It is said that releases and settlement agreements “use a hundred words when ten would do” and there is a good reason for that. Those drafting the release want to include as much as possible within the future protections, claims released, and indemnity provided by the document. Conversely, those signing the release want to limit the promises they make and tailor them specifically to the claims and damages made the subject of the claim being released. This concern over limiting the scope and future liability assumed in such broadly-worded documents is most-vitally important when the party signing the release is an insurance company.
Take, for example, a case in which you have put in considerable work to investigate and develop a potential subrogation claim. You’ve hired investigators and experts, conducted inspections, talked to witnesses, and perhaps even retained an outside “subrogation vendor.” Though settlement negotiations were rough, you won a hard-earned recovery that you feel is fair. You start to feel good about all the work you put in and you are told that the amount you recovered is fair given the facts of the claim. Then, you receive a settlement check and, along with it, a broad, five-page release of claims and settlement agreement that contains lengthy paragraphs referring to indemnity and hold-harmless obligations which rival the Affordable Care Act in length, complexity, and uncertainty.
Most insurance defense counsel and liability adjusters regurgitate release language and settlement agreements because it’s easier for them to do that than actually look at the facts of the case before them to craft language specific to each case. And, let’s face it, they’re creatures of habit. Even seasoned lawyers and liability adjusters sometimes have a hard time grasping subrogation concepts and the claims we are pursuing. So, what do you do? Do you sign the release containing the harsh and open-ended indemnity and hold-harmless language in exchange for the immediate gratification of cashing the check? Or do you push back? In making that decision, it is important that you understand precisely the obligations and future potential liability you are exposing the insurance company to. If you’re not careful, the released party may end up with the last laugh.
Let’s review some common release language defense counsel and liability adjusters include in releases and the concepts you want to keep in mind when negotiating the release language.
Recognize The Claims You Own
You should only release the claims that you own – only the ones you are being paid for. In subrogation, the identity of the insurance carrier as the plaintiff should be known and care should be taken as to the caption of the lawsuit. For example, in a worker’s compensation subrogation action, the insurance carrier has made medical benefit payments to medical providers on the claimant’s behalf and indemnity payments to the claimant. In states where workers’ compensation is the exclusive remedy of the injured worker (most states), the worker’s compensation insurance carrier is obligated to pay those medical bills that are related to the covered injury. Where the worker’s compensation claimant is unwilling or uninterested in pursuing a third-party claim, the insurance carrier is often able to pursue subrogation of its indemnity and medical benefit payments. These are the claims which the insurance carrier has possession to release.
Release vs. Hold Harmless vs. Indemnity
It is important for everyone to understand what they are signing. That importance is tripled when the person signing is signing on behalf of an insurance company with assets in the hundreds of millions or billions. Why? You are an easy target. When you “release” somebody, you voluntarily relinquish a known right to sue that person for the claim or cause of action described in the release or settlement agreement. This is the purpose of a release and you must agree to this – but only insofar as it relates to a carefully-crafted description of the limited cause of action being released. If it’s too broad (e.g., release personal injury claims where only property damage is involved), you could be headed for trouble. A property carrier signing a full release and hold harmless agreement with a tortfeasor paying for repair of water damage may inadvertently be releasing the tortfeasor for future mold and mildew claims which have yet to surface. Look carefully at the definitions contained in the release document. They often contain the details which constitute the devil in the agreement.
Hold-harmless and indemnity clauses are known as “exculpatory clauses” and should be well-understood before they are agreed to. A “hold harmless” agreement, on the other hand, is one party agreeing not to hold the other party responsible for any loss, damage, or legal liability that may arise from the matters made the subject of the agreement. A “hold harmless” or “liability waiver” provision in a contract is an agreement between the parties whereby one or both parties agree not to hold the other party responsible for any loss, damage, or legal liability that may arise under the agreement. In other words, the two parties cannot sue each other for any damage they may suffer due to the negligence of the other party. Hold harmless provisions are often combined with indemnity language.
An “indemnity” agreement means that the party signing the release agrees to “indemnify” the party being released – protecting them against and/or reimbursing them for future damages or liabilities incurred by the released party associated with any threatened or actual civil or criminal proceedings. It is literally the assumption of responsibility and liability that would otherwise belong to someone else, and, for insurance companies, it represents the greatest risk assumed in a settlement agreement. At Matthiesen, Wickert & Lehrer, S.C., we let all parties know from the very beginning of settlement negotiations that our clients will not sign indemnity language. We will release and hold harmless, but will not, under any circumstances, sign releases which require our clients to indemnify anyone. Such a stance makes negotiation transparent and eliminates the potential waste of time which could result if the other side has their heart set on being indemnified.
Avoid General Release Language More Suited to an Individual Plaintiff
In a general personal injury release, the defendant will often ask that the injured plaintiff sign a broad release. An injured plaintiff/insured can agree to this broad scope of the release because they actually own the bodily injury claim. In a subrogation setting, however, the insurance carrier does not own the bodily injury claim and should not agree to this broad scope of release.
The subrogated insurance carrier can only agree to release the claims that it owns. Therefore, broad release and indemnification language should never be agreed to, and you should be able to convince the third-party insurance carrier or defense attorney of the fact that you are not a personal injury plaintiff and that this type of language is inappropriate – perhaps even ineffectual. At a minimum, you should take the time to give him an example of the absurdity that could result if you were to sign on behalf of your insurance company employer. The release often contains broad language requiring you to:
…completely release, discharge and forever hold defendants harmless from any and all claims, demands, suits known or unknown, fixed or contingent, liquidated or unliquidated, whether or not asserted in the referenced case, as of this date, arising from or related to the events and transactions which are the subject matter of this case.
A carrier subrogating only for property damage which agrees to the above language could find a summons and complaint showing up in the mail should the insured later sue the released party for bodily injury damages. It would be hard to explain why you didn’t insist on specifically tailoring the release to property damages.
Following along with our workers’ compensation subrogation scenario, let’s look at some common release language proposed by defense counsel and how it should be modified.
Proposed Language: In consideration of the settlement amount, releasors agree to defend, indemnify, and hold the released parties harmless for any and all claims, demands, judgments, damages, liens, or liability arising out of the incident, including, but not limited to, claims, demands, damages, expenses, actions, liabilities, or other obligations that may be brought against the released parties as to medical liens and wage benefit liens.
Modified Language: In consideration of the settlement amount, releasors agree to defend, indemnify, and hold the released parties harmless, and reimburse for claims, demands, or other obligations that may be brought against the released parties as to medical liens and wage benefit liens and liens payable under the worker’s compensation policy.
As you can see, the modified language limits the liability to only those claims that should appropriately be covered under the workers’ compensation policy. If the proposed language was not modified, the insurance carrier would be opening themselves up to liability where it wasn’t previously contemplated.
Avoid Extraneous Clauses in Release
Once you have successfully convinced the third-party insurance carrier that you can only release those claims which you own, and the release language has been sufficiently modified to reflect that, there are a couple other areas that you should be aware of. The first involves a choice of attorney clause:
“In the event of any of the types of claims described in the Agreement are brought against any of the Released Parties, the Released Parties have the right to defend any and all claims with attorneys of their own choosing. Releasors will reimburse the Released Parties for all legal fees incurred in defending any and all lawsuits, claims, suits, demands, actions, and causes of action in connection therewith.”
This language is concerning for a couple of reasons. The biggest reason is that, should a medical provider or the like pursue a claim against the third-party carrier, the workers’ compensation carrier has the best information related to this type of claim. Either the medical invoice has been overlooked (for numerous reasons: the medical bill was improperly submitted to the insurance carrier, the medical bill was improperly coded, the medical bill was submitted late, etc.) or the medical bill is not related to the covered injury. In either case, the workers’ compensation carrier has the best information to respond to the claim. Should the third-party insurance carrier be allowed to defend this claim with an attorney of their choosing, there is no control over the defense.
Armed with this knowledge, you’ll be better able to negotiate harmful release language out of your releases and will be better prepared to protect your company from future liability based on the release language. When in doubt, have subrogation counsel (one firm comes to mind) assist you with the review of your settlement agreements and release language. It may save you from headaches and considerable expense and liability in the future.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at firstname.lastname@example.org.