When Is A Settlement Final?
Most litigation ends in some form of settlement without a trial actually taking place. But one critical question becomes, “At what point in time does a party enjoy protection from further litigation via a settlement agreement?” A recent unpublished decision illustrates the perils of assuming a settlement is a done deal when there are still loose ends to tie up. In Hill v. Klassan et al., plaintiff was insured in a truck accident. The driver’s employer’s insurance company engaged in settlement negotiations with the plaintiff’s attorney. Following these negotiations, the plaintiff agreed to settle for $40,000. The plaintiff’s attorney memorialized this fact in an email stating, “This email confirms our agreement to settle [plaintiff’s] claim for the sum of $40,000. Attached please find a current copy of the firm’s W-9. If possible, will you please send the Release per DocuSign? Otherwise, the client will have to find a printer/scanner and then physically mail it back to us. Like you, I’d like to get this thing wrapped up ASAP.” The insurance company’s attorney forwarded a release document and a check for the $40,000. The release document proposed a final release and discharge of all claims against the insurance company, the driver, and the driver’s insured, including for unknown injuries arising out of the accident. At that point, the plaintiff changed his mind and directed his attorney to back out of the settlement. Plaintiff then filed suit against the driver and driver’s employer. The defendants sought to enforce the $40,000 settlement agreement and dismiss the plaintiff’s claims. The trial court sided with the defendants, but Division II of the Court of Appeals reversed, finding that there was not an enforceable settlement agreement.
In Washington, settlement agreements are generally governed just like any contract under common law principles. The parties must objectively manifest their mutual assent to the material terms. The insurance company’s proposed release dealt with material terms never discussed between the parties, including which parties would be released, and the scope of the claims being released. The appellate court in Hill implicitly recognized that the plaintiff could have believed he was only settling with the insurance company and that the at-fault driver and/or his employer could still be on the hook for additional damage claims. The court further implied that the plaintiff could have reasonably believed he could ask for additional damages if his injuries worsened in the future. Even though it is arguably the industry standard that settlements with insurance companies are comprehensive and cover both the insureds and future claims arising out of the same transaction, the appellate court held firm on the principle that these material issues must be actually agreed to, rather than assumed. Therefore, the plaintiff could pursue his personal injury claims in court, even though he previously agreed to accept a $40,000 settlement. While the dollar figure is certainly a material term, the form of release can also be critical.
While a settlement agreement need not always be in writing to be binding, it is good practice to cover material terms in writing to avoid confusion and the possibility of one party changing their mind before a formal settlement agreement gets signed. The lawyers at Beresford Booth have a wealth of experience with civil litigation and negotiating favorable settlements for their clients. We would be happy to assist you with your litigation needs.
To learn more about When is a Settlement Final, please contact Beresford Booth at email@example.com or by phone at (425) 776-4100.