OGC Op. No. 11-04-01
The Office of General Counsel issued the following opinion on April 21, 2011, representing the position of the New York State Insurance Department.
Re: Requiring a Third-Party Claimant to Execute a Release
May an insurer require a third-party claimant to execute a release before the insurer will pay a settled claim?
Yes. There is nothing in the New York Insurance Law or regulations promulgated thereunder that prohibits an insurer from requiring a third-party claimant to execute a release before the insurer will pay a settled claim, as long as the release comports with
The inquirer states that he owns a home in New York and that a person accidentally drove an automobile onto his property, thereby damaging landscaping on his property. The inquirer states that the driver acknowledged that he or she was 100% at fault and the driver’s insurer, ABC Insurance Company (“ABC”), agreed to pay for the damage to the inquirer’s landscaping. However, ABC requests that the inquirer sign a release before it will compensate the inquirer for the property damage.
The inquirer states that he does not wish to sign ABC’s release and that he believes that ABC has a legal obligation to pay his third-party claim without a release. Therefore, the inquirer asks whether ABC may require him to execute a release before ABC will pay his settled claim.
Claimants and insurers often resolve disputes through settlement. Settlement is most commonly achieved through a binding contract in which a party with a potential legal claim is compensated in exchange for executing a release or covenant not to sue. See 1 Dunham, New Appleman New York Insurance Law, Second Edition
While there is nothing in the Insurance Law or regulations promulgated thereunder that requires an insurer to use a release in settlement of a third-party claim, there is also nothing that prohibits it. As stated previously, an insurer often requires a third-party claimant to execute a release when settling a claim to achieve finality and ensure that the third-party claimant will not subsequently sue the insured. Thus, an insurer may require a third-party claimant to execute a release before the insurer will pay a settled claim as long as the release comports with 11 NYCRR § 216.6(g), which prohibits the insurer from requiring execution of a release on a first or third-party claim that is broader than the scope of the settlement.
For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.