BASIC CONTRACT LAW MAKING A COMEBACK IN PERSONAL INJURY SETTLEMENTS
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Here at The Lien Project/Lien Project Network, we always preach: the sooner you start addressing lien issues, the better the outcome. That said, we understand that some cases settle without liens ever being raised by either side during negotiations. But that doesn’t mean lien issues won’t surface as the case heads toward disbursement.
Here’s a classic example:
A case goes to mediation. After a long day, the parties reach agreement on the monetary terms. The settlement terms are reduced to writing under Evidence Code §1123, including standard language stating the parties will execute a “standard” settlement document.
A few days later, plaintiff’s counsel receives a draft “Settlement Agreement” from defense counsel. It contains a host of provisions that were never discussed or agreed to—confidentiality clauses, listing lienholders as payees on the draft, conditioning payment on lien resolution, complicated Medicare compliance terms, personal responsibility for liens or confidentiality, and overbroad indemnity/hold harmless clauses.
So at what point do these “added” terms become material and threaten to blow up the settlement? A recent opinion from the Sixth District Court of Appeal in CSAA Insurance Exchange v. Raed Hodroj [HERE] offers useful guidance.
In Hodroj, plaintiff’s counsel sent a written settlement demand for bodily injury claims to CSAA, the third-party carrier. The terms were straightforward: confirm the policy limits, confirm there’s no additional coverage, and pay the policy limits within 21 days. The offer also noted that CSAA could condition acceptance on plaintiff signing a written release of bodily injury claims only.
Fifteen days later, CSAA confirmed acceptance, affirmed the policy limits, and stated that the draft would be sent separately. It also enclosed a proposed release, requesting it be signed prior to depositing the draft.
And this is where things got sticky.
The release required Hodroj to waive all claims—including property damage—even though the original offer clearly pertained only to bodily injury. Viewing this as a material deviation, plaintiff’s counsel refused to sign the release and instead filed suit against CSAA’s insured.
CSAA responded by suing the plaintiff for breach of contract, asserting there had already been a binding settlement for $100,000 and moving for summary judgment to enforce it. The trial court agreed with CSAA and entered judgment in its favor, stating:
“A well-established principle of contract law dictates the result here: when parties agree on the material terms of a contract with the intention to later reduce it to a formal writing, failure to complete the formal writing does not negate the existence of the initial contract.
(Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307; Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 358.) If the parties do not agree on the content of the formal writing (for example because one party wants to include something not agreed on in the first place, as Hodroj says happened here), the proposed writing is not a counteroffer; rather, the initial agreement remains binding and a rejected writing is a nullity.
(American Aeronautics Corp. v. Grand Central Aircraft Co. (1957) 155 Cal.App.2d 69, 82; Khajavi v. Feather River Anesthesia Medical Group (2000) 84 Cal.App.4th 32, 61.)”
. . . . .
That the proposed document contained terms materially different from what had been agreed to does not change the binding effect of the initial agreement. Hodroj was under no obligation to sign a release that was inconsistent with what he had agreed to. But a proposed writing that does not accurately reflect the terms of an agreement does not unwind the entire deal. The contract formed by the parties’ offer, acceptance, and consideration is still enforceable. Hodroj breached the contract here by filing suit on the bodily injury claims he had agreed to settle.
The court emphasized that enforcing the original agreement—even when a proposed release includes different terms—is sound public policy:
“Any other rule would always permit a party who has entered into a contract like this, through letters … to violate it, whenever the understanding was that it should be reduced to another written form, by simply suggesting other and additional terms and conditions. If this were the rule the contract would never be completed in cases where, by changes in the market, or other events occurring subsequent to the written negotiations, it became the interest of either party to adopt that course in order to escape or evade obligations incurred in the ordinary course of commercial business.”
(Stephan v. Maloof (1969) 274 Cal.App.2d 843, 848–849.)
So what’s the takeaway?
When a carrier conditions disbursement on a release that includes material terms not originally agreed upon, Hodroj provides a solid basis for enforcing the original settlement. If the parties executed a written agreement consistent with Evidence Code §1123 during mediation, that document can be introduced into evidence to confirm the settlement terms.
This opinion also echoes the First DCA’s decision in Karpinski v. Smitty’s Bar (2016) 246 Cal.App.4th 456, which held that—unless expressly agreed upon—a carrier cannot name a lienholder (even DHS or CMS) as a payee on the settlement check.
Apparently, basic contract law principles are making a comeback.
Explore More Resources with Lien Project Network
For a deeper dive into lien resolution strategies, settlement planning, and reimbursement challenges, explore our educational modules. Lien Project Network serves as a trusted resource for plaintiff attorneys, providing insights on financial planning, public benefits, and structured settlements in the context of lien management.
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