SETTLEMENT AGREEMENTS EXPLAINED – WHAT IS A “RELEASE OF ALL CLAIMS”?
You and your attorney have been to hell and back, “hell” being written discovery, depositions, mediation, or just pre-litigation negotiations. But, now, you have settled the case. Great! You know what this means: the case is done, over with – you didn’t win, or lose… you settled. But now you are handed (or, emailed) a “settlement agreement” that you need to sign: a “written settlement agreement” with a lot of legalese. What does the legalese mean? This blog post explains a one key component to any standard settlement agreement: the release of all claims.
First, an overview: any standard settlement agreement will require you to settle ALL claims – known and unknown that may exist at the time of the settlement. Settling unknown claims is a risk you take. However, in most cases it should be pretty clear that there are no unknown claims. For example, suppose a tenant sues her landlord for ‘wrongful endeavor to evict.’ The case settles at, say, $20,000.00. The tenant and landlord will each need to release ALL claims that may exist against the other regarding the property. So, for example, the tenant would be releasing any habitability claims she may have – unknown or unknown. But the tenant will likely know if there are any problems in the unit at the time, so the risk is not that great. Likewise, the landlord will release any claims that she might have against the tenant that exist at the time. Another example: in the employment law context, suppose a worker sues his employer for unpaid overtime. The case settles for $20,000.00. The release of claims in this case will cover all claims – known and unknown – pertaining to that worker’s rights to, say, meal and rest periods. If the worker didn’t get them, he should bring that up in the current lawsuit, or he will lose his right to bring a claim in the future, since the settlement contains a release of ALL claims that exist at the time. Still, in some cases, there may be a genuine risk. Suppose you are in a relatively minor car accident (you suffered whiplash and a broken nose) and you sue the other driver for negligence. The case settles for $10,000.00 and you sign a release of all claims – unknown included. Six months later you discover that the car accident also caused severe injury to your knee (which you did not notice at the time, and doctors did not discover). You will never walk again. Can you go back and sue the other driver for that knee injury? No! You released all claims – known and unknown that existed at the time of settlement. Although, even in this car accident scenario, you presumably would have had a thorough exam and found all injuries, so, again, the realistic risk is not that great.
The language in a standard settlement agreement gets complicated because there is a California law (Civil Code 1542) that states that a general release of claims does not extend to unknown claims! So, the parties need to waive their rights under that law in order to release unknown claims. Now, the legalese.
In your settlement agreement you will find these two paragraphs, usually somewhere in the middle of the agreement:
The Parties acknowledge that they have been advised of and/or are familiar with the provisions of California Civil Code Section 1542 which provides as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release which, if known by him or her must have materially affected his or her settlement with the debtor.”
The Parties hereby expressly waives any and all rights that they may have under California Civil Code Section 1542 against each other relating to or arising out of the Claims or any past dealings or relationship with each other.
In sum, when you settle a case, you have to settle all issues between the parties that exist at that time. However, any future problems can be raised in a new lawsuit.
