents containing errors. Still, if the bank receives them after it has already loaned the money to the borrower for whom the audited financial documents were prepared, and the borrower defaults, there may be no causal link between the faulty financial documents and the bank's loss. Yes, the bank can say that it received financial documents audited by the accountant, and yes, the bank can point out that the borrower defaulted. But if the bank loaned the money before it reviewed the faulty documents, or if its employees never actually reviewed the faulty financial documents, then it did not rely on those erroneous documents when it loaned the money. And so, in this case, despite the accountant's clear error, there is no causation between the creation, and even the delivery, of the faulty financial documents and the bank's injury, which actually flows from the poor performance of the borrower and not any act or omission by the accountant.
In a typical scenario, an insurance broker who fails to procure insurance for a client can be liable for that failure. However, if the policy the broker was supposed to procure would not have covered the casualty anyway, based upon some exclusion or policy condition, then the failure to procure does not cause the policyholder to be damaged, notwithstanding the broker's error. Again, there might be clear evidence of negligence on the broker's part, but that negligent act must be the cause of the actual injury. Sometimes, the plaintiff or claimant simply cannot link the bad act of the insurance broker to the claimed damages, which must flow from the absence of the policy that the broker was to procure.
Thus, the next time you have a claim or lawsuit where the breach of duty is obvious, don't give up hope and immediately pay the demand. Analyze the combined elements of causation and damages. This is particularly important because claimants and plaintiffs tend to ignore these elements when they see an obvious breach of duty, and they've incurred an injury. However, the existence of an error and an injury by themselves is not enough to win a lawsuit. The injury must proximately flow from the professional's negligence to be compensable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
