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Settlement invalid until release is signed

A settlement agreement is not reached until the plaintiff negotiates the check, and signs and returns the release form, the Wisconsin Court of Appeals held on Oct. 20.

On Dec. 17, 1999, Marderos Nersesian was involved in an automobile accident with Jacinto R. Benavidez, who was insured by American National Property and Casualty Company (ANPAC). Nersesian and his wife retained the law firm Gimbel, Reilly, Guerin & Brown to represent them.

After negotiations, the parties agreed to settle the case for $17,725. On Dec. 20, 2001, a paralegal at the Gimbel firm sent a letter by fax to ANPAC that read in relevant part:

"This will confirm that the above-entitled claim has been settled for a total of $17,725. As was discussed with Attorney D. Michael Guerin, we would greatly appreciate it if two settlement checks were issued to our firm’s trust account, to reflect the separate claims of Susan Nersesian for her loss of consortium with that of the personal injury claim of Marderos Nersesian. … As you are aware, Mr. Nersesian was acting within the scope of his employment at the time this accident occurred; therefore, his settlement proceeds must be distributed in accordance with Wisconsin State Statute Section 102.29. Enclosed for your file is a copy of the worker’s compensation distribution based on the $15,225 settlement.

"If you should have any questions or concerns regarding the above, please do not hesitate to contact me. Otherwise, we look forward to receiving the settlement checks and release from you in the near future."

On Jan. 4, 2002, the paralegal wrote ANPAC advising it that the worker’s compensation carrier, West Bend Mutual Insurance Company, had agreed to the settlement. She further wrote: "Our office will provide you with a conformed copy of the [worker’s compensation] document when we return the executed release. We look forward to receiving the settlement paperwork from you in the near future."

On that same date, ANPAC also wrote to the paralegal confirming that the case had been settled for a total payment of $17,725. The letter stated: "This will confirm settlement of this case for a total payment of $17,725, including any and all liens known or unknown. Per your request, we have cut two settlement checks. Also enclosed is a Release. I ask that you return the signed, notarized Release before negotiating the check. I do appreciate your help and cooperation in working to resolve this case." The paralegal forwarded the release and settlement checks to the Nersesians.

What the court held

Case: American National Property and Casualty Company v. Nersesian, Nos. 03-3343 & 03-3435.

Issue: Is a settlement between a claimant and an insurer reached before the plaintiff negotiates the check, and signs and returns the release form?

Holding: No. Return of a signed release is a prerequisite to reaching a binding settlement.

Counsel: D. Michael Guerin, Milwaukee; Kathryn A. Keppel, Milwaukee, for appellant; Patrick J. Anderson, Hartford, for respondent.

However, Nersesian began having more complications from the injury, and notified the Gimbel firm of that on Jan. 30. In early February, the firm contacted ANPAC and West Bend to tell them the settlement was "on hold." Ultimately, Nersesian underwent three surgeries that, according to Nersesian’s doctor, were caused by the auto accident.

In July, the uncashed checks were returned to ANCAP, along with the release, which had been signed on Jan. 28, but which now had the word "VOID" written on its face.

ANCAP brought suit to enforce the settlement. Racine County Circuit Court Judge Charles H. Constantine granted summary judgment to ANPAC, ruling the settlement was enforceable. The Nersesians appealed, and the court of appeals reversed in a decision by Judge Daniel P. Anderson.

The court applied traditional contract principles of offer and acceptance to determine whether a binding settlement had been entered into, and concluded, "the mere issuance of the checks and delivery of the release to the Nersesians did not effect a contract."

The court concluded, "ANPAC’s … January 4 offer expressly specified that the Nersesians were to sign and return the release to ANPAC prior to negotiating the settlement checks it enclosed with the offer. Thus, by its plain language, the offer was conditioned on the execution and return of the release to ANPAC. While the Nersesians did sign the release and the Nersesians did receive the two checks for the agreed upon amount, the Nersesians neither presented the checks for payment nor delivered the signed release to ANPAC."

The court added that, within one month of receiving the settlement paperwork, the Nersesians’ attorney contacted the parties and explained that the Nersesians were putting the release "on hold" due to Marderos’s complications.

ANPAC argued that a valid and enforceable agreement was reached on Dec. 20, 2001, when the Gimbel firm sent the letter to ANPAC confirming the settlement amount, asserting that a binding and enforceable contract is predicated on the parties’ intent as derived from a consideration of the parties’ words, written and oral, and their actions.

However, the court found the letter constituted nothing except expression of a willingness to settle the claims for $17,725, and thus was nothing more than a continuation of the negotiations, rather than the acceptance of an offer.

The court noted that the Dec. 20 letter depended upon the approval of the worker’s compensation carrier. In addition, the letter contemplated the execution of another document containing more material provisions — a release from ANPAC, because it stated, "we look forward to receiving the settlement checks and release from you in the near future."

As for the Jan. 4, 2002 letter from the Gimbel firm, although it stated that the worker’s compensation insurer had agreed to the settlement, the court noted that it also stated, "Our office will provide you with a conformed copy of the [worker’s compensation] document when we return the executed release. We look forward to receiving the settlement paperwork from you in the near future."

The court concluded, "Where, as here, it is part of the understanding between the parties that preliminary writings are to be followed by a formal contract containing additional material provisions and signed by the parties, no binding or completed contract will be found (cites omitted)."

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Case Analysis

The court also found that the Nersesians’ retention of the checks for approximately seven months did not constitute an accord and satisfaction. The court acknowledged that, in Hoffman v. Ralston Purina Co., 86 Wis. 2d 445, 273 N.W.2d 214 (1979), the Wisconsin Supreme Court concluded that an offeree’s retention of an uncashed settlement check for seven months was unreasonable and constituted an accord and satisfaction.

The court of appeals distinguished Hoffman, however, concluding, "Hoffman does not establish a bright-line rule that retaining a check for seven months is unreasonable and automatically results in a contract by accord and satisfaction. Rather, Hoffman teaches that whether a check is held for an unreasonable length of time depends on the circumstances of the dispute and the status of the negotiations between the adversary parties."

While the offered in Hoffman maintained complete silence for seventh months, the Nersesians chose not to return the release, and, within weeks of receiving the settlement paperwork and checks, contacted ANPAC and told it the settlement was "on hold."

The court reasoned, "This communication, coupled with the failure of the Nersesians to return the release and cash the checks, put ANPAC on notice that the Nersesians were not willing to accept its offer of settlement ANPAC then could have requested the return of the checks and release or availed itself of its right to stop payment on the checks. Instead, ANPAC acquiesced to the Nersesians’ retention of all of the settlement paperwork. Because the Nersesians fully explained the grounds for their retention of the check and release within weeks of receiving them and ANPAC acquiesced in that retention, we see no reason to hold that the Nersesians had agreed to accept an offer of accord which they had expressly rejected."

Accordingly, the court reversed.

Click here for Case Analysis.

David Ziemer can be reached by email.

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