German Federal Court clarifies lawyer liability in settlement disputes

The German Federal Court of Justice (BGH) has ruled that lawyers must provide comprehensive advice regarding the prospects of further legal action when negotiating settlement agreements. This decision overturns a previous ruling by the Higher Regional Court of Koblenz.

The case involves a woman who suffered permanent paralysis following a traffic accident in 2000. In 2015, she entered into a settlement with the insurer of the person responsible for the accident. The settlement provided monthly payments, but the woman later alleged her lawyer failed to adequately calculate or claim her significant increased care requirements. Specifically, she argued her counsel did not inform her of potential claims for fictitious care costs involving family members.

Following the settlement, the woman sought approximately 469,000 euros in damages for lost care compensation and other losses. While lower courts previously dismissed her claims, the BGH clarified that a lawyer's duty of disclosure includes informing clients about the potential success and scale of pursuing further litigation rather than accepting a settlement.