chapter 11

Table of Contents

RELEASES AND COMPROMISE SETTLEMENTS

When a claim is filed with an insurer, only the five results that follow are possible:

The insurer pays the claim in full.

The insurer denies the claim, and the claimant accepts that decision.

The insurer denies the claim, and the parties submit the matter to a court for trial.

The insurer admits liability as to the amount of the claim but asks a court to determine the proper recipient. This is known as an interpleader, which is the method used when a party (such as a life insurance company) holds disputed property but does not claim an interest in the property. (See chapter 10 for a more complete discussion of interpleader.) If two or more persons assert a claim to insurance proceeds held by an insurer after the death of the insured, the insurer will pay the proceeds to a court and ask the court to determine which party has the lawful claim. Such disputes often arise if an attempted change of beneficiary is incomplete or if a completed change of beneficiary is contrary to a court order or other restrictions on the policyowner�s rights to change the beneficiary.

The insurer denies the claim, but the parties reach a compromise settlement and part of the claim is paid.

Resolving the parties� rights is quite simple if one of the first four options occurs because the parties, in one way or another, are simply enforcing the terms of the contract. If, however, the claim is settled under the fifth alternative, the terms of the insurance contract do not resolve the issue. In this event the parties must execute a release or enter into a compromise settlement.

Releases

A release is the intentional giving up of a right to do or have something. For the release to be enforceable, there must usually be an exchange of consideration. This means that the releasing party must receive something in exchange for giving up the right he or she possessed before the release. Assume that Fred dies owing John $100. Since the debt is acknowledged, John possesses a right to claim that amount from Fred�s estate. If Fred�s estate has insufficient funds to pay the debt, it may offer John $50 if he will release the estate from the debt. If John accepts the $50, he will sign a release, which will terminate his right to receive the remaining $50. Similarly, life insurers will require a release from the beneficiary as part of any negotiated settlement of a death claim.

Compromise Settlements

Do not confuse a release with a compromise settlement (also known as an accord and satisfaction), which is applicable when the existence of a right is in dispute. Assume that at Jane�s death, Elaine asserts a claim against Jane�s estate for $100. Jane�s executor disputes the validity of the debt but decides to settle. She offers Elaine $50 as a compromise settlement. If Elaine accepts, there will be an accord (or agreement) to accept the $50 in settlement of Elaine�s disputed claim. The estate�s payment of the money to Elaine will be a satisfaction of her claim. Life insurers sometimes make compromise settlements in cases where the insured has disappeared but there is no proof of death and the requirements of a presumption of death have not yet been fully satisfied.

NOTES: Under federal law a member of the U.S. military forces may be declared dead under certain circumstances for purposes of military pay and dependent benefits after an absence of only one year. See 37 U.S. Code Secs. 555-556.; Wigmore on Evidence, Sec. 2513b, at 614 (Chadbourne 1981).; Alexander Hamilton Life Ins. Co. v. Lewis, 550 S.W.2d 558 (Ky. 1977).; Southern Farm Bureau Life Ins. Co. v. Burney, 590 F.Supp. 1016 (E.D. Ark. 1984).; See chapter 43 of McGill's Life Insurance (Bryn Mawr, PA: The American College, 1994) for a thorough discussion of the assignment of life insurance contracts.; Buist M. Anderson, Anderson on Life Insurance (Boston: Little, Brown & Company, 1991) p. 183.

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