Can a Release of Claims be Set Aside By the Courts?

Q. Are there any circumstances in which a release of claims can be set aside as unenforceable?

A release is a legal document entered into between two parties to resolve actual or potential claims between them. Basically, by signing a release one party agrees to give up or waive the right to pursue a claim against the second party in exchange for some benefit provided by the second party – usually (not always) the payment of money.

While releases are frequently executed in connection with the settlement of pending litigation, they can also be used in situations where there may not be a lawsuit actually pending between the parties. For example, settlements of potential claims for personal injuries or property damage are often negotiated and offered by insurance company adjusters before any lawsuit is actually filed by the injured party against the responsible driver. In exchange for the settlement payment, the insurance company will almost always require that a release is signed by which the injured party waives the right to pursue a claim against either the insurance company or the insured driver for any damages arising out of the accident. It’s important to speak to a personal injury lawyer before you sign a release from an insurance agency.

Releases can be drafted narrowly to include only claims arising from a specific event or circumstance (for example, “all claims arising from or related to a motor vehicle accident occurring on” such and such a date). More often, however, releases are drafted very broadly to include a waiver of any and all possible claims between the parties, regardless of whether the claims are actual or merely “potential”, or whether they are known or unknown.

Signing a Release is Binding…But Can Be Set Aside

Like diamonds, releases are forever. If a party later files a lawsuit with respect to a claim which was previously the subject of a release, the released party can seek the immediate dismissal of the lawsuit by the Court based on the previously signed release. The signing of a clear and unambiguous release is considered to be a significant legal act that is ordinarily binding on the parties. That being said, Courts nevertheless retain the power to set aside a party’s signed release in appropriate – if limited – circumstances. Distilled to its essence, a release is simply a form of contract, and – like any contract – can be set aside on grounds of fraud, mutual mistake, duress or coercion.

A claim of mistake is often raised as a ground to set aside releases involving personal injury claims where the injured party claims that he or she was unaware of the full nature and extent of their injuries at the time they signed the release and, as such, should not be bound by the release. In this regard, Courts have drawn a sharp distinction between unknown injuries, on the one hand, and mistakes as to the consequences of known injuries, on the other. If the releasing party was completely unaware of a later-discovered injury at the time when the release was executed, the release is subject to being set aside on the ground of mistake. Alternatively, if the releasing party was, in fact, aware of his or her injury but simply misjudged its seriousness (“I thought it would get better” or “I didn’t realize I would need surgery”), the release will nevertheless be considered binding and enforceable.

A claim of fraud is usually based on some misrepresentation made in connection with the execution of the release. For example, if it is misrepresented to the signed party that they will be able to request additional compensation – notwithstanding the release – if their injury worsens in the future, and the injured party reasonably relies on that misrepresentation in deciding to sign the release, a Court may find that to be sufficient grounds to set aside the release.

Releases Are Meant to be the End of the Dispute

Releases are intended to achieve finality between the parties. Relieving a party of the effect of his or her release obviously undermines that finality and, for that reason, Courts will not take a request to set aside a release lightly. A party will not be relieved of a release simply because – with the benefit of hindsight – they now believe that they made a bad deal and compromised a valuable claim for less than it was really worth. Rather, the party seeking to avoid his or her release must persuade the Court that it was not, in fact, “knowingly and voluntarily” made in the first instance – either because there was a true mistake as to the nature of the claim or injury being compromised, or because their consent was obtained through fraud and misrepresentation by the other party.

Are you being asked to sign a claim of release? Make sure you understand the implications of signing it and whether or not it’s in your best interest to do so. Our personal injury lawyer can help. Get in touch with our office today to schedule your complimentary consultation.