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; Indiana; Oklahoma; 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:
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.