Anytime you are involved in a dispute and you reach an agreed-upon resolution, the customary practice of our society is to memorialize it in a settlement agreement in writing. Primarily, so the other party cannot back out. A settlement agreement can be as simple as an oral agreement or a handwritten note on a piece of paper. So long as it meets the requirements of a contract—offer, acceptance, consideration, meeting of the minds, legal capacity, and legality—it is enforceable.
But, in a legal proceeding where people are represented by lawyers whose job is to protect their clients, they are never that simple. This article will explore the various provisions you are most likely to encounter in a personal injury settlement agreement. Please be aware that this is simply an overview of what you may find and is no substitute for having your agreement reviewed by a qualified personal injury lawyer.
Elements of a Settlement
To be a valid offer, one party must make a promise to do something for or give something to the other. This is the offer. It can be money, or it could be a service. Acceptance means that the other party accepts the offer as offered. Then there must be an exchange of some agreed-upon consideration. These are the primary elements. In addition, there needs to be an understanding or meeting of the minds with intent to enter into a contract. The parties must have the legal and mental capacity to enter into a contract. Lastly, it must be legal.
The above elements will typically all be spelled out in the settlement agreement to ensure there is no later claim of misunderstanding. However, there is no formal document required for a settlement agreement so long as the elements are present at the time of the acceptance. In fact, even a verbal agreement to settle can be binding.
Other Clauses in a Typical Settlement Agreement
Even though no actual writing is required, it is common for people in a civil lawsuit to memorialize their settlement with a very detailed settlement document. There are many other clauses that may be found in these and they can be very confusing and tricky. Not all of these clauses are required to effect a settlement agreement. Attorneys often use them all to cover all the bases, however, in many cases, one would suffice.
Waivers, Releases, Assignments, and Indemnity Assignments
The key part of any civil lawsuit settlement agreement is the complete relinquishing of the plaintiff’s rights against the defendant. There several are clauses that can achieve this, including waivers, releases, assignments, and indemnity agreements.
Waivers
A Waiver is the relinquishing of a right or claim. A lawsuit is also called a “chose in action.” It is considered a property right. Just like any other piece of property, you can sell it or destroy it. If you waive the right to assert a claim against someone else, you are giving up your chose in action. A waiver may be done intentionally or unintentionally. For example, if you fail to file a lawsuit before the statute of limitations on your claim runs, you have waived the right to bring the claim whether you intended to or not.
Releases
A release of liability or “release” is an agreement to absolve someone of their liability for something. It is typically embodied in a written agreement. You can waive your right to bring a claim against someone without releasing them from liability. (Perhaps someone else has the right to enforce it.) Thus, both are often included to make sure both grounds are covered.
Assignment
An assignment means that you are giving up your rights to someone else. You have a right to sue person “x” but you sign that right over to someone else. The “someone else” could be p[person “x” or anyone else. Assignments operate to turn over any existing or future cause of action to the person to whom it is assigned. An assignment that if you try to later assign the case to someone else, you cannot do so because you no longer retain any rights.
Indemnity Agreement
An indemnity agreement is basically a secondary agreement that says that if anyone shows up and tries to sue the defendant on your behalf claiming to have received an assignment of your rights, you will take certain actions. Depending upon how the clause is written, it may obligate you to 1) defend the defendant, 2) pay any judgment taken against the defendant, 3) pay the defendant’s legal fees and expenses, and/or: 4) refund all or part of the settlement money.
Good to Know. Indemnity agreements are often used in pre-injury release agreements to avoid liability when a minor is involved in a risky activity such as a trampoline park, bounce house, ATV park, or paintball field. Neither a parent nor a minor can legally sign away the minor’s right to file a claim for injury due to negligence before it happens. The minor has legal incapacity. However, in some States, a parent can agree to indemnify the company in exchange for letting the child enter an area or event.
Confidentiality Agreement
A confidentiality agreement is a requirement in a contract that the parties do not disclose certain information about the case or claim. It is generally imposed by the party who is paying the settlement as a part of the agreement. When a company pays out a settlement, they typically do not want to get bad press about the event going forward. They don’t want it in the press or on your social media posts They also do not want copycat claimants trying to fake the same claim for money. So, they silence the plaintiff. making it confidential.
Confidentiality clauses can be very dangerous and must be read carefully by a lawyer to make sure you understand what you are signing. One very important part that is often omitted by the defense is separate consideration. You want to be sure there is a separate stated consideration for the confidentiality clause for two reasons.
First, if you accidentally violate the confidentiality clause, you do not want the entire settlement to be void. Adding separate consideration may allow for and even specify a penalty and/or a possibility for consequential damages vs voiding the entire settlement for breach.
Second, there may be serious tax implications of a confidentiality agreement without separate consideration. Many years ago, there was a tax case involving basketball star Dennis Rodman. He was sued for allegedly striking a reporter at a game. His lawyers wanted the story put behind him so they settled it with a confidentiality clause. To the federal government at the time, a settlement for personal injuries was not taxable. However, the confidentiality agreement—an agreement to keep quiet—was taxable. Because there was no designated consideration, the federal government assigned it a value for tax purposes wherein they placed 40% of the settlement value on the agreement vs the injury. The plaintiff found himself owing taxes on $80,000 of the $200,000 settlement. To make matters worse, the settlement became law and is memorialized in the law books forever. This obviously defeated the purpose of the confidentiality agreement. Thus, specific separate consideration for a confidentiality agreement is very important to a confidentiality agreement.
Severability Clause
When an important clause in a contract becomes unenforceable due to a change in the law, it can render the entire contract unenforceable. A severability clause is a paragraph that protects the remainder of the contract if one clause becomes unenforceable. The rest continues to operate as if that clause was not a part of it.
Four Corners Clause
Often there will be a clause or a statement that the parties are bound by the “four corners rule” or the four corners of the agreement. This means that if there is a dispute as to the meaning of the settlement agreement later, no outside evidence can be used to prove the meaning. The parties are limited by the words on the papers of the agreement.
Recitals
Recitals are words intended to give context to the settlement agreement. They may be at the start or anywhere in the agreement. They may or may not be in a paragraph. “The parties hereby enter into this agreement with the intent of resolving their dispute fully and finally.” These often serve to show the parties’ intent so there is no question of a meeting of the minds.
Conclusion
There are many clauses that may be included in a written settlement agreement of a civil lawsuit. The above are just some examples of the common ones we see. Some of these clauses can have dire consequences if they are not written and read carefully. Before signing any settlement agreement, you should have a lawyer who represents you and your interests review the settlement agreement and explain what your rights and obligations are.
Author
