Accord and satisfaction are legal terms frequently used in insurance contract dispute and often included in any insurance carrier’s Answer and Affirmative Defenses to any complaint filed. An agreement (accord) between two contracting parties to accept alternate performance to discharge a preexisting duty between them and the subsequent performance (satisfaction) of that agreement.

Anna and Brian Cranmer own Tiny Tots Daycare Preschool LLC. Their business suffered damage during Superstorm Sandy. The business was insured by Philadelphia Indemnity Insurance Company (PIIC). PIIC’s accountant valued their business interruption loss at $28,542.84. After an unsuccessful attempt at mediating the claim, Plaintiffs hired legal counsel and notified PIIC.

PIIC’s counsel sent a letter to the Cranmer’s attorneys noting several unreturned phone calls and stating after review, Plaintiffs were entitled to $28,542.84. The letter also had the following language:

Accordingly, should I not hear from you within ten (10) days of your receipt of this correspondence, I will instruct PIIC to tender settlement in an amount of $28,542.84 payable to Tiny Tots Daycare Preschool, LLC and . . . its attorney. We will deem the acceptance of this payment as full and final settlement of this claim as well as a release by your client of any further demand for recovery as against PIIC.

The letter was delivered to the law firm representing the Cranmers. Their attorney did not respond to the letter above and the insurer check was delivered a few days later. The check was marked “FINAL” and was eventually endorsed and deposited. PIIC sent a release to the law firm which was never signed. The insureds then filed a complaint in the District Court of New Jersey for breach of contract and bad faith claims.

Under New Jersey law, the affirmative defense of accord and satisfaction requires the defendant to prove: “(a) a bonafide dispute as to the amount owed; (b) a clear manifestation of intent by the debtor to the creditor that payment is in satisfaction of the disputed amount; and (c) acceptance of satisfaction by the creditor.”1

Both the District Court and the Third Circuit Court of Appeals ruled that the $28,542.84 check represented PIIC’s full payment for Plaintiffs’ Sandy-related disputed claims, and that the combination of the letters and the check demonstrate that PIIC intended to make a payment in full satisfaction of the claim, to which Plaintiffs have identified no evidence to the contrary. In siding with PIIC, the appeal court the third element was also satisfied because the record reflected that the check was endorsed by Tiny Tots and Rain and was deposited.2

This is a cautionary tale of not reading carefully what an insurer sends you to sign. I’m frequently asked by clients if they should sign the “undisputed” check and cash it. Generally, my answer is yes, as long as no conditions come with the signing or depositing of the check. You never want to waive any of your rights by cashing a check which would prevent you from disputing your claim further. You want to make sure your insurance carrier is aware of this by putting terms in writing such as “undisputed” and “insured does not waive any rights to dispute these amounts/proceeds.”

I leave you with a related quote from Mahatma Gandhi: “Satisfaction lies in the effort, not in the attainment, full effort is full victory.” Unfortunately, in this case PIIC received the full victory.
1 Nevets C.M., Inc. v. Nissho Iwai Am. Corp., 726 F.Supp. 525, 536 (D.N.J. 1989), aff’d, 899 F.2d 1218 (3d Cir. 1990).
2 Cranmer v. Harleysville Ins. Co., 719 Fed.Appx. 95 (3d Cir. 2017).