Signing a Settlement Release: What You Are Giving Up

A release is a contract. The insurer pays the settlement; in exchange, you promise never to bring any claim arising from the crash against the released parties. The promise covers everything: the injuries you know about, the injuries that have not yet been diagnosed, the treatment that turns out to be needed next year, the lost income from a job you lose later because of the injury. 'All claims, known and unknown' is standard language and courts enforce it. A person who settles a neck strain and learns six months later that it was a herniated disc requiring surgery has no claim for the surgery.

Courts set releases aside only in narrow circumstances: fraud by the insurer, a mutual mistake about the basic nature of the injury in some states, incapacity of the person signing, or duress. Having signed without reading, having been unrepresented, having underestimated the injury, or regretting the amount are not grounds. The release is designed to be final, and it is.

That finality is why the timing of settlement matters more than the negotiation. A release signed after treatment is complete, with the diagnosis settled and the doctors' opinions on the future in hand, releases a known injury for a price that accounts for it. A release signed in the first weeks, for an early offer, releases whatever the injury turns out to be for a price that does not.

The parties released. The release names the driver and the insurer, and commonly the driver's spouse, household, employer, heirs and 'all other persons, firms and corporations'. A broad release can extinguish a claim against a second driver, an employer, a manufacturer or a bar that you intended to pursue separately, and it can extinguish a claim against your own insurer for underinsured motorist benefits, which in many states requires the UM insurer's consent before you release the at-fault driver. The parties are limited to those being paid for, and other claims are carved out expressly.

The claims released. A release of 'all claims arising from the accident' covers the injury claim, the property damage claim, the loss of consortium claim, and anything else, unless the release says otherwise. If the property damage was handled separately, or a spouse's claim is not included, or PIP or workers' compensation benefits are continuing, the release should say so. A release that settles the bodily injury claim should say that is what it settles.

The indemnity clause. Nearly every release makes you responsible for any lien, subrogation claim or medical bill asserted against the settlement, and promises that you will reimburse the insurer if a lienholder comes after it. That means the health insurer's lien, Medicare's and Medicaid's interests, and any provider liens are your obligation from the settlement, and they are quantified and resolved, or at least known, before the release is signed and the net calculated.

Suppose you were rear-ended, treated for three weeks for a neck strain, and received a $6,500 offer from the driver's insurer with a release attached. The release named the driver, 'his agents, employees, heirs and assigns, and all other persons, firms and corporations', released 'all claims, known and unknown', and included an indemnity clause. You signed it in week five, pleased with the figure.

In month four, your neck pain returned with numbness in your arm; an MRI showed a herniated disc, and a surgeon recommended a fusion. Medical bills for the surgery and recovery were $94,000, and you missed four months of work. The claim for all of it had been released. Your health insurer paid the surgery and, under the indemnity clause, its subrogation claim against the $6,500 was your problem.

An attorney reviewed the release for any ground to set it aside and found none: no fraud, no incapacity, and the state did not recognize mutual mistake about an unknown injury as grounds. The claim was over. Had you waited for treatment to end, the MRI and the surgical recommendation would have been in the demand and the claim would have been valued on them. All figures are hypothetical; the early-release regret is the most common story in injury claims.

The release is the last document in the claim, and the one that cannot be undone.

• Do not sign until treatment is complete or the doctors have given a prognosis; the release covers whatever the injury turns out to be.
• Read every clause, including the recitals and the definitions; the parties and claims released are often in the fine print.
• Confirm the parties released are only those being paid for, and that claims against others, a second driver, an employer, a manufacturer, your own UM insurer, are carved out in writing.
• Confirm the claims released are only those being settled, and that property damage, a spouse's claim, PIP or workers' compensation benefits are addressed expressly.
• Quantify every lien, the health insurer's, Medicare's, Medicaid's and any provider's, and resolve or account for them before signing; the indemnity clause makes them yours.
• Read the confidentiality, non-disparagement and Medicare-reporting clauses and understand what they require of you.
• If you have an underinsured motorist claim, get your own insurer's written consent to the release of the at-fault driver before signing, where the state or policy requires it.

Releases are contracts governed by state law, and states differ on when one can be set aside: a minority recognize mutual mistake about an unknown injury as grounds in some circumstances, most do not; all recognize fraud, incapacity and duress. Releases signed by or for minors are not binding without court approval in most states, which is why minors' settlements go through a court. Releases of wrongful death claims commonly require court approval and allocation among beneficiaries.

Underinsured motorist coverage interacts with releases by statute and policy: many states and most policies require the UM insurer's consent before the insured releases the at-fault driver, so that the UM insurer's right to recover from the driver is preserved, and a release signed without consent can forfeit the UM claim. The consent procedure is a routine step that is skipped at great cost. Workers' compensation insurers have similar consent and lien rights in third-party settlements.

Medicare's and Medicaid's interests are federal and statutory, and a release that does not address them does not eliminate them; the indemnity clause and the Medicare reporting clause reflect that. Confidentiality clauses are enforceable in most states, with limits on taxes and on reporting to regulators, and a breach can forfeit the settlement in some agreements. Deadlines for the underlying claim do not apply once a release is signed; the claim no longer exists.

In a pre-suit claim, the release is the whole settlement document. In a filed lawsuit, the settlement is usually a settlement agreement, longer and negotiated, with the release as part of it, followed by a dismissal of the lawsuit filed with the court. A settlement memorandum signed at mediation is binding in most states even before the formal agreement is drafted, and the formal agreement cannot add terms the memorandum did not contemplate.

Structured settlements, where part of the payment is made over time, and special needs trusts, where benefits must be preserved, are set up in the settlement agreement and must be in place before the release is signed, because the release's terms govern how the money flows. Medicare set-asides, where required, are addressed the same way.

A release presented by an insurer is drafted for the insurer's benefit, and every term in it is negotiable before signing, including the parties, the scope, the indemnity and the confidentiality. The negotiation of the release is part of the settlement, not an afterthought, and an attorney handles it as such.

A release ends the claim permanently for whatever the injury turns out to be, against everyone it names, with the liens as your obligation, and it is signed once, after treatment, with every term read and the parties and claims confined to what is being paid for. The questions to answer before signing are whether treatment is complete, whom and what the release covers, and what the liens are. Most personal injury attorneys work on contingency and review releases as part of every settlement.

Ask Legal Matters is a free claim-review request service, not a law firm. Requests may be shared with independent attorneys and legal services partners who handle inquiries in your state, and an attorney must evaluate the facts before anyone can say what the claim is worth. If an insurer has sent you a release to sign, you can request a free claim review before you do.

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• What Is the Average Car Accident Settlement? What Sets the Value

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