Settlement Agreements Offer No Shield Against Defamation
California firms must prepare for defamation liability regardless of terms in a settled employment dispute.
Updated on Oct. 28, 2026 in Professional Services
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A California appeals court recently dismissed a malpractice lawsuit filed against Wood Smith Henning & Berman LLP. The ruling clarifies the scope of settlement agreements, noting they do not automatically protect an opposing attorney from defamation claims.
Why it matters
This decision limits the defensive utility of settlement agreements in employment disputes by affirming that such contracts do not provide immunity against defamation liability. It highlights the importance for firm operators to distinguish between settlement protections and potential exposure to non-contractual tort claims.
An appellate court dismissed one malpractice lawsuit against Wood Smith Henning & Berman LLP while allowing defamation litigation to proceed. The status of the original employment dispute underlying these claims is currently unresolved.
The players
Wood Smith Henning & Berman LLP
A national civil defense law firm known for handling complex litigation and professional liability cases.
The details
The malpractice suit centered on allegations that an improperly drafted settlement agreement failed to account for potential defamation liability. The court determined that settlement clauses cannot be used as a shield against claims of defamation made by an opposing party's former client. This finding creates a distinction for firms in how they structure agreements, as standard releases may not provide the total indemnity operators expect against external tort actions.
Timeline
October 28, 2026: The California appeals court issued the ruling.
Market Landscape
This ruling clarifies the limitations of contractual protections within the broader framework of California's legal liability standards. It follows a pattern of courts narrowly interpreting the scope of immunity provided by settlement agreements compared to the state's traditional litigation privilege.
Professional service firms operating in California should audit their settlement templates to ensure they do not rely solely on them for protection against tort claims. Firms should consult with counsel to confirm that indemnity language explicitly addresses non-contractual liabilities like defamation.
The takeaway
Operators must assume that settlement agreements have finite reach when addressing third-party tort claims. Review standard release language to ensure that immunity clauses are sufficiently broad and do not assume blanket protection against defamation or similar tort-based causes of action.
Further reading
For more on evolving liability risks in the legal sector, visit Professional Services.
Source note: This article includes information reported by Law360.
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