Insurance Company Settlement Offer Rejected Due to Restricted Check

There is a common scenario that plays out following an auto accident. First, the injured driver sends a demand letter to the negligent driver’s insurance company, offering to settle for the limits of the latter’s policy. Next, the insurance company either accepts the offer unconditionally–usually by sending a check–or makes a counter-offer. A counter-offer constitutes a rejection of the original offer, so there is no agreement. But if the insurer does send the check, that is often enough to create a binding settlement, which the insurer and its insured may seek to enforce in court.

Claxton v. Adams

What if the insurance company sends a check, but it cannot be cashed right away? Is there still a binding settlement? Not according to a recent decision from the Georgia Court of Appeals.

The case before the appellate court, Claxton v. Adams, involved what appears to have been an open-and-shut case of negligence. In May 2016, the defendant struck and seriously injured the plaintiff while the latter was working in a construction zone. Police later cited the defendant for “reckless driving” and other traffic offenses in connection with the accident.

A few months after the accident, the plaintiff filed a personal injury lawsuit against the defendant, seeking damages in excess of $585,000. The plaintiff’s personal injury lawyer also sent the defendant’s auto insurance company a time-limited demand letter. Basically, the plaintiff would agree to a release of his “personal injury claims” in exchange for a $50,000 check, which was the liability limit of the defendant’s policy.

The insurer replied by sending what the plaintiff’s attorney described as a $50,000 “instrument” rather than a check. The attorney attempted to cash the draft but was told by the bank that it had to be deposited in a restricted account. And since $50,000 exceeded the “pre-set limit” on this account, it would take up to nine business days for the plaintiff to actually receive his money.

For this and other reasons, the plaintiff regarded the draft as a counter-offer rather than an unconditional acceptance of his settlement offer. The defendant then asked the trial court to enforce what he considered a binding settlement agreement. Both the trial judge and the Court of Appeals declined to do so.

In addition to the problem with the form of the check described above, the Court of Appeals also pointed to the fact the defense tried to modify the proposed terms of the limited release offered by the plaintiff. The plaintiff said he would only release his “personal injury” claims, as opposed to a “full and final release” of all potential legal claims. This was, in part, because the plaintiff believed he might have a claim under his own uninsured motorist policy. Yet in its reply, the defendant’s insurance company said it understood the plaintiff as offering a release of “any and all claims.” Again, the Court of Appeals said this was clearly a counter-offer, not an acceptance of the plaintiff’s original offer.

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