When it's not recorded in 'open court', or when the injured victim dies before he receives the settlement check, and the terms of the settlement were never clearly laid out by either side.

Usually a settlement is reached among the attorneys or in Court with the assistance of the Judge. Where there is a verbal agreement between the attorneys as to the terms of the settlement, the victim's lawyer will usually confirm those details in a written letter to the defense attorney. If a settlement is reached during trial, or at a pre-trial conference, the preferred method of settling the case is to 'put the settlement on the record'. This means that a court reporter is called to the courtroom or Judge's chambers, and the terms of the settlement are recorded and agreed to by all parties and later transcribed by the court reporter.

Why is this important you ask?

Because a settlement is not a settlement until and unless these rules are followed. Many attorneys are guided by principles of fairness and doing what's right for their clients. However, let's look at the following case where all sense of fairness was discarded.

A lawsuit was brought for a child who was injured at birth. At some point during the lawsuit an offer was made by the defense, and the offer was accepted by the child's parents. In a child's case, a Judge must always approve any settlement involving a child. Let's also assume that the attorneys confirmed their intention to settle in writing subject to the approval of the Court.

This would be just fine if the Court had processed the paperwork quickly and a settlement check had been forwarded without delay. Unfortunately in this case, the Court delayed (unintentionally) processing the paperwork. Also, because the child was so severely injured his life expectancy was very limited. Between the time that the attorneys reached an agreement to settle the case and the time that the Court actually approved the settlement, the child died.

You would think that this story has a happy ending, but it doesn't. The child's lawyer notified the defense that the child died, and also sent the Courts' approval of the settlement. Now here's the worst part: the insurance company recognized a way out of having to pay this large settlement by claiming that there was never any proper settlement in the first place!

The insurance company refused to pay, claiming that since the child had died, the agreement that was reached at the time was no longer valid, and absent a Court order, they were not paying a dime!

If that type of tactic doesn't outrage you, it should. Remember, an insurance company isn't in business to pay claims. Rather, they're in business to make profit. Here's a case where the insurance company had an agreement to settle a case and pay the child and his family money to compensate him for his injuries; the attorneys acknowledged in writing to each other the offer and acceptance; and the Court was in the process of approving the settlement. Isn't that enough to confirm there was a settlement?

Not according to the Court. The decision made it clear that although there was an intent to settle the case, the fact that the parties did not follow the 'rules' to settle a case and make the settlement legally binding meant that the insurance company was now totally off the hook.

This is an unbelievable and unjust result for an injured victim and his helpless family. This decision means that the family must now pursue a legal malpractice claim against their own attorney for not settling their case in open court, or setting out the specific details and terms of the agreement in proper form signed by all parties.

What's the moral of the story? If you settle a case make sure your attorney does it in Court, and makes a record of it. If it's not done in Court, make sure all the specific terms of the settlement are clearly spelled out in a written document signed by all the lawyers. Finally, make sure there is a clause in this agreement that says that the terms of the settlement are binding regardless of whether the injured victim is alive, or has died in the interim. If the plaintiff's lawyer had confirmed all the settlement details in his letter, and included this clause, he likely wouldn't have had a problem.

I'll bet the insurance company lawyer got a bonus for finding that loophole and outsmarting everyone on that case. How's that for a sense of fairness?