Law Tips: Settlements: What’s in the Release?

“Many releases contain un-negotiated terms or language which leads to unintended results…” This is one caution delivered by our faculty member, Tony Patterson, as he covers “Settlements” for the current “Preparing for Mediation” CLE. He provides an explicit review of the fundamentals necessary to insuring the release protects your client and avoids those unintended results. Here are Mr. Patterson’s points:

Most litigating attorneys will agree that obtaining a fair settlement in injury cases can be challenging. For this reason, once settlement is reached, it is tempting to simply execute the release enclosed with the check from the defendant’s attorney. Unfortunately, many releases contain un-negotiated terms or language which leads to unintended results; therefore, they must be carefully scrutinized prior to signing. The first fundamental issue is to be sure the release only discharges intended defendants. Indiana law historically held that a release of one tortfeasor released all tortfeasors. However, in Huffman v. Monroe County Community Sch. Corp. 588 N.E.2d 1264 (lnd.1992), the Supreme Court abrogated the common law release rule and held that the release of one wrongdoer does not release all unless the agreement was to release all, as in any contract for the release of joint tortfeasors.

In Pelo v. Franklin College oflndiana, 715 N.E. 2d 365 (1999), the Supreme Court extended this holding to derivative actions, reversing the prior Court of Appeals opinion in United Farm Bureau Mut. Ins. Co. v. Blossom Chevrolet 668 N.E.2d 1289 (lnd.Ct.App.1996). The Supreme Court held that a settlement agreement only released those specifically identified and not other defendants, including those whose liability is derivative. ld.
In a case in which several individuals have been named as parties to the case, there is little difficulty in identifying the individuals who are not released. However, in a case in which there is an early settlement and there is time to file subsequent claims, it is not always known who the later defendants will be. Pelo was significant in allowing plaintiffs to release one defendant while continuing with investigation to determine if there were other tortfeasors.

While Pelo provides some protection to plaintiffs, it is still important to review the release document to ensure that it does not release other individuals the plaintiff may wish to remain as defendants in the case. In the case of Estate of Spry v. Greg & Ken, Inc., 749 N.E.2d 1269 (Ind. Ct.App. 2001), the deceased’s estate filed a claim against a drunk driver who negligently caused the deceased’s death. The estate reached a settlement with the drunk driver and executed a release discharging the drunk driver “and any other party who is or may be liable” for the death. Thereafter, the estate filed a dram shop claim against the bar that served the drunk driver. Upon reviewing the release document, the Court of Appeals held that the bar was released by the language discharging “any other party who is or may be liable.” This case highlights the importance of reviewing the release language to ensure that only intended parties are released.

The concem for dismissing unintended parties also exists in the context of underinsured motorists claims. IND. CODE§ 27-7-5-6 provides that an insured settling with an uninsured tortfeasor must allow his underinsured motorist (UIM) carrier thirty days to advance the settlement and subrogate the interests of their insured. If the UIM canier fails to do so, the claimant is authorized to release the tortfeasor and begin prosecution of the UIM claim. While plaintiffs may release tortfeasors under these circumstances, the release document should be specific, as the potential exists for unintentionally releasing the UIM carrier.

In American Family Insurance v. Houin, 777 N.E. 2d 757 (Ind. Ct. App. 2002), the UIM carrier contended it was released when the insured executed a release with the underinsured tortfeasor which contained language similar to that in Estate of Spry. The court held that the UIM carrier was not released by the original document signed between the plaintiff and the tortfeasor. While Houin does provide some comfort to plaintiffs counsel, the factual circumstances in the case suggest that the insurance company was aware of the release language and lay in wait for the plaintiff to execute the document. In the absence of similar conduct by a defendant, the court may find the DIM carrier released by such broad language.

In Hockelberg v. Farm Bureau Insurance Company, 407 N.E.2d 1160 (Ind. Ct. App.1980), the court held that the plaintiff’s automobile insurance company, Farm Bureau, was not obligated to pay the plaintiff’s medical bills because the plaintiff had already settled and signed a full release with the defendant. No such payment was required because upon settlement and signing of a full release, the plaintiff had destroyed his right to recover under his own insurance policy as a matter of law. Id. Simply put, once the plaintiff signs a full release, he loses his right to reimbursement of future medical bills.

These are just a few examples of the issues the plaintiff’s attorney may encounter when wrapping up a settlement. The plaintiff’s attorney must carefully review release documents drafted by the defense and cannot assume that the documents will, as proposed, properly protect the client. If the language is not suitable, counsel should demand that revisions be made. In taking just a little additional time reviewing the release, counsel can avoid potential issues in the future.

About our Law Tips faculty member:
Anthony W. Patterson, Parr, Richey, Obremskey, Frandsen & Patterson, LLP, Lebanon, Indiana, has extensive experience representing personal injury victims and wrongful death survivors throughout Indiana and the Midwest. Mr. Patterson’s personal injury practice includes diverse concentrations in areas such as automobile and trucking accidents, medical malpractice and all other areas of the firm’s injury practice.

We appreciate Tony sharing his mediation expertise once again through Law Tips. You can hear his entire CLE presentation as well as other expert faculty during the upcoming Video Replays of “Representing a Client in a Mediation: Preparing Yourself, Your Client and Your Case.”

About our Law Tips blogger:
Nancy Hurley, Law Tips blogger, has long-standing connections with Indiana lawyers.  She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We plan to utilize her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs.  When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook page, Twittering and other places her legal experience lends itself.

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ICLEF • Indiana Continuing Legal Education Forum, Indianapolis, IN


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