Many cases settle in mediation because of costs associated with trial and the inherent unpredictability of a jury panel. Mediation is a very common alternative dispute resolution process used by policyholders in obtaining owed insurance benefits from their carriers. In mediation, the parties frequently agree to a settlement amount in exchange for a release of claims under the insurance policy. It is important to understand what needs to be included in a “Release” and just as pertinent, what is not to be included. Many insurance companies incorrectly consider “Release” synonymous with “Indemnification.” The distinction is critical because the terms result in different outcomes for the policyholder.
A release extinguishes a claim or cause of action and is an absolute bar to any suit on the released matter. See Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.1993); Derr Const. Co. v. City of Houston, 846 S.W.2d 854, 858 (Tex. App. 1992). An agreement to indemnify arises from a promise by the indemnitor to safeguard or hold the imdemnitee harmless against existing or future loss, liability, or both. Unlike a release, which suppresses a cause of action, an indemnity creates a potential cause of action between the indemnitee and the indemnitor. See Dresser Indus., 853 S.W.2d at 508; Derr Constr., 846 S.W.2d at 858. A release extinguishes any actual or potential claims the releasor may have against the releasee without regard to third parties. In contrast, an agreement to indemnify does not apply to claims between the parties to the agreement. Rather, it obligates the indemnitor to protect the indemnitee against claims brought by persons not a party to the provision. Typical release language is generally “release, discharge, relinquish.” Typical indemnity language is “indemnify, save, protect, save/hold harmless.” Wallerstein v. Spirt, 8 S.W.3d 774, 779-80 (Tex. App. 1999).
The difference was recognized by the Kentucky Supreme Court in Frear v. P.T.A. Industries Inc., 103 S.W.3d 99 (Ky. 2003). In Frear, the Defendant, P.T.A. Industries Inc., brought suit against the Plaintiffs, Walter and Cathy Frear because they refused to sign a “Release” that included an indemnification agreement which they did not agree to during mediation. The Defendant alleged an agreement to release comprises an agreement to indemnify. The Kentucky Supreme Court disagreed with the Defendant, and held an agreement to sign a release contemplates only a release from liability and not indemnification from third-party claims.
As policyholders can see, when a “Release” includes an indemnification provision, an obligation ensues to indemnify against claims brought by persons that may not be involved in the current litigation. Astute and experienced counsel can prevent confusion over the use of the proper language and ensure the terms within a “Release” are the terms bargained for during mediation. As always, the more you know, the better prepared you are to achieve the most beneficial result in settling your claim.