Playboy Enterprises recently filed a legal malpractice lawsuit against its attorneys for failing to settle an employee whistleblower lawsuit within the insurance policy limits, thereby exposing Playboy to a verdict in excess of the policy limits.  According to an April 20, 2015 article on Courthousenews.com, titled Playboy Sues Sheppard Mullin for $7.6M, Playboy claims that the law firm projected Playboy had a 75 percent chance of winning the employee’s lawsuit, and that even if the employee prevailed, her maximum recovery would be well within the $5 million employment practices insurance policy limits.  The firm’s projections were reportedly based upon a lost wage projection and a mock jury trial.

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The employee’s case proceeded to trial, and the jury awarded her $6 million.

Playboy claims in its malpractice lawsuit that the firm’s evaluation failed to account for the employee’s emotional distress and punitive damages claims.  It further claims that had the firm conducted a more thorough analysis, it would have concluded that there could be a verdict in excess of the policy limits.  In other words, Playboy claims that the law firm should have recognized the possibility of an excess verdict and should have demanded on Playboy’s behalf that the insurance company settle the lawsuit within the policy limits.  That would have protected Playboy by preserving a claim against the insurance company for failing to settle the case within policy limits and exposing Playboy to an excess judgment.

[Playboy] claims that an ‘attorney of ordinary skill and capacity’ would have advised it to settle the case and ‘demand that [the insurer] settle within policy limits to protect its insured from both an excess and a potentially uncovered compensatory and punitive damage exposure.’

The law firm denies the allegations and “expects vindication and collection of [their] unpaid fees.”

This is a cautionary tale to both legal consumers and attorneys alike.  Cases need to be properly evaluated for exposure, which at times may warrant a second opinion.  And, when there is any possibility of a verdict in excess of the applicable policy limits, the insurance carrier should be put on notice and a settlement within policy limits demanded.