Structured settlements are a common resolution in personal injury, workers' compensation, and wrongful death cases, offering plaintiffs periodic payments rather than a lump sum. However, disputes between clients and their attorneys over whether to accept such settlements can create significant legal and ethical dilemmas. In jurisdictions like California, where structured settlements are governed by both state statutes (California Insurance Code § 10134 et seq.) and federal tax laws (26 U.S.C. § 104(a)(2)), the stakes are particularly high. When a client disagrees with their attorney's recommendation to accept or reject a structured settlement, the ensuing conflict raises questions about who ultimately controls the decision—the client or the attorney. This article explores the legal, ethical, and practical ramifications of such disputes, analyzing case law, statutory frameworks, and strategic considerations for both parties.

The Attorney's Fiduciary Duty vs. Client Autonomy

Under the California Rules of Professional Conduct (Rule 1.2(a)), an attorney must abide by a client's decisions concerning settlement, even if the attorney believes the decision is unwise. This principle stems from the broader doctrine of client autonomy, which holds that the ultimate authority in legal decision-making rests with the client, not the attorney. However, the attorney's fiduciary duty requires them to provide competent advice, including explaining the long-term financial implications of a structured settlement versus a lump sum. If an attorney fails to adequately disclose the tax consequences, inflation risks, or liquidity constraints of a structured settlement, they may face malpractice claims (Smith v. Lewis, 13 Cal.3d 349 (1975)). Yet, if the client disregards sound legal advice, the attorney may seek to withdraw from representation under Rule 1.16(b)(4), citing an "irreconcilable conflict."

Judicial Intervention: When Courts Decide

In rare cases, courts may intervene when an attorney and client are deadlocked over a settlement. Under California Code of Civil Procedure § 664.6, a settlement agreement is only enforceable if it is in writing and signed by the parties. If a client refuses to sign, the attorney cannot force acceptance, even if the settlement is objectively reasonable. However, in probate or conservatorship cases where the plaintiff lacks legal capacity, a judge may approve a structured settlement over the client's objections (Conservatorship of Wendland, 26 Cal.4th 519 (2001)). Additionally, in class action lawsuits, courts may approve settlements without unanimous plaintiff consent if they are deemed fair under the Dunk v. Ford Motor Co. (48 Cal.App.4th 1794) standard. These exceptions highlight the tension between individual autonomy and judicial oversight in settlement disputes.

Financial Advisors vs. Attorneys: Competing Interests

Clients often consult financial advisors who may advocate for a lump sum payout, directly contradicting an attorney's recommendation for a structured settlement. This creates a conflict of interest, particularly if the financial advisor stands to gain from reinvestment fees. California's Business and Professions Code § 17200 prohibits unfair business practices, including misleading advice from non-attorneys on legal settlements. However, attorneys must still ensure their clients receive unbiased financial guidance, as failure to do so could constitute inadequate representation (Day v. Rosenthal, 170 Cal.App.3d 1125 (1985)). Some firms mitigate this risk by collaborating with certified structured settlement consultants, ensuring clients receive holistic advice that aligns with their long-term interests.

Malpractice Risks: When Attorneys Overrule Clients

If an attorney pressures a client into accepting a structured settlement against their wishes, the client may later sue for malpractice or breach of fiduciary duty. Under California Civil Code § 1717, a client can recover damages if they prove the attorney's conduct fell below the standard of care (Stanley v. Richmond, 35 Cal.App.4th 1070 (1995)). Key factors courts consider include whether the attorney provided a thorough cost-benefit analysis, disclosed alternative options, and avoided coercive tactics. Conversely, if a client rejects a favorable structured settlement and later suffers financial harm, the attorney may use the client's refusal as a defense against malpractice claims, arguing that the client assumed the risk (Viner v. Sweet, 30 Cal.4th 1232 (2003)).

Ethical Obligations: The Duty to Withdraw

When an attorney and client fundamentally disagree on settlement terms, the attorney may face an ethical obligation to withdraw. Rule 1.16(b)(3) of the California Rules of Professional Conduct permits withdrawal if the client insists on pursuing a course of conduct that the attorney considers repugnant or imprudent. However, the attorney must ensure withdrawal does not prejudice the client's case (Ramirez v. Sturdevant, 21 Cal.App.4th 904 (1994)). For example, abruptly withdrawing on the eve of trial could lead to disciplinary action by the State Bar. Attorneys must also provide reasonable notice, return client files, and facilitate the transition to new counsel to avoid abandonment claims.

Structured Settlement Brokers: Neutral Third Parties?

Some disputes are mitigated through structured settlement brokers, who act as neutral intermediaries evaluating the financial soundness of proposed payment plans. Under California Insurance Code § 10136, brokers must be licensed and disclose any conflicts of interest. However, brokers are not fiduciaries, meaning they are not legally obligated to prioritize the client's best interests over insurer preferences (In re Settlement Capital Corp., 132 Cal.App.4th 418 (2005)). Clients should be wary of brokers who receive commissions from annuity providers, as this may bias their recommendations. Attorneys must vet brokers carefully to ensure compliance with ethical standards.

Tax Implications: A Deciding Factor?

One of the primary advantages of structured settlements is their tax-free status under 26 U.S.C. § 104(a)(2), whereas lump sums may incur capital gains or income tax liabilities. However, if a client needs immediate funds for medical expenses or debt repayment, the tax benefits may be outweighed by liquidity needs. Attorneys must provide detailed tax analyses, including potential state tax consequences under California Revenue and Taxation Code § 17132. Failure to do so could constitute malpractice (Baldwin v. Singh, 37 Cal.App.4th 421 (1995)). Additionally, if a structured settlement is later sold to a factoring company, the transaction may trigger taxable events under the Periodic Payment Settlement Act of 1982, further complicating the decision.

The Role of Mediation in Resolving Disputes

When attorney-client disagreements escalate, mediation can provide a less adversarial resolution. California courts often encourage mediation under Code of Civil Procedure § 1775, particularly in personal injury cases where emotions run high. A neutral mediator can clarify misunderstandings, evaluate financial projections, and facilitate compromise. However, mediation is non-binding, meaning the client retains ultimate decision-making authority (Foxgate Homeowners' Assn. v. Bramalea California, Inc., 26 Cal.4th 1 (2001)). If mediation fails, the attorney may need to withdraw or proceed to trial, depending on the client's instructions.

Case Study: A California Client's Pyrrhic Victory

A notable example is Lopez v. Safeway Insurance (2018 WL 4568437 (Cal. App.)), where a client rejected a $2 million structured settlement on her attorney's advice, opting instead for trial—only to lose and receive nothing. The client later sued the attorney, alleging inadequate risk assessment. The court ruled in favor of the attorney, finding that the client had been fully informed of the risks. This case underscores the peril of second-guessing settlements and highlights the importance of documented consent in attorney-client communications.

Conclusion: Who Really Wins?

Ultimately, the client holds the final say in whether to accept a structured settlement, but the attorney's duty is to ensure that decision is informed and voluntary. Disagreements can lead to withdrawal, malpractice claims, or even judicial intervention in extreme cases. The best outcomes arise when attorneys provide transparent, comprehensive advice while respecting client autonomy—even when they disagree. In the complex interplay of legal strategy, financial planning, and ethical obligations, the true "winner" is the party that best navigates these competing interests with clarity and integrity.