Auto Accident UIM Claims:
The Full Release – Beware the Snake In the Grass
By: Paul D. Coates
When automobile liability insurance carriers tender their limits of liability on a claim where there is a potential for underinsured coverage, they may still erroneously forward a “Full Release” releasing the tortfeasor (the at-fault driver) to the Plaintiff’s attorney or to an individual Plaintiff. It is my experience that this happens more often than not, even when the liability carrier has been informed that the Plaintiff intends to pursue an underinsured claim. This article will provide some practical suggestions regarding how to avoid the pitfalls of signing a Full Release while a potential underinsured claim is pending.
A. Review of the Underinsured Claim Process
Every lawyer handling automobile personal injury cases must obtain insurance coverage information from their own client to determine the availability of medical payments coverage, and uninsured or underinsured motorist coverage. The law of North Carolina requires tortfeasors (at-fault drivers) to carry minimum limits of liability coverage in the amount of $30,000.00 per person, $60,000.00 per accident. Even in the new “billed vs. paid” world, where admissible bills are limited to the amount paid in satisfaction of the medical bill, not the “billed” amount, $30,000.00 of coverage is low when significant injuries arise. If the injured Plaintiff has $100,000.00 in underinsured coverage, and the tortfeasor has $30,000.00 in liability coverage, then the injured Plaintiff is entitled to $70,000.00 potential coverage from their own underinsured motorist carrier.
When the liability carrier tenders its limits of $30,000.00 (or when it tenders its per accident limit of $60,000.00 sprinkled among multiple Plaintiffs) it is common for the Plaintiff’s attorney to notify the underinsured carrier (UIM carrier) of the tender, so as to allow the underinsured carrier the opportunity under North Carolina law to advance the $30,000.00 tender, and match it, paying it to the Plaintiff. This allows the UIM carrier to preserve subrogation, and to seek reimbursement from the at-fault driver. The word “subrogation” means “stand in the shoes of,” and the UIM carrier “stands in the shoes of” its insured to pursue the at-fault driver.
If the UIM carrier wants to preserve subrogation, it will advance and pay the Plaintiff the $30,000.00, in this example, and there will be no payment from the liability carrier until the matter is closed and a Judgment is returned, or a Full Release is executed.
However, more typically, the UIM carrier will waive subrogation and not pursue the tortfeasor for the amounts paid. In that case, the liability carrier should forward a “Covenant Not to Enforce Judgment” that allows the Plaintiff to accept the $30,000.00 from the liability carrier and still pursue an underinsured claim. The problem is, that in this instance, the liability carrier may still tender a “Full Release” to the Plaintiff’s attorney, which through some administrative glitch, is executed by the Plaintiff, thereby destroying the underinsured claim. The Full Release is just that: it releases both the tortfeasor and the underinsured claim.
Therefore, a “Full Release” should always be avoided and should not be signed in claims involving underinsured motorist coverages. Although a “Full Release” could be voided for mutual mistake or fraud this is a very difficult hurdle to overcome, and the liability carriers are generally unwilling to reform releases that they feel protect their insureds.
B. A Problem Scenario – Multiple Claimants
Liability carrier tenders its limits to multiple claimants, Claimant A, B and C. Claimant A is a serious claim and a potential underinsured claim. Claimants B and C can be fully compensated within the $60,000.00 per accident limit. Attorney settles Claimant A’s claim for $10,000.00, and Claimant’s B and C receive $25,000.00 each. Claimants B and C will be signing Full Releases, since they are fully compensated, however, Claimant A will be signing a Covenant Not to Enforce Judgment, not a Full Release.
Liability carrier sends three Full Releases, and in processing the settlement, the attorney’s office has all three claimants sign Full Releases.
When Claimant A tries to pursue an underinsured claim, the Full Release bars the claim.
C. Practical Solutions to Avoid This Pitfall
The Plaintiff’s attorney should institute office procedures that include the following:
A. Every document or Release tendered by a liability insurance carrier should be reviewed by a lawyer who then okay’s the execution of that particular document. This is also true with Voluntary Dismissals, intended to be “without prejudice”.
B. Personnel, paralegals and secretaries must be aware that Covenants Not to Execute or Covenants Not to Enforce Judgment are the preferred method of closing files in all cases, and that before a Full Release is signed, attorney authorization must be obtained.
C. Form letters to liability carriers, before settlement, should include a statement similar to the following:
“Please be advised that we intend to pursue an underinsured claim on behalf of the claimant, and that the appropriate documentation upon resolution of this matter and tendering your limits is a Covenant Not to Enforce Judgment, and not a Full Release. We are not in a position to sign a Full Release upon tender of your limits due to the need to preserve our underinsured claim.”
D. Always notify the underinsured carrier of the tender of the liability carrier limits, and copy the liability carrier with that letter, showing that you intend to pursue an underinsured claim. Do this before any documents are executed.
By instituting a few minor procedures in the handling of personal injury claims involving potential underinsured motorist coverage, the attorney can put up barriers to the mistakenly executed Full Release, and also set up arguments for estoppel and mutual mistake should a Full Release be executed in error. The initial notification to the liability carrier that you cannot execute a Full Release should set up such arguments for estoppel, and mutual mistake. Additional notice to the liability carrier that you’re making the underinsured claim, upon their tender, will also help this type of argument. Continuous discussion with office personnel, and training of new personnel handling potential underinsured claims should also be undertaken. Always check and double check, and check for the snake in the grass, the Full Release.
PAUL D. COATES
Paul D. Coates is a partner in the Greensboro, North Carolina law firm of Pinto Coates Kyre & Bowers, PLLC, where he practices in the areas of personal injury litigation, civil litigation, and insurance litigation and coverage. He is a graduate of the University of North Carolina Chapel Hill, receiving his law degree in 1981. He attended the Insurance Counsel Triad Academy sponsored by the International Association of Insurance Counsel, and is a recipient of the G. Duffield Smith Outstanding Publication Award presented by the Defense Research Institute. He was Editor-in-Chief of the North Carolina Insurance Law Quarterly from 1996 to 1998. He is a member of various bar organizations, and is a frequent lecturer and writer in the areas of insurance law and coverage.