Can an Insurance Company Get a Settlement Back? Important Facts

All About Settlement Agreements

A settlement agreement is a written document resolving a dispute. The document is signed by the parties and customarily encompasses all counterclaims, cross-claims, issues or causes of action relating to the events or facts underlying a dispute. In the context of an insurance claim , a settlement agreement usually discharges policies and other coverage notices to others for which an insured might be liable.
Settlement agreements are often relied upon as finality for both the parties. For the plaintiff, it assures receipt of money; while for the defendant, it assures that he/she/it will not face exposure to this same potential liability in the future. To put it another way, settlement agreements afford certainty to both parties relative to facts and claims.

When Can a Settlement Be Withdrawn?

There are very specific circumstances in which the insurance company can try to take back settlement money. One of those is in the case of insurance fraud or misrepresentation. If it can be shown that there has been a material false statement within the claim, the insurance claim can be denied or the settlement retracted. Another circumstance when a settlement may be revoked is if there are contradictions within the statements made on a recorded statement for the Insurance Company. The defense lawyer will be able to show that there is a material contradiction in your claim. Thirdly, if the insurance company can show that new evidence has emerged which is materially helpful to their defense of the claim, the matter should be reopened. Evidence would include witness statements that were not included within the investigation.

Legal Protections for Your Settlement

Settlement agreements are generally protected by laws of contract. In fact, the law regards a settlement as a type of contract, and like any other contract, it is usually binding and final. Most settlements are entered into voluntarily, and that is part of the reason they hold up in the courts. The law wants people to be free to contract with one another without the threat of interference from outsiders. Sometimes the law of equity can come into play, particularly if the one preventing settlement has taken some sort of illicit or unfair action. The law can set aside a release if the other party plays the role of a rogue, or otherwise uses "unclean hands," in getting you to sign the release. Some states have specific laws or rules on what does or does not constitute an effort to prevent settlement. When making efforts to settle a claim that you feel is appropriate, just know that your rights under the law are probably strong.

When Can a Settlement Be Reversed?

As a general rule, a settlement is a final and binding disposition of the claims asserted by the parties. However, certain consequences may arise in limited circumstances that may cause a settlement to be vacated or set aside.
Mistakes or Errors
If the parties to a settlement proceed under a mistake as to a material fact, and the mistake has a material effect on the agreed exchange of performances which would likely have been agreed to had the parties considered unmistakenly the relevant contractual terms, then the Court may grant relief due to the mistake.
Newly Discovered or Recently Revealed Evidence
The discovery of new evidence which could not have been discovered through the exercise of reasonable diligence prior to settlement or negations, may form the basis of setting aside a settlement agreement. The rule is that the alleged newly discovered evidence must be so material that if it had been presented during negotiations or at settlement, it would probably have led to a materially different settlement result as of the date of the asserted mistake by the parties.
Mutual Mistake
A mutual mistake of fact exists when both parties to the appeal are mistaken regarding the terms of the settlement. In this situation, the court must determine whether any modification or addition to the contract is necessary to allow each party to realize the benefits of their bargain at the time the contract was entered into.

How to Protect Your Settlement

The first step is to pursue legal guidance for the matter. Then it is critical that you attempt to avoid committing any type of fraud. For instance, if you suffer an injury that prevents you from working for a period of time, avoid going out and taking another job without advising the insurance company of the situation, as this can compromise or completely invalidate your claim. Next, upon receiving a settlement or award , properly preserve the documents for the disbursement. Insurance companies are bound by law to send all disbursement documents. They have a limited amount of time to file a lien with its agency if one is present, and must also send out a notice of that lien to the claimant being awarded funds. It may seem inconvenient to have an attorney review all of these documents, but not only will they recognize the intricacies of the law, but can also save you from any future liability. When in doubt, always discuss the matter with an attorney. This will ensure proper communication across the board regarding the situation.

What Happens When Your Settlement is Disputed

What to do if an Insurance Company Challenges or Wishes to Reclaim a Settlement
If your insurance company, carrier or self-insured client receives a written request from the claimant challenging the settlement or asking for it to be returned, we recommend you seek legal counsel immediately. If challenged or repudiated, a settlement will likely not be honored in court. As such, it is important to ensure that your company takes all necessary steps to preserve your rights under a settlement agreement. Too many policyholders feel that even if the settlement appears to be surrendering their rights (whether through a release or uncompensated waiver), that the settlement is still enforceable, incurring significant liability later on. This could not be further from the truth. Courts enforce settlements against the parties that entered into them. If the parties mutually express an intent to settle the matter and enter into a contract of settlement, that contract will be enforced. Thus, it is critical for parties to carefully evaluate claim settlements. The court will enforce a settlement unless the parties have a mutual mistake of material fact. A practical example of a mutual mistake exists where (for example) both parties believe that the plaintiff was injured in a car accident, when in actually he/she was not. By contrast, if the defendant believes the plaintiff was injured in a car accident, while the plaintiff knows he/she was not, the defendant will be bound by the settlement. As in other contracts, courts will look to the four corners of the document to determine the intent of the parties. Where the intent of the parties is clear, the court will enforce the settlement against the target notwithstanding subsequent repudiation.

Examples When a Settlement Was Unwound

To better understand the complexities and potential pitfalls involved in this issue, let’s look at some real-world examples where settlement reversal attempts were brought to light.
Case Study 1: Early Approach and Major Dispute
In one case out of Florida involving an insurance company which attempted to recover their settlement, the policyholder was involved in an automobile accident that resulted in her sustaining multiple injuries. When she began treatment for these injuries, her attorney learned that the treatment center had issues with its Medicare credentials. As a result, the insurer denied her bills after a routine audit discovered discrepancies in the treatment center background. In turn, the attorney sued both the clinic for breach of contract and the insurance company for bad faith on payment.
While the outcome of this case was not widely reported, the ruling from the judge in the ruling dismissed the insurance company’s attempt at settlement reversal. In doing so, he stated that the original settlement agreement would not allow the insurance company to avoid paying the bills because of the treatment center’s alleged prior issues.
This case serves as an example of how insurance companies will try to use chronology to their advantage. Here, an insurance company tried to use a practice that occurred years before the policyholder’s accident to try to overturn a properly executed settlement agreement. These types of settlement reversal attempts are not always successful .
Case Study 2: Simple Misstep and Partial Failure
Another scenario of a settlement reversal attempt is a little more straightforward: a simple clerical error and an insurance company failure to follow its own rules.
In his report of a Pennsylvania case, personal injury attorney Kent P. Lauer noted that a State Farm employee erroneously noticed a duplicative payment on the policyholder’s ledger. On the insurer’s ledger, they show one check for $15,000, while the policyholder showed a separate payment for this same amount a few days later. As such, the claims handler performed a "double take"-literally-thinking that two checks were issued. They then performed a records search and verified that a second payment had never been made.
However, the clerical error should have been known by the insurance company. In the policy period, the policyholder was also entitled to $15,000 in medical payments coverage. The latter payment was related to another family member covered on the policy. Therefore, when this policyholder switched insurance companies, she inadvertently dropped this medical payments coverage, which resulted in the additional $15,000 being paid to the claimant for the other family member.
The insurer sued and was only successful in part in their case. The court agreed that the first payment was indeed the correct one, and the claimant accepted a $15,000 award. However, the insurer was unable to obtain judgment for any additional medical coverage payment.
As this example shows, obtaining monetary damages through settlement reversal attempts are not always successful for the insurance company.