What is a Tolling Agreement and Why Are They So Common in Legal Malpractice Cases?
In an earlier post, I discussed the statute of limitations for legal malpractice claims in California, how short the statute of limitations can be, and how “actual injury” can occur even before the underlying case is fully resolved. In legal malpractice cases, actual injury refers to the point when a client suffers harm or loss as a result of their lawyer’s conduct, even if the broader case is still ongoing. This can create a situation where a client might have to sue their lawyer before knowing the outcome of the underlying case. Consider the following example:
You find out your lawyer sued only one of the two defendants who are responsible for your personal injury. Your lawyer tells you it is too late to add the second defendant. You have lost confidence in your lawyer and hire someone else to replace that lawyer.
The one-year statute of limitations is now running against your former lawyer. That one year may end before your lawsuit is finished. At this point, it is unclear how the loss of the second defendant will affect your case. Perhaps the defendant you sued will be able to cover all your damages, or maybe only the unnamed defendant had insurance and the ability to pay. You do not want to invest money into suing your recently fired lawyer until you know the extent of the mistake. Additionally, you are concerned that doing so might affect your personal injury case by exposing privileged communications or your intended litigation strategy. What do you do?
This is an example of a situation where a tolling agreement can provide a useful solution.
What is a Tolling Agreement?
A tolling agreement is a written agreement between both sides of a legal dispute that suspends the statute of limitations for an agreed-upon amount of time. Tolling agreements are used in many different types of cases, but they are particularly prevalent in legal malpractice cases. This is due to the short limitations period and the fact that damage can remain uncertain until the underlying dispute is resolved. Ideally, the client and the lawyer would agree in writing to toll the statute of limitations until the underlying case has fully run its course.
What are the Benefits of a Tolling Agreement?
A tolling agreement benefits the client by allowing them to focus their time, energy, and resources on resolving the underlying legal issues. In doing so, they may even mitigate the damage they believe the lawyer caused. It also prevents the public disclosure of facts, legal strategy, or other confidential information that might harm or prejudice the client’s case.
For the lawyer, a tolling agreement provides time for the client to finish the underlying case, which may result in the client avoiding liability (if a defendant) or being made whole (if a plaintiff). If that happens, the client may find no reason to sue the lawyer. After lengthy litigation, the client may also lose interest in pursuing another lawsuit. Additionally, lawyers typically prefer to avoid being publicly named in lawsuits. In this way, a tolling agreement can be beneficial for both the lawyer and the client.
Consult Legal Malpractice Counsel Before Agreeing
Both lawyers and clients should consult with legal malpractice counsel before entering into a tolling agreement. The terms of the agreement will significantly alter the rights of the parties involved. Lawyers also need to inform their errors and omissions liability (malpractice) insurance carrier before entering into a tolling agreement, as it may affect their coverage.
In a future post, we will discuss what happens when lawyers refuse to enter into a tolling agreement.