LAW NOTES from the Law Offices of
Kay & Andersen, LLC
March, 2018
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT SETTLEMENT AGREEMENTS BASED ON MISTAKEN COVERAGE AMOUNTS
Kay & Andersen, LLC
March, 2018
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT SETTLEMENT AGREEMENTS BASED ON MISTAKEN COVERAGE AMOUNTS
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
In the interest of cost savings, insurance companies and their insureds often have an incentive to resolve claims as early as possible. But what happens when the parties reach a settlement, only to find the amount of coverage was different than what was contemplated during the negotiations? That scenario took place in the recent Wisconsin Court of Appeals case, Zankl v. Artisan and Truckers Casualty Company, Appeal No. 2016AP2155 (December 6, 2017) https://www.wicourts.gov/ca/opinion/Display Document.pdf?content=pdf&seqNo=204672. In that case, plaintiff Joseph Zankl was injured in an automobile accident by a drunk driver, and pursued claims against the driver as well as Auto-Owners Insurance Company, with whom Zankl had an underinsured motorist (UIM) policy. The at-fault driver settled for $100,000. At mediation, Auto-Owners produced a declarations page reflecting $500,000 in UIM coverage. Zankl believed he had additional UIM coverage through an Auto-Owners umbrella policy, although Auto-Owners indicated it was unaware of such a policy. During the mediation, Zankl contacted his insurance agent who indicated Zankl did have a $1,000,000 umbrella policy with Auto-Owners but it did not provide UIM coverage. Based on that understanding, Zankl and Auto-Owners reached a settlement in mediation for $185,000. Later that same day, the insurance agent contacted Zankl and indicated that the umbrella policy actually did provide UIM coverage. Zankl subsequently sought to rescind the settlement agreement, while Auto-Owners tried to enforce it. On review, the Court of Appeals noted that all parties participating in the negotiation operated under the mistaken belief that the available UIM coverage was $400,000 rather than the true amount of $1.4 million. Id, ¶7. The mistake in the amount of coverage was material and therefore the settlement negotiations were based on inaccurate information. Id. The Court noted that Auto-Owners as a first party insurer also had a good faith duty to deal fairly with its insured. Id. It was immaterial who was at fault for the material mistake of fact, and the circuit court was found to have properly exercised its discretion in requiring all parties to have correct information as to the available coverage for a settlement agreement to be enforceable. Id, ¶8. Although this decision was unpublished, it reinforces the principle that even an innocent mistake in the scope or amount of coverage could preclude enforcement of a settlement agreement if the negotiations were predicated on false information. Consequently, insurers are strongly encouraged to ensure that coverage specifics, including the amounts of available coverage, are accurate at the outset of settlement negotiations with an insured.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.