It is a good practice to always review documents in detail before signing them. Courts usually enforce the terms of a document even if one party did not read and understand it before signing. One very important document to read and understand in the property insurance context is a settlement release. A proposed release often comes when a policyholder is happy to have a resolution and is eager to receive the settlement proceeds and move on. That eagerness should not distract policyholders from reviewing and understanding the terms of a release, since it is likely a binding contract.
A recent case concerning a release decided by a Louisiana Court demonstrates the consequences of a policyholder’s failure to understand the consequences of signing a release. In Galacia v. Louisiana Citizens Prop. Ins. Corp., 2012 WL 746294 (LA 4th Cir. March 7, 2012), the policyholder had one policy that covered two properties in Orleans Parrish. He made claims for damage to both properties caused during Hurricane Katrina. He was a party in a mass joinder civil lawsuit filed in Orleans Parrish, where he pursued the damages for both properties.
The policyholder entered a settlement agreement with the insurer in the mass joinder suit. He received $59,903.99 and executed a contract which released the insurer from:
… all claims and demands for loss and damage to property located at 2816–18 Banks Street, New Orleans, Louisiana 70119, and all other losses and damages covered under Louisiana Citizens Property Insurance Corporation, claim number 2006WI007405, policy number FZD 0152329 08….
The policyholder then left the mass joinder litigation and filed a separate lawsuit against the insurer for damages to the second property insured under the policy. In response, the insurer’s attorney sent a letter to advising that the claims had already been settled. Litigation ensued over whether the release encompassed both properties or only the one specified. The policyholder argued that the release only referenced one property and it applied only to that property. He asserted that he was free to pursue the claim for the second property. The insurer countered that the release specifically covered “all other losses and damages covered under the policy,” and the encompassing language included the second property.
The trial court vacated the release, so the policyholder could pursue both claims against the insurer. The court also ordered the policyholder to return the $59,903.99 payment to the insurer. He did not return the proceeds, even after additional warning by the court that it might dismiss his case. The court then dismissed the case with prejudice for failing to return the proceeds in violation of the court order. The policyholder appears to have won the battle, but lost the war.
While the outcome of the case was somewhat unusual, Galacia demonstrates the importance of clarity in negotiations. Taking care to review settlement terms can avoid litigation later. The disagreement in Galacia could have been avoided by clear communication between the parties at the time the release was negotiated. Policyholders should always use caution in signing any document, like a release, that may have legal implications. The devil is often in the details.
