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When Does an Insurance Settlement Offer Become a Binding Agreement?

Dealing with insurance companies is often the first legal issue that needs to be managed following a car accident. While many cases are amicably resolved with insurers without the need for litigation, accident victims always need to tread carefully lest they inadvertently sign away their legal rights. As a recent Georgia Court of Appeals decision illustrates, when you propose to settle a case you must be prepared to live with the consequences.

Partain v. Pitts

The plaintiff and defendant in this case were drivers involved in a car accident. The plaintiff sued the defendant, alleging the latter’s negligence caused the accident and the plaintiff’s resulting injuries. Four days after filing suit, the plaintiff’s attorney sent a settlement letter to the claims adjuster for the defendant’s car insurance carrier. The letter said the plaintiff would agree to sign a limited liability release in exchange for $50,000, which was the coverage limit of the defendant’s insurance policy. The letter further said the offer would only remain good for two weeks, and the plaintiff’s attorney had to receive a check by the deadline, otherwise the settlement offer was rescinded.

A few days later, the defendant’s attorney informed the plaintiff’s attorney that the insurer would accept the settlement offer. A check was made out to the plaintiff, her husband, and their attorney. This did not technically comply with the terms of the settlement letter, which said the check should be made out only to the plaintiff and her attorney. Additionally, a letter from the claims adjuster to the defendant’s attorney was mistakenly delivered to the plaintiff’s attorney.

The plaintiff took these two errors as evidence that the defendant intended to make a “counter-offer” and had therefore rejected the original settlement offer, even after the defendant’s insurer issued a revised check in the correct form. The defendant insisted she had agreed to the plaintiff’s terms, thereby forming a binding settlement agreement. When the plaintiff balked at this, the defendant asked the court to enforce the deal.

The trial court agreed with the defendant that the parties had not “reached a binding settlement agreement.” But the Court of Appeals reversed. The appeals court noted the defendant complied with the essential terms of the plaintiff’s offer—a check made out to the defendant and her attorney for $50,000 was delivered before the expiration of the two-week deadline. The fact that an “non-conforming” check was delivered first did not, in and of itself, constitute a rejection and counter-offer. Once the plaintiff received the correct check, “a binding contract was then formed,” according to the court.

The appeals court further said the plaintiff could not use any information from the private communication between defense counsel and the insurance adjuster that was accidentally disclosed to the plaintiff’s attorney. Since the letter was never meant for the plaintiff, nothing contained therein could “be considered a communication imposing additional conditions on the [plaintiff’s] offer.” In any event, the letter was a privileged attorney-client communication, and said privilege “is not lost” under these circumstances.