Settlement Contracts Not Valid until the Release Is Signed and Returned?

WDC Journal Edition: Winter 2004
By: Patrick Anderson - Mohr & Anderson

On October 20, 2004 , the court of appeals decided American National Property and Casualty Company v. Nersesian, i a case that has been ordered published, which seems to hold that a pre-suit settlement agreement, even if confirmed in letters, is not binding until the release is signed and returned to the insurance carrier.

The facts in Nersesian were simple and straight forward. On December 17, 1999 , Marderos Nersesian was involved in an automobile accident with American National Property and Casualty Company ’s (hereafter “ANPAC”) insured, Jacinto R. Benavidez, near Mount Pleasant, Wisconsin. As a result of the accident, Nersesian retained the firm of Gimbel, Riley, Guerin & Brown (hereafter “Gimbel Firm”) to represent his interests. Shortly thereafter, on January 15, 2000 , a paralegal with the Gimbel Firm, wrote to ANPAC, advising it that the Gimbel Firm had been retained by Marderos Nersesian with respect to the injuries sustained in an automobile accident which occurred on December 17, 1999 . Over the next few months, various representatives of ANPAC and the Gimbel Firm exchanged correspondence regarding the potential settlement of the case. As part of the negotiation and settlement process, numerous letters as well as various offers and counteroffers to settle the case were exchanged. Ultimately, ANPAC and the Nersesians agreed to a total settlement of $17,725.00 for the personal injuries of Marderos Nersesian as well as the loss of consortium claim of his wife.

On December 20, 2001 , the Gimbel Firm’s paralegal sent a letter by fax and mail to ANPAC confirming the existence of a settlement. The paralegal, wrote in part:

This will confirm that the above-entitled claim has been settled for a total of $17,725. As was discussed, . . . we would greatly appreciate it if two settlement checks were issued to our firm’s trust account, to reflect the separate claims of Susan Nersesian for her loss of consortium with that of the personal injury claim of Marderos Nersesian. To that end, if one check could be issued in the amount of $2,500 (for Mrs. Nersesian’s claim) and the other in the amount of $15,225 (for Mr. Nersesian’s claim)

. . .

As you are aware, Mr. Nersesian was acting within the scope of his employment at the time this accident occurred; therefore, his settlement proceeds must be distributed in accordance with Wisconsin State Statute Section 102.29. Enclosed for your file is a copy of the workers’ compensation distribution based on the $15,225 settlement.

Along with the fax of December 20, 2001 , a Third Party Proceeds Distribution Agreement was also forwarded to ANPAC. The Third Party Proceeds Agreement consisted of the standard WKC-170 form, issued by the Workers’ Compensation Department, with the blanks filled in to reflect a $15,225.00 gross settlement to Marderos Nersesian.

On January 4, 2002 , the Gimbel Firm paralegal again wrote to ANPAC advising them that the workers’ compensation carrier had agreed to the settlement. The paralegal’s letter stated, in part:

This letter follows our telephone conversation on today’s date. I am returning the executed W-9 form along with a copy of the 102.29 distribution form which has been signed by Tracy L. Thom, on behalf of the worker’s compensation carrier, West Bend Mutual Insurance Company. Our office will provide you with a conformed copy of the document when we return the executed release.

The letter of the paralegal also included a W-9 form, which provided ANPAC with the taxpayer identification number of the Gimbel Firm so that the settlement checks could be issued.

On that same date, January 4, 2002 , ANPAC also wrote to the Gimbel Firm confirming that the case had been settled for a total payment of $17,725.00. With ANPAC’s January 4, 2002 letter, two settlement checks were forwarded along with a Release. ANPAC’s letter provided, in part:

This will confirm settlement of this case for a total payment of $17,725, including any and all liens known or unknown.

Per your request, we have cut two settlement checks. Also enclosed is a Release. I ask that you return the signed, notarized Release before negotiating the check.

More than seven months later, in a letter dated July 8, 2002 , Nersesians’ attorney wrote to ANPAC advising them that the Nersesians were “formally withdrawing our acceptance of the $17,725 settlement offer” and along with that letter, returned the uncashed settlement checks and the Release. The Release that was returned had been signed by both Marderos Nersesian and his wife, on January 28, 2002 . The Release had the word “VOID” written on the face of it.

In December of 2001 and January of 2002, Nersesian alleges that he began suffering from additional medical problems. It was these alleged problems that caused the Gimbel Firm to retain the checks without cashing them, and holding the release without returning it to ANPAC. The Nersesians concluded that the additional problems were related to the automobile accident, and as such, attempted to reopen negotiation. ANPAC, believing that a settlement agreement had been reached as of December 20, 2001 , or at the latest January 4, 2002 , commenced suit on October 7, 2002 , to enforce the settlement.

After commencing the suit, ANPAC filed a Motion for Summary Judgment, asking the trial court to enforce the settlement. At the summary judgment hearing, the following exchange occurred between the court and the Nersesians’ attorney:

The Court: Let me ask you this question. Your posture on this is that there were, in fact, settlement discussions.

Counsel: I do not dispute that.

The Court: There appeared to be an agreement reached between the insurance carrier and your firm meaning your clients.

Counsel: On the basis - - What we had - - there was a basis of fact known to both of us. There was a clear agreement, yes.

Counsel for the Nersesians went on to admit, yet again, that a contract existed.

The Court: I don’t want to pull it out of you like a tooth, but clearly there’s an offer. There’s an acceptance. There’s consideration. Your trying to resolve a piece of litigation. They send the checks, okay? You mail it to the clients. The clients actually sign the release, right? Send it – Send it back. Don’t you have a contract at that point?

Counsel: Obviously, I’ve taken the position in my brief.

This is a point [court] ii of equity do we have a legal contract? Yes.

The trial court ultimately concluded that a settlement contract existed, and chose to enforce the contract, in spite of the fact that the checks were never cashed and the signed release not promptly returned to ANPAC. The trial court applied basic contract law, and concluded that the undisputed facts demonstrated that a settlement agreement had been reached. Counsel for the Nersesians appealed, and the District 2 Court of Appeals reversed, holding that, in spite of the fact that the Nersesians’ law firm wrote a letter to ANPAC that began with the sentence “This will confirm that the above-entitled claim has been settled. . .” and the fact that the insurance carrier had written a letter to the Nersesians’ law firm beginning “This will confirm settlement of this case. . .” that no settlement actually occurred.

According to the appellate court, the above correspondence:

. . . represents nothing more than a mere continuation of the lengthy negotiations between the parties, and not an acceptance of an offer. First, as the letter states, the Nersesians’ acceptance of the settlement depended upon the approval of the worker’s compensation carrier. Second, the December 20, 2001 letter clearly contemplates the execution of another document containing more material provisions - a release from ANPAC . . . where, as here, it is part of the understanding between the parties that preliminary writings are to be followed by a formal contract containing additional material provisions and signed by the parties, no binding or completed contract will be found. iii

A significant problem with the court of appeals analysis is that the Nersesians never identified even one provision within the proposed release to which they object. The Nersesians never identified any specific term to the trial court that was objectionable. As such, the court of appeals in its decision did not identify even one term in the release that was not agreed to and as a result caused the settlement to be void.

One of the criticisms that has already been made against the Nersesian decision is that it abandons prior Wisconsin precedent. Ninety years ago, in Francis H. Leggett Co. v. West Salem Canning Co., vv the Wisconsin Supreme Court held that, if the parties reach an agreement, the fact that the parties contemplate the signing of a release does not delay the creation of the contract until the release is signed. In Francis H. Leggett Co., the supreme court held that it is:

. . . quite well settled that, where a contract informal, but complete in its terms, appears to have been made, it will take effect and be binding notwithstanding the fact that the parties anticipate that a more formal agreement will be afterwards made embodying the terms of the informal contract. v

More recently, the Wisconsin Supreme Court in Chudnow Construction Corp. v. Commercial Discount Corp., ii citing prior precedent, held that:

So far as the common law is concerned, the making of a valid contract requires . . . no signature unless the parties have made them necessary at the time they express their assent and as a condition modifying that assent. iii

Even more recently, the 7 th Circuit Court of Appeals, applying Wisconsin law, held that:

In Wisconsin . . . in order for acceptance of a contract to occur, there must be a meeting of the minds, a factual condition that can be demonstrated by word or deed. A written agreement may be effective, even if both parties have not signed it, if the parties otherwise demonstrate their intent to have a contract. iiii

In Nersesian, there was no discussion that explicitly required the signing of a release in order for the settlement to be binding. The issue was simply never addressed. In spite of the fact that all of the letters exchanged between the counsel for the Nersesians and ANPAC referred to the settlement in the “past tense” the appellate court still concluded that negotiations were ongoing.

The appellate court spends a great deal of time discussing events that occurred after January 4, 2001 , the date that ANPAC wrote to the Nersesians’ attorney confirming that settlement had occurred, and enclosing a release as well as the settlement checks. The court of appeals considered actions that occurred after that date to determine whether or not a settlement had occurred. This is problematic in that contracts come into existence at specific moments. As such, if a settlement contract had come into existence on January 4, 2002 , events that occurred after that date are irrelevant for determining whether or not a contract had previously been created.

The appellate court also rejected ANPAC’s arguments that an “accord and satisfaction” had occurred. In spite of the fact that the settling party had retained the uncashed settlement checks for seven months, the appellate court concluded that an “accord and satisfaction” had not occurred. The appellate court based its decision on the fact that within a month of receiving the checks, they sent a letter to ANPAC advising the carrier that the settlement was “on hold.” The appellate court concluded that the retention of the uncashed checks for seven months, in conjunction with notifying the carrier that the settlement was “on hold” was enough to defeat the “accord and satisfaction” argument. The appellate court went on to reject the argument that the Wisconsin Supreme Court’s decision in Hoffman v. Ralston Purina Co . , xx established a bright line rule that retention of uncashed checks for seven months was unreasonable and constituted acceptance. In Hoffman, the Wisconsin Supreme Court did conclude that, under the facts in that case, the retention of an uncashed settlement check for a period of seven months did constitute its acceptance.

The problem that the Nersesian decision creates is that it shifts the burden in an “accord and satisfaction” case from the party receiving the tendered settlement offer to the party making the settlement offer. Put another way, the Nersesians’ responsibility to return the settlement proceeds, if they did not intend to accept the terms under which it was offered was eliminated, and a new burden was created on the other party to ask for the return of the money. The Nersesian court noted that when the claimant’s attorney put the settlement “on hold” that

. . . communication, coupled with the failure of the Nersesians to return the release and cash the checks, put ANPAC on notice that the Nersesians were not willing to accept its offer of settlement. ANPAC then could have requested the return of the checks and release, or availed itself of its right to stop payment on the checks. Instead, ANPAC acquiesced to the Nersesians’ retention of all of the settlement paperwork. Because the Nersesians fully explained the grounds for their retention of the check and release within weeks of receiving and ANPAC acquiescing to that retention, we see no reason to hold that the Nersesians had agreed to accept an offer of accord which they had expressly rejected.” x

As such, the burden in an “accord and satisfaction” has been shifted from the receiving party to return the checks to the tendering party to ask that the checks be returned. The appellate court cited no precedent in support of this change in the law.

A Petition for Review with the Wisconsin Supreme Court has been filed. As of the date of this article, the supreme court has not decided whether or not it will accept this case. The lesson from the Nersesian decision, if this remains the law, is that settlement agreements should not be considered binding unless and until the release is signed and returned. Insurance carriers should also not assume that they will have a valid defense of “accord and satisfaction” by virtue of the fact that the claimant has retained uncashed settlement checks, especially if the claimant has voiced some concern about the settlement. If an “objection” is asserted by a claimant, the insurance carrier should take action to confirm that a settlement exists, and if the claimant is contending that a settlement does not exist, ask that the settlement checks be returned.

i American Nat. Property & Cas. Co. v. Nersesian, WI App.__, Appeal Numbers 03-3343 and 03-3435 (Oct 20, 2004).
ii The transcript says “point,” however, it is believed it should read “court.”
iii American Nat. Property & Cas. Co. v. Nersesian, ¶19.
vv Francis H. Leggett Co. v. West Salem Canning Co., 155 Wis. 462, 144 N.W. 969 (1914).
v Francis H. Leggett Co., 155 Wis. at 469. See also Cohn v. Plumer, 88 Wis. 622, 60 N.W. 1000 (1894).
ii Chudnow Construction Corp. v. Commercial Discount Corp. 48 Wis. 2d 653, 657 180 N.W.2d 697 (1970).
iii Chudnow Construction Corp. v. Commercial Discount Corp. 48 Wis. 2d 653, 657 180 N.W.2d 697 (1970).
iiii Zeige Distributing Company Inc. v. All Kitchen, Inc., 63 F.3d 609, 612 (7 th Cir. 1995) (citations omitted).
xx Hoffman v. Ralston Purina Co., 86 Wis. 2d 445, 273 N.W.2d 214 (1979).
x American Nat. Property & Cas. Co. v. Nersesian, ¶22.


Patrick J. Anderson is an attorney with Mohr & Anderson, LLC, who devotes his practice to insurance defense and insurance coverage cases.