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Don’t Let Your Clients Be Trapped by a Release

Posted by David P. Martin | Nov 12, 2020 | 0 Comments

Given most personal injury cases are handled on a contingency fee basis, and that most clients badly need the money, there is a strong tendency for clients to rush through a release of their personal injury claims and not appreciate what is being released. Don't let your clients be trapped by a release.

More than a few times, a client has unwittingly signed a general release for a personal injury claim only to later find that another claim pending at the time became barred. The attorney may have asked the client to carefully read the release, but the release typically contains legal “mumbo-jumbo” which many clients do not understand. In fact, some believe, notwithstanding warnings, that they are only releasing claims relating to the slip and fall or auto accident or product liability claim that caused the injury.

The client is surprised and even angered when later learning that the long term disability claim, or the large medical benefit claim that the insurer is due to pay will no longer be paid because of the release. That anger typically gets directed at the personal injury attorney. It is avoidable.

Trap #1: Release of the Employer

The release often reaches beyond the employer to include all insurers or agents of the employer. That can affect a variety of benefits, such as long term disability, short term disability, severance, medical benefit claims, any benefit plan endorsed by the employer, even if it is funded by the employer. Thus, if your client has a long-term disability claim that was never disclosed to you and the release is this broad, it may terminate the long-term disability claim. The disability policy will likely require disclosure of any personal injury settlement (notwithstanding confidentiality), and if it included a claim for lost wages, there could be an offset to the long-term disability benefit. Even worse, if all claims against the employer are released (including ERISA claims), the disability insurer could terminate the claim. This trap may also affect medical benefit claims. This becomes more likely if that medical benefit is self-insured by the employer and the insurance company is just a third-party administrator adjudicating medical claims.

Trap #2: Release of All Claims Against Insurer

The insurer may have a subsidiary that is providing another benefit to your client. For example, Liberty Mutual had an auto insurance company and also a sister company which provided long term disability insurance for employers. So, a release of the auto insurance company and all of its parent or subsidiary sister companies could bar a long term disability claim.

Trap #3: Confidentiality Provisions

As you know, they are often worded so broadly that they prevent disclosure of settlement information to anyone other than a taxing authority or other attorneys or accountants working for the client who need to know about it. But what about a long term disability insurer? Usually its plan has a provision requiring the disclosure of such information. A confidentiality clause usually bars disclosure of that information and thus when your client honors the release signed, the long term disability claim may be suspended or even terminated for the client's failure to cooperate in providing that information. Farfetched? No. We have litigated these issues.

So, what is an attorney to do? Here are a few questions to add to your settlement checklist:

1. Does the release have any provision relating to the employer or an insurer, agent, or employee of the employer?

If so, an exception for pending unrelated claims needs to be included in the release otherwise make certain the client understands that all such claims may be released.

2. Does the client have any other pending claim or potential claim for a benefit provided through an employer?

This could include a medical benefit claim, a long term disability claim, a pension disability claim, severance, or life insurance. This release may bar all such claims if not specifically excepted.

3. Does the release contain a confidentiality clause?

ERISA benefit plans may require disclosure of settlement information and the client's refusal to provide that information, even due to a confidentiality clause, may cause nonpayment or termination of an ERISA claim. A lump sum benefit that includes damages that would be applicable to a range of years into the future, may be considered by an ERISA plan. An exception for the confidentiality clause for such disclosures is prudent or the client needs to be aware of the risk.

If potential issues of any sort exist, tell the client that it would be wise to seek advice regarding any impact on ERISA claims. Your client may not appreciate the significance of your questions, but you may avoid a huge potential issue.

About the Author

David P. Martin

Senior & Managing Attorney


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