The answers to the top 5 questions about settlement agreements are:
- yes, signing the agreement generally ends your case,
- once executed, the agreement is generally final,
- yes, you can negotiate the terms in the agreement,
- the money can be paid in a structured settlement or in a lump sum, and
- yes, courts can enforce the agreement.
All of these answers bear some explanation.
1. Will signing the settlement agreement end my case?
Yes, when you sign a settlement agreement, you waive your rights to pursue your personal injury claim in court. Once a judge has approved of the terms of the settlement, your case will end.
This is why it is so important to get the legal advice of a personal injury lawyer before agreeing to a settlement. The settlement amount replaces the award that you might receive after a personal injury trial. By agreeing to the settlement, you issue a general release of your rights to continue to pursue your claim.
If you agree to a settlement that is too low, you will be undercompensated. If your injuries get worse, your settlement amount may not cover the increased expenses. In either of these cases, the settlement agreement will be final. Once it has been approved by the court, it cannot be changed to reflect its shortcomings.
2. Can the agreement be changed?
Once a settlement agreement has been signed and approved by the court, it is extremely difficult to change it.
The settlement agreement is the result of a negotiation process. The goal of this process is to incorporate changes to the parties’ circumstances and interests. However, once the agreement is made and signed, it shows that there is mutual agreement to its terms. Backing out of a signed settlement agreement generally requires the consent of both parties. If one party does not consent, the court may only allow the agreement to be dissolved if:
- the agreement is a contract of adhesion, or a “take-it-or-leave-it” deal,
- there are signs of fraud,
- the agreement is based on a misrepresentation of the truth, or
- the agreement was not made in good faith.
In these cases, the judge may void the entire agreement.
Once the court has approved the settlement agreement, it becomes even more difficult to change its terms. This is because the court’s approval turns the settlement agreement into a court order. Modifying the terms of the court order require the approval of the court, itself. Judges will rarely approve of such changes unless the terms of the agreement violate the law.
Because arguing that the agreement no longer fully compensates you is doomed to fail, it is essential to negotiate a fair settlement offer at the outset.
3. Can I negotiate the terms of a settlement offer?
Yes, though the insurance adjuster making the settlement offer may not say so.
The creation of a settlement agreement is a negotiation. If you do not believe that the insurance company is making a fair settlement offer, you can make a counteroffer. Through a series of offers and counteroffers, a mutually-beneficial agreement can be reached.
This may not be apparent when you are first approached with an initial settlement offer. Many insurance adjusters present the initial offer as a final one. The timing and the amount of the initial offer is designed to make it seem enticing. It usually covers your current medical expenses and is offered right when the medical bills are about to become due. It will not cover your pain and suffering. It also will not cover your future medical expenses or any of your professional losses, like lost wages or reduced earning capacity.
Negotiating the terms of the initial settlement offer is essential. If you accept the initial offer without negotiating, you are almost guaranteed to be undercompensated. A personal injury attorney can help you understand what you deserve and can negotiate on your behalf.
4. How can the settlement money be paid out?
Settlement agreements include terms that govern how the settlement payment will be made. The provisions of this agreement generally state that the amount will either paid in a:
- lump sum, or
- structured settlement.
A lump sum settlement agreement pays out the entire amount all at once. In some cases, the lump sum payment is a single check for hundreds of thousands of dollars.
A structured settlement pays out the agreed-upon amount over a period of time. The terms and details of these payments will be laid out in the settlement agreement.
Which option is the best will depend on your circumstances. There are important tax implications for each payment method.
5. Will a court enforce the agreement?
Once the settlement agreement has been signed by the parties and approved by the court, it becomes incorporated into a court order. The court can then enforce the terms of the agreement much like a binding contract.
The terms of the agreement become essential for enforcement. If the settlement agreement is ambiguous, it can lead to ongoing disputes. Poorly-drafted settlement agreements can be interpreted in multiple ways. This can lead to additional lawsuits over alleged violations of the settlement agreement. These causes of action are often treated as a breach of contract.
What is a settlement agreement?
A settlement agreement is a binding contract. It is generally used in civil cases, like personal injury claims for:
- car accidents,
- premises liability claims, including slip and falls,
- workers’ compensation,
- products liability, and
- medical malpractice.
It can also be used in other legal situations, like family law or employment disputes, such as a wrongful termination.
In a well-negotiated settlement agreement, each side gets what they want:
- the victim gets to receive compensation for his or her injuries, and
- the negligent party gets to end the claim.
For victims, a settlement agreement gives them the compensation that they need in order to recover. For potential defendants, they can control how much they pay. Both parties get to avoid a court case, which comes with high costs, attorneys’ fees, and lots of stress. When the agreement is signed and approved by a judge in a state court or a United States District Court, it discharges the defendant from further legal proceedings related to the subject matter of the claim.
In order to be binding, state laws generally require this type of contract to be in writing. That document generally has to include the following terms and have recitals that show the following elements:
- an offer by one party to settle the case,
- an acceptance by the other party of the offer,
- an exchange of valid consideration, where each party gives up something in exchange for another, like a waiver of your right to file a lawsuit in exchange for the settlement amount,
- signs of mutual assent to the agreement by all signatories, and
- indications of a legal purpose to the agreement.
The execution of this agreement by the parties is not enough to make it binding. In order for the terms of this agreement to be binding, a judge has to approve of it.
Getting the advice of legal counsel can be the best way to protect your interests under state or federal law.