Work with Your Lawyer To Avoid Common Settlement Pitfalls
Settlement is often viewed as the finish line of a civil case. In Pennsylvania, however, it is also one of the points at which mistakes are most likely to occur. Because a settlement is binding and meant to be final, errors made during this stage can have lasting consequences for both clients and attorneys.
For your legal representative, what makes settlement uniquely risky is that it blends law, strategy, judgment, and client counseling. For you, the client, you cannot sit back and assume your representative will tell you everything about the consequences of settlement.
To the contrary, it’s not your attorney’s job to explain “everything.”
Attorney Duties At the Time of Settlement
Professional Rule 1.4.
Pennsylvania Rule of Professional Responsibility 1.4 only requires a lawyer to “reasonably consult with the client about the means by which the client’s objections are to be accomplished,” i.e., the duty is to “reasonably consult with the client,” not tell the client everything. See Rule 1.4.
Comment to Rule 1.4
The comment to Rule 1.4 provides: “[t]he client should have sufficient information to participate intelligently in decisions … to the extent the client is willing and able to do so.” Thus, the client’s curiosity — about the case in general and specific details of the settlement — can determine how much advice the lawyer must provide.
When there is time to explain a proposal made in a negotiation, the lawyer should review “all important provisions with the client before proceeding to an agreement.” However, this does not require the lawyer to explain every provision, just the important ones. Thus, to avoid miscommunication, inform your representative you want to know about every provision of your settlement agreement, not just the “important” ones.
So ask questions, starting with: what are the common pitfalls of settlement?
Settlement: Common PitFalls
While each case is unique, certain pitfalls recur across practice areas, ranging from personal injury to employment and contract disputes. When any one of those elements breaks down, the consequences may not surface until it is too late to undo them.
1. Settling Too Early, Before the Full Consequences Are Known
One of the most common mistakes is settling before the full scope of damages is understood. In injury cases, this often means resolving claims before medical and/or psychological treatment is complete or future care needs are identified. In construction cases, it may involve settling before you know all the latent defects or damages from the work.
Once a settlement is signed, later-discovered damages are usually unrecoverable. Thus, while early resolution may seem efficient, speed can come at the cost of value.
2. Failing to Understand or Explain the Governing Law
Settlement decisions are only as sound as the legal advice underlying them. Misunderstanding doctrines such as joint and several liability, comparative negligence, contribution, or indemnity can distort settlement value.
Just as importantly, failing to explain these legal concepts to the client can expose counsel to risk. For example, what are the tax consequences for the party paying the settlement (tax deduction?) or the party receiving money (income)? A settlement that compromises down a loan can involve “debt forgiveness,” which can be “income” to the debtor for which he must pay income tax.
3. Over-broad Releases of Claims or Parties
A frequent and dangerous drafting error is the use of over-broad release language. General releases may unintentionally extinguish claims against parties the client intends to pursue later, or claims not yet contemplated. For example, in Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnick (Pa. 1991), the Plaintiff-condo owner suffered water damage to his condo when the upstairs condo owner caused a water leak. Plaintiff brought a claim against the upstairs condo owner. Plaintiff also moved out and stopped paying condo fees due to a dispute with the condominium association. But, when settling with the upstairs condo owner, the Plaintiff accidentally signed away rights against the condominium association, as well. Plaintiff sued their lawyer for this mistake, but lost, as set forth below.
The bottom line is, Pennsylvania courts treat settlement agreements as contracts. Thus, parties are expected to understand the scope and effect of release language before it is signed.
4. Ignoring Liens and Third-Party Interests
Sometimes the settling parties must pay a third party out of the settlement proceeds. Examples include:
- Motor Vehicle Accident. A party settling a motor vehicle accident injury claim may be required to pay back his medical insurance company for amounts paid for medical treatment, also known as a “medical lien” (for more, click here.) Failure to address the medical lien can result in the health insurance company denying coverage for future medical issues.
- Construction Law Dispute. Let’s say your home improvement contractor not only failed to finish painting your interior walls (resulting in you suing him), but he also tipped over a paint can, destroying your beautiful hardwood floors in one area. Because your homeowner insurance carrier (State Farm), paid to refinish your flooring, State Farm might have a right to be paid out any settlement you reach with the contractor.
- Child Support or Other Lien. A party receiving settlement money must pay other liens, such as a child support lien or money owed relative to some other prior obligation. Click here for more in PA.
Thus, settlements often involve competing financial claims, including not only medical liens by private health insurance, but also duties to pay back Medicare or Medicaid interests, or a workers’ compensation subrogation lien.
Failing to identify and address these obligations before settlement distribution can reduce the client’s recovery or create serious post-settlement disputes.
5. Leaving Key Terms “To Be Worked Out Later”
An agreement that postpones resolution of essential terms may not be enforceable—or may invite future litigation. Payment timing, confidentiality, indemnification, enforcement mechanisms, and tax treatment should not be left vague. Otherwise, the case may be settled, or maybe not.
An “agreement to agree” is often no agreement at all. Courts have held: “agreement to agree, where [material] terms are left to future negotiations, is unenforceable.” See In re Estate of Wyman, 8 N.Y.S.3d 493, 494 (App. Div. 2015), ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659 (3d Cir. 1998).
6. Mishandling Settlement Negotiation Strategy
No two cases are alike. Each may involve a different settlement strategy. Most cases involve numerous offers and counteroffers until the parties reach an agreed upon number.
However, the oft-repeated advice to “never accept the first offer” can be misleading. A counteroffer is legally a rejection of the original offer, removing it from the table. Failing to explain this basic principle can leave a client surprised—and unhappy—when a prior offer disappears forever, which is rare, but it can occur. It is therefore best to discuss with your representative the actual odds of your counteroffer making the original offer gone for eternity.
7. Failing to Protect the Statute of Limitations
Settlement discussions do not toll statutes of limitation. Lawyers who assume that ongoing negotiations preserve a client’s rights risk catastrophic consequences if a deal collapses after the filing deadline passes.
Protective filings are often essential.
8. Mishandling Confidentiality and Non-Disclosure Terms
Some settlements require confidentiality; others may benefit from it. Failing to demand confidentiality when appropriate—or failing to warn clients about confidentiality obligations—can create legal and practical problems after settlement. With whom can you discuss the settlement, if anyone? Truly understand what the agreement deems “confidential.” For example, does the agreement allow you to discuss the settlement with your tax preparer, which you may need to do? What are the consequences for wrongful disclosure? For example, clients who violate confidentiality clauses may have to:
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- return some or all of the settlement money received,
- pay stipulated damage for the disclosure, and/or
- pay the attorney fees and costs of the other side.
Likewise, the party seeking confidentiality may be frustrated about how difficult it can be to enforce such a clause. It’s best to understand these issues before settling a case.
9. Assuming Your Representative Will Be Liable For Your Bad Settlement
Many clients believe that if a settlement turns out poorly, they can simply sue their legal representative. In Pennsylvania, that assumption has long been complicated—and controversial, as discussed below.
10. Timing of Settlement in Multi-Defendant Cases
Settling with one defendant prior to trial and proceeding to trial against non-settling Defendants involves risks and rewards. For example, at trial, the non-settling defendant can blame the “empty chair”–left from the setting Defendant–to potentially escape liability. Click here for more.
Can You Sue Your Lawyer for a Bad Settlement?
Yes, but you might not win.
Such cases can range from tricky to impossible, as discussed below. Any degree of contributory negligence on your part (even just 1%!) can potentially act as a complete bar to your recovery against your lawyer. Rizzo v. Michner, 584 A.2d 973 (Pa. Super. 1990). Columbia Medical Group v. Herring and Roll, P.C., 829 A. 2d 1184 (Pa. Super. 2003). So for example, if, prior to settlement, your lawyer mentioned details about the settlement that you forgot or let go to your spam folder, and these were key details you wished you had known when agreeing to settle, your one percent fault can bar your tort claim for legal malpractice.
Thus, the best strategy is to fully consult with your legal representative prior to settlement about (a) all possible consequences from the settlement of your civil case and (b) the common pitfalls when settling cases, generally.
PA’s Unique Rules Concerning Attorney Liability
For decades, Pennsylvania law has been shaped by Muhammad v. Strassburger, McKenna, Messer, Shilobod & Gutnick (Pa. 1991). In Muhammad, the Pennsylvania Supreme Court held that a client generally may not sue their representative for malpractice based on the adequacy of a settlement the client agreed to, absent fraud. The Court famously framed this as preventing a “second bite at the apple.”
The result was sweeping: even if a legal rep failed to investigate fully, failed to join defendants, or failed to exercise ordinary skill, malpractice claims were barred so long as the case settled and fraud was not alleged.
Subsequent cases attempted to limit Muhammad. In McMahon v. Shea (1997), a plurality allowed claims based on flawed legal advice about settlement consequences. More recently, in Khalil v. Williams (Pa. 2022), the Supreme Court held that Muhammad does not bar malpractice claims where the representative failed to advise the client about the legal scope and effect of a settlement release.
In Khalil, the Court emphasized that the plaintiff was not merely dissatisfied with the settlement amount, but alleged incorrect legal advice about what claims were being released. That distinction allowed the claim to proceed.
Justice Wecht’s Concurrence—and the Future of Pennsylvania Law
Justice David Wecht’s concurring opinion in Khalil goes much further. He called Muhammad “deeply flawed,” “patently unfair,” and a national outlier. Justice Wecht’s view matters. He was re-elected in November 2025 to another ten-year term, ensuring his continued influence on Pennsylvania jurisprudence. His concurrence, joined in substance by Justice Mundy, signals that Muhammad’s long-standing protection for settlement counsel is increasingly unstable.
Time and Money Intensive With No Guaranty
The law is moving toward greater accountability for lawyers, not less.
But that’s not necessarily good news for victims of bad settlements. As mentioned, the victim’s own contributory negligence can reduce or defeat a claim against the lawyer. Plus, consider how much time, money and effort it cost the victims in McMahon and Khalil, for example, as each had to hire a lawyer to sue their first lawyer, and both cases ended up in the appellate courts without a clear resolution after years of litigation — in cases thought to have settled years earlier, supposedly!
What All This Means for Lawyers and Clients
The lesson is not that settlements are dangerous—but that they must be handled with rigor. Lawyers must fully advise clients, explain legal consequences, draft carefully, and ensure informed consent. Likewise, clients must be engaged throughout this process — and ask questions — to ensure they get the full benefit of representation to avoid time-consuming and expensive issues post-settlement.
