Who Is Covered By A Settlement Agreement Release?

A settlement agreement can be an efficient way of resolving a claim and receiving compensation without a lengthy trial process. However, it is essential to understand what a settlement agreement does and does not cover to avoid surprises down the road if you later try to bring related lawsuits against other parties. 

Kerry Maggio was injured in a car accident when he was hit by a vehicle driven by James Parker, who worked for Sandwich Kings. Brenda Parker owned the vehicle, which was insured by the Louisiana Farm Bureau. Maggio filed a lawsuit against James Parker, Sandwich Kings, and their insurers. 

Maggio signed a settlement agreement and release of all claims with Brenda Parker and the Louisiana Farm Bureau. Neither James Parker nor Sandwich Kings was specifically mentioned in the release. Sandwich Kings and its insurer filed a summary judgment motion, arguing Maggio’s release applied to them because it released “all other persons” who were or might be liable for his injuries from the accident. 

Maggio claimed Sandwich Kings was not covered by the release. The district court denied defendants’ summary judgment motion. The appellate court agreed with the district court’s judgment, explaining there was no clear intention for the release to benefit Sandwich Kings as a third-party beneficiary. 

The Louisiana Supreme Court explained because the release’s language was clear and unambiguous, it could not consider evidence outside the corners of the release. See La. C.C. art. 2046. Settlement agreements and releases are governed by general principles of contract interpretation. See La. C.C. art. 3071. However, there is an exception that allows parties to introduce extrinsic evidence to the court to determine the scope of a settlement agreement, such as in the dispute here. The release explicitly stated it released “all other persons.” However, the release did not specifically name or reference Sandwich Kings or James Parker. 

Maggio negotiated the release with Brenda Parker and Farm Bureau, neither of whom were defendants in the litigation. Further, the defendants were not involved in negotiating the release and were not specifically named. Additionally, there was nothing in the release about dismissing the ongoing lawsuit against Sandwich Kings and James Parker.

The defendants were also unable to demonstrate that they received any third-party benefit through the release. Therefore, Maggio sufficiently showed evidence about the scope of what the parties intended to cover in their settlement agreement. Further, summary judgment is not the appropriate stage to make determination about subjective intent. Therefore, the Louisiana Supreme Court affirmed the trial and appellate court’s denial of defendants’ summary judgment motion because the release did not show a clear intent to benefit the defendants as third-party beneficiaries.

Much of the conflict in this lawsuit about what the release covered could have been avoided if the release had been more precisely drafted. If you are considering signing a settlement agreement, it is important to consult with an attorney, so you understand what is covered by the agreement and you are not releasing more than you intend to. 

Additional Sources: Kerry Maggio v. James Parker et al.

Article Written By Berniard Law Firm

Additional Berniard Law Firm Article on Settlement Agreements: Can a Settlement Agreement Preclude Future Lawsuits? Not Always: A Case Study