OP-ED: Six Traps You Should Watch Out for in Auto Accident Releases, or Get Ready To Stand Up to A Bully

man in hood at night, want to break the shutter

From DepositPhotos.com

Here are six TRAPS to watch out for when the liability insurer wants to settle and your client is anxious for the money.  Items in a release the liability insurer may present in a brute show of force, stealthily added to the release when never discussed,  or just assumed that’s they way all their releases must be signed.  Oh yeah, get ready for the old saw that “everyone else signs them” so what’s your problem.

This post is not exhaustive; nor are all the traps shown or even addressed in detail.  But, just keep an eye on those good neighbors who are always by your side all around Kentucky.

After Coleman vs. Bee Line’s pronouncement by the Kentucky Supreme Court, it is pretty easy to get the insurers to make sure the release excludes PIP and does not include indemnification for PIP.

However be ever vigilant since some of the following issues were/are never brought up when reaching a settlement number, and it might even be wise to include express language in your settlement demands to insure some of these items stay off the negotiating table.

Such areas include attempts by the liability insurer to include

  • Waiver of PIP benefits;
  • Release of consortium claims when not representing the spouse;
  • Global releases of “any and all other” persons etc.;
  • Indemnity language of claims against the tortfeasor by persons other than the settling claimant;
  • Non-negotiated indemnity language, period:
  • Attorney agreeing to indemnify (ru serious??);
  • Confidentiality and non-disclosure clauses;
  • Additional items so no “meeting of the minds” or a suit needed to enforce the agreement.

I consider these clauses to be objectionable and potentially bad faith or a breach of fiduciary duty by their very terms or the manner in which they end up in the release submitted with the check.

After the fact insertion of language which was not agreed upon is a no brainer violation, but the sneaky trick can be a problem when a client thinks the case has settled and just say “show me the money!”

Most recently, the Kentucky Department of Insurance came down hard on liability insurers who attempt to obtain waivers of reparation benefits as part of the liability settlement.  Such moves should always be reported to the Department of Insurance, at a minimum; and may put the claimant’s attorney in a position to advise her client of the potential claim too.  However, that is a decision each attorney must make for themselves.

Click here for DOI Complaint Information.

Here are six items to watch out for in those darn releases, most of which are boilerplate with the adjuster either not knowing the consequences of the terms or not having the authority on his/her own to redact certain language.  Thus adding delay to getting the client the agreed upon settlement sums.

1.  Waiver of PIP benefits.

These should never be in a release, and with the publication of Advisory Opinion 15-02m must be reported; and if you think it amounts to a bad faith violation or a breach of the Unfair Claims Settlement Practices Act, then another whole can of worms is opened through no fault other than the insurer (liability, UM, UIM).

The DOI Opinion added regulatory muscle to the complaints of many claimants’ counsel when it addressed the illegal practice of some liability insurers attempting to sneak a release of PIP (reparation benefits) as part of a personal injury liability settlement in a car accident case.

For the complete text of Advisory Opinion 15-02, then click here for our earlier post which contains the entire opinion and which is a must read for injury lawyers and insurance lawyers alike.  Insurance defense lawyers would be doing a disservice if they did not update their clients of the consequences of this explicit instruction.

Furthermore, the vast majority of bodily injury (“BI”) settlements involve third parties. By requiring that the injured person give up any claim to BRB, the insurer insists that the injured person forego the rights to a benefit the injured person paid for and is provided by the injured person’s own insurer. This has the effect of forestalling subrogation by the injured person’s insurance company through the Kentucky Insurance Arbitration Association. Such action has nothing to do with the injured party’s case, or the compensation the at-fault party’s insurer is legally obligated to pay. Subrogation rights for BRB payments belong to the BRB obligor (the injured party’s insurer). Furthermore, pursuant to KRS 304.39-140(3) collection of damages from the liability of a second person, a self-insurer or an obligated government shall have priority over the rights of the subrogee for its reimbursement of BRB. Liability coverage is all that should be at issue in a settlement of a BI case. The Department discourages efforts to abrogate an individual’s ability to get medical treatment by employing such a practice. This is particularly troubling in light of the fact that health insurance will not pay for treatment where other insurance is, or should be, available.

Additionally, contract case law is clear that if there exists no “meeting of the minds,” a settlement document or any other contract could be declared invalid. Breach of contract law would apply in this situation, especially if the insurer inserts this clause into a release document when no such provision had been agreed upon by the parties. This could be construed as a potential violation of the Kentucky Insurance Code, especially in the case of an unrepresented party who trusts that the language in the release reflects the settlement agreement.

2.  Loss of Consortium Claims.

If you do not represent the spouse of the injured claimant, then what is the basis for a liability insurer requiring as part of the settlement agreement that the unrepresented spouse sign the release or even the settlement check?  None.  But this goes back to an old insurance axiom that a closed file is a happy file, and apparently closing by means of making a claimant and their attorney do the liability insurer’s bidding.

In addition, no contract means no authority for the unrepresented spouse.  I won’t even go into the ethical issues, but the simple contractual requirements creating the legal representation not to mention the requirement of “actual” authority to settle a claim as required in Clark v. Burden, 917 S.W.2d 574 (Ky. 1996).

 And to add insult to malpractice, all this bidding would be expected at no cost to the insurer for crying out loud.

3.  The Global Release of all other persons.

It is clear that a release of all other persons is a release of all other persons per Nationwide vs. Abney.  This language usually surfaces for the first time when the boilerplate release is tendered with the check.  Fortunately, after Abney, there is usually little pushback by the insurer when caught.

Of course, I have always wondered about the potential quicksand for the insurer who shows more concern about non-claimant third parties then their own insureds when concluding a case.  Of course, the higher the amount of the settlement (and especially when limits are exhausted) means the greater exposure for any breach.  But, for the very, very small settlements, then why bother with the risk?

In any event, this language finds its way in releases to this day; and especially in those insurers outside the Commonwealth.

4.  Indemnity against claims by other claimants.

Indemnification has the potential of Alice Looking through the Looking Glass with indemnity, upon indemnity which then swallows up the entire settlement and potentially the claimant taking over the obligation of the liability insurer.  Rarely happens, or can even potentially happen, but why risk it.  Any indemnification should be negotiated specifically since indemnity is not a release.   See Frear vs. P.T.A. Industries, 103 S.W.3d 99 (Ky. 2003).

The inclusion of an indemnity clause started the problems in Coleman vs. Bee Line Courier Service, 284 S.W.3d 123 (Ky. 2009).

And, Crime Fighters Patrol v. Hiles, 740 S.W.2d 936 (Ky. 1987) highlights how indemnity upon indemnity is a dangerous thing.

Now, limited indemnification for certain claims and caps on the amount are another thing when addressing government super liens but always think about the risk that indemnity might exceed the client’s total settlement amount.  Ouch.

5.  Attorney personally agreeing to indemnification.

There are several ethics opinions condemning this practice (eg., Arizona; Connecticut;  Montana; Illinois; IndianaOklahoma; Ohio; Tennessee;  W.Va.;  DRI Article on MSP and Indemnity).  Some of these opinions even specifically address AND prohibit attorney from personal indemnification in MSPRC/Medicare subrogation liens..

6.  Confidentiality clauses.

Two problems with this one.  Ethically and taxability, plus potential of losing entire settlement recovery following a casual conversation while in line at the super market.

The Kentucky Supreme Court has already expressed a distaste for these clauses:

Kentucky Bar Association v. Unnamed Attorney 

2012-SC-000388-KB December 19, 2013 

Opinion of the Court. All sitting. Minton, C.J.; Keller, Noble and Venters, JJ., concur. Abramson, J., concurs by separate opinions. Scott, J., concurs in part and dissents in part by separate opinion in which Cunningham, J., joins.

During the court of Unnamed Attorney’s representation of a fellow attorney in a disciplinary matter, Unnamed Attorney negotiated a settlement between his client and the complaining party. The terms of the negotiated settlement resulted in charges of professional misconduct against Unnamed Attorney because the terms of the settlement agreement required the complaining party to refuse to cooperate voluntarily with the Kentucky Bar Association in any investigation into the matter. The Trial Commissioner adjudged Unnamed Attorney guilty of professional misconduct for entering into such an agreement with a witness but the KBA Board of Governors overturned that determination on appeal. Neither party appealed but the Court exercised its discretion to review under SCR 3.370(8). On review, the Court reversed, in part, and affirmed, in part, the decision of the Board of Governors, finding Unnamed Attorney guilty of violating SCR 3.130-3.4(g) but not guilty of violating SCR 3.130-3.4(a) and issuing a private reprimand.

Taxability:  See, Amos v. Commissioner, T.C. Memo. Docket No. 13391-01, 2003-329, December 1, 2003 (tinyurl.com/9d25phz).

For more reasons why Confidentiality Clauses are not a good thing, then read this Article from the American Bar Association:  “Confidentiality in Settlement Agreements Is Bad for Clients, Bad for Lawyers, Bad for Justice”

Do what you may, but hope this spurs some thoughts and maybe even some DOI complaints when necessary.

Now, there are more, many more traps in settlements, and this only scratches the surface.  And much can be said about Coots vs. Allstate and UIM releases and notices.  But that’s another day.

Settlements: “Mary Carter” Agreements

Following case contains a summary of Kentucky Law on Mary Carter agreements. What is interestings is how the medical negligence case played out with the patient suing the physician for negligence who then sued the health insurer for indemnity for not appoving the diagnostic test.  The patient settled with the insurer, but did not dismiss them from the suit.

From Goodin v. White, COA, Published, 4/15/2011

The term “Mary Carter agreement” derives from a 1967 case from
Florida, Booth v. Mary Carter Paint Co., 202 So.2d 8 (Fla.Ct.App.1967), rejected by Ward v. Ochoa, 284 So.2d 385, 388 (Fla.1973), and abrogated by Dosdourian v. Carsten, 624 So.2d 241 (Fla. 1993), which upheld the validity and nondisclosure of an agreement that limited the liability of two out of three defendants. In a classic Mary Carter agreement: (1) the settling defendant’s liability is limited although that defendant remains a party at trial; (2) the agreement is not disclosed to the non-settling parties and/or judge and jury; and (3) it guarantees to the plaintiff a minimum recovery, even though the plaintiff may not recover a judgment against the agreeing defendant or that the verdict may be less than that specified in the agreement. Slusher v. Ospital by Ospital, 777 P.2d 437, 440 (Utah 1989).

Although courts generally agree about the basic elements of Mary Carter agreements, jurisdictions differ in their treatment of the agreements. The
Supreme Court of Utah upheld Mary Carter agreements, provided that the terms of the agreement are disclosed to the jury. Id. at 441- 442. In Slusher, id., the Court stated:

defendant tort-feasors enter into a settlement agreement, the parties must promptly inform the court and the other parties to the action of the existence of the agreement and of its terms. Where the action is tried by a jury, the court shall, upon motion of a party, disclose the existence and basic content of the agreement to the jury unless the court finds that, on facts particular to the case, such disclosure will create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.
Slusher v. Ospital by Ospital, 777 P.2d 437, 444 (Utah 1989). In 1993, the Florida Supreme Court banned Mary Carter agreements
all together. The Court reasoned:

In addition, Mary Carter agreements, by their very nature, promote unethical practices by Florida attorneys. If a case goes to trial, the judge and jury are clearly presuming that the plaintiff and the settling defendant are adversaries and that the plaintiff is truly seeking a judgment for money damages against both defendants. In order to skillfully and successfully carry out the objectives of the Mary Carter agreement, the lawyer for the settling parties must necessarily make misrepresentations to the court and to the jury in order to maintain the charade of an adversarial relationship.
… .
[w]e are convinced that the only effective way to eliminate the sinister influence of Mary Carter agreements is to outlaw their use. We include within our prohibition any agreement which requires the settling defendant to remain in the litigation, regardless of whether there is a specified financial incentive to do so. Dosdourian v. Carsten, 624 So. 2d 241, 244 & 246 (Fla. 1993). The Supreme Court of Texas described this rationale in Elbaor v. Smith, 845 S.W.2d 240 (Tex. 1992). “No persuasive public policy justifies them, and they are not legitimized simply because this practice may continue in the absence of these agreements. The Mary Carter agreement is simply an unwise and champertous device that has failed to achieve its intended purpose.” Id. at 249.

Although Mary Carter agreements have garnered national attention over the past forty years as a means of settlement, Kentucky Courts have yet to confront this issue. Certainly the agreement in this case shares many characteristics of a Mary Carter agreement. The agreement limited the liability of Bluegrass and required Bluegrass to participate in trial. The agreement guaranteed that White would recover a minimum amount from Bluegrass, even though the jury may render a judgment against Goodin. Further, the nature of the agreement was not disclosed to Goodin or the court until trial was underway and was never disclosed to the jury. The agreement, however, was disclosed to the court and to Goodin once its terms were reduced to writing.

However, what distinguishes this case from typical Mary Carter scenarios is that Bluegrass’s continued presence at trial was not only because of the settlement agreement but also because Goodin never moved to dismiss its third party action against Bluegrass.

NOTE:

The redacted agreement provided in part:
1.1. In consideration of the following agreements, White hereby releases and discharges Bluegrass from any and all claims, demands, obligations, actions, causes of action, rights, damages, costs, losses of services, expense and compensation of any nature whatsoever, whether based on a contract, tort, or other theory of recovery, which White may have on account of which may in any way arise out of the allegations as set forth in the pleadings filed by the parties in this matter.
… . 2.0 Bluegrass agrees to pay White up to a maximum of ____. As consideration for this agreement, White agrees that Bluegrass shall receive a lien against any damages that the jury awards against Dr. Goodin attributable to his actions or omissions up to a maximum of _____. As further consideration for this agreement, the parties agree
2 Goodin entered into a contractual relationship with Bluegrass, whereby the insurance company paid Goodin for services that he performed for patients covered under their insurance coverage and Goodin was listed by the company as a “preferred provider.”
-3-
that Bluegrass retains a legal interest in this case and will participate at trial. As further consideration for this agreement, White agrees to indemnify and hold harmless Bluegrass for any claim of indemnity or contribution by Dr. Goodin which would result in payment by Bluegrass over and above ______. Accordingly, under this agreement Bluegrass will not pay more than _____ for any and all claims arising out of this litigation, and will not pay White less than ____ depending upon the application of the lien described above if any.
… . 6.0 As further consideration for this settlement, White and Bluegrass and her attorneys agree to keep this Release and Settlement Agreement strictly confidential and will not disclose the amount or terms of the settlement to any person, company or agency other than the parties’ immediate family, legal counsel, insurers, accountants or other financial advisors as necessary or if ordered to do so by a court of competent jurisdiction or as required by law. This is a material term of the Release and Settlement Agreement.

 

TORTS (wrongful termination): Brett v. Media General Operations, Inc. (COA 1/29/2010)

Brett
v.
Media General Operations, Inc.

2008-CA-000620 01/29/2010 2010 WL
323136

Opinion by Senior Judge Harris; Judges Lambert and
VanMeter concurred. The court affirmed a summary judgment entered by the
circuit court in favor of appellant’s former employer, a television
station, and its general manager and an order awarding costs to the
employer. The Court first held that summary judgment was not based upon
improper evidence when the majority of the proof consisted of witness
depositions that were properly certified and notarized. Further,
appellant’s deposition was complete, as he did not request a re-direct
examination, nor did he file an affidavit to explain, correct, or
contradict the testimony he gave under examination by opposing counsel,
which was authorized by CR 56.03. The Court also held that although the
employer and general manager may have violated office policies by
destroying documents, appellant failed to demonstrate that any law or
court orders were violated or that they were lost or destroyed in
anticipation of litigation. The Court next held that appellant failed to
present evidence demonstrating any genuine issue of material fact on
his breach of contract claim. His contract contained a morals clause and
his termination letter made it clear that he was terminated for cause
after four women complained that he had sexually harassed them on
numerous occasions. Absent a specific contractual provision, the
employer was under no obligation to provide additional investigative
measures or an opportunity to be heard. The Court next held that
appellant failed to demonstrate the existence of any genuine issue of
material fact on the basic element of material misrepresentation to
support his claim that he was fraudulently induced into entering the
employment contract. The Court next held that appellant failed to show
how his allegations of misrepresentations and improper termination
constituted contractual interference. The Court next held that appellant
failed to specifically describe any alleged defamatory statements or
state where they were published to show how the employer was responsible
for dissemination of information to support a claim for defamation. The
Court next held that appellant failed to produce evidence to show that
his termination was outrageous or intolerable in the manner required
under Kentucky law to support his claim for intentional infliction of
emotional distress. The Court finally held that the ruling by the
Kentucky Supreme Court in the employer’s favor, in an original action
wherein appellant argued that the trial court lost jurisdiction under CR
52.02 to award costs after appellant filed his Notice of Appeal, was
dispositive of the appeal from the order awarding costs.

INSURANCE – UIM, “Coots” Notice of Tender requirements per KRS 304.39-320: James Malone v. Kentucky Farm Bureau Mutual Insurance Company (SC 6/25/2009)

James Malone v. Kentucky Farm Bureau Mutual Insurance Company
2007-SC-000468-DG June 25, 2009
Opinion by Justice Abramson; all sitting.

After sustaining injuries in a car accident, Malone sued the other driver and Malone’s underinsured motorist carrier (KFB). The tortfeasor’s insurer offered to settle for the policy limits and Malone’s counsel sent a certified letter to KFB indicating Malone was “considering whether to accept” the offer and demanding that, consistent with KRS 304.39-320 and Coots, that KFB either consent to the settlement or preserve its subrogation rights by advancing a check for the amount equivalent to the tortfeasor’s policy limits. KFB responded to the letter, advising Malone’s counsel to notify KFB when his client had made a final decision on the settlement offer from the tortfeasor’s insurer. Malone subsequently accepted the settlement offer and executed a release. KFB then filed a motion for summary judgment which the trial court granted on the grounds that Malone’s UIM claim was extinguished for lack of proper notice to KFB of the settlement. The Court of Appeals affirmed.

The Supreme Court affirmed, holding that KRS 304.39-320 requires notice to the UIM carrier when the injured party “agrees to settle.” Since Malone’s letter merely stated the offer was being considered, there was no agreement in place and notice to KFB was insufficient. The Court rejected Malone’s argument that he had substantially complied with the intent of the statute, noting that the central underpinning of the statute was the existence of a binding agreement to settle between the injured party, the under-insured motorist and the under-insured motorist’s liability carrier. Justice Cunningham (joined by Justice Schroder and Justice Scott) dissented, asserting that the letter satisfied the notice requirements and that the majority was, in effect, adopting a “magic phrase” component. The dissent contended that the majority was focusing solely on the “considering whether to accept” phrase while ignoring the plain meaning of the overall letter. The minority discounted KFB’s response to Malone’s letter saying objective analysis trumped KFB’s subjective interpretation.

SETTLEMENTS & RELEASES – Hold harmless, indemnity, and applicability to PIP claims: Myanh Coleman v. Bee Line Courier Service, Inc. (SC 5/21/2009)

Myanh Coleman v. Bee Line Courier Service, Inc.
2007-SC-000628-DG May 21, 2009

Opinion of the Court. Justice Abramson not sitting.

Coleman suffered injuries in an accident involving a vehicle owned by Bee Line. She received $5,737 in basic reparation benefits (BRB) from her insurer, Nationwide, before settling with Bee Line for $6,500. As part of the settlement with Bee Line, Coleman signed a release in which he agreed to indemnify Bee Line for all claims “against the proceeds of the settlement.” Nationwide then sought reimbursement of its BRB payment from Bee Line in arbitration proceedings. After agreeing to pay Nationwide $4,737, Bee Line demanded indemnity from Coleman. When she refused, Bee Line filed suit. The trial court awarded summary judgment to Bee Line, holding she was contractually obligated to reimburse Bee Line for the payment. The Court of Appeals affirmed.

The Supreme Court reversed, holding that the language of the agreement limited indemnity to “claims against the proceeds of the settlement” of personal injury tort claims and did not include BRB benefits. The Court declined to address the issue of whether a sufficiently specific agreement to indemnify the tortfeasor for BRB recoupment claims would contravene the purposes of Kentucky’s Motor Vehicle Reparations Act.

Justice Noble (joined by Justice Venters) concurred in result only, contending that the Court should have addressed the “next question” regarding the propriety of tortfeasors extracting BRB recoupment agreements when settling claims. The minority asserted that the legislative intent and public policy behind the MVRA prohibit such agreements.

SETTLEMENTS: Mediation agreement terms enforced: Spot-A-Pot, Inc. v. State Resources Corporation (COA 2/13/2009)

Spot-A-Pot, Inc. v. State Resources Corporation
2007-CA-002018
02/13/2009
2009 WL 350646
Opinion by Judge Thompson; Judges Lambert and Stumbo concurred.

The Court affirmed an order of the circuit court enforcing a settlement agreement resulting from a mediation related to financing for appellants’ business operations.

The Court held that the trial court did not err in granting appellee’s motion to enforce a settlement agreement that appellee proposed. The bullet-point document generated at a mediation conference did not encompass the entire agreement of the parties and therefore, the trial court properly considered extrinsic evidence to discern the intent of the parties. The Court declined to address appellants’ argument that the trial court failed to render sufficient findings of fact to support its order and judgment, as appellants failed to request specific findings pursuant to CR 52.04.