OGC Opinion No. 07-10-02
The Office of General Counsel issued the following opinion on October 10, 2007, representing the position of the New York State Insurance Department.
RE: Release for Third-Party Property Damage Claim
Question Presented:
May an automobile insurer include a clause in a release for a third-party claim that releases the insurer and the insured from “any other relating thing whatsoever, on account of, or in any way growing out of, an accident”?
Conclusion:
No. § 216.6(g) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 216 (2003) (Regulation 64) prohibits an insurer from requiring a claimant to execute a release that is “broader than the scope of the settlement.”
Facts:
While making a left-hand turn, John Doe struck the right rear side of Jane Smith’s vehicle. Mr. Doe’s vehicle sustained damages totaling $3,710.53. After evaluating the accident and circumstances surrounding it, ABC Insurance Company (ABC), which insured Jane Smith, offered to settle with Mr. Doe for 20% of his total damages ($742.11). After Mr. Doe sent a letter to ABC and filed a complaint with the Department’s Consumer Services Bureau (CSB) objecting to the settlement offer, ABC made a new offer of 70% of the total damages ($2,597.37). As a condition of settling, ABC asked Mr. Doe to sign a release that states in relevant part:
PROPERTY DAMAGE RECEIPT AND RELEASE
The undersigned, _____________, for and in consideration of the payment of the sum of __________, the receipt of which is hereby acknowledged, do/does hereby release, acquit and forever discharge __________ and (his, her or their) heirs, successors and assigns from any and all actions, causes of action, claims or demands for property damage, and associated costs, loss of use, expenses, compensation, consequential damage or any other relating thing whatsoever, on account of, or in any way growing out of, an accident which happened on or about the _____ of ______ _____ on ____________ in the City/Town/Village ______ County of ________ State ______. (Emphasis added.)
Any claim for bodily injury is hereby reserved unto the undersigned and is not released.
ABC’s claim administration manager explained the meaning of the phrase, “any other relating thing whatsoever, on account of, or in any way growing out of, an accident.” She stated that:
the intention of the release is not to specifically rule out hidden damage, it is to finalize the agreement between the claimant and us as to the amount of the settlement. If the claimant agrees to sign the release, then they have agreed that no more money is owed to them as a result of this claim. That would include hidden damages (if they existed) whether it be one week or years after the signing of the release.
Analysis:
11 NYCRR § 216.6(g) sets forth standards for prompt, fair, and equitable settlements. The provision states:
Checks or drafts in payment of claims; releases. No insurer shall issue a check or draft in payment of a first-party claim or any element thereof, arising under any policy subject to this Part, that contains any language or provision that expressly or impliedly states that acceptance of such check or draft shall constitute a final settlement or release of any or all future obligations arising out of the loss. No insurer shall require execution of a release on a first- or third-party claim that is broader than the scope of the settlement. (Emphasis added.)
Thus, with respect to both first- and third-party claims, an insurer may not require a claimant to execute a release that is broader than the scope of the settlement. The release must describe the claim with specificity, and include an explanation and calculation of the payment that the insurer will make to settle the claim. See Office of General Counsel (OGC) Opinion 02-05-01 (May 1, 2002).
In the situation presented here, the release appears to describe the claim with specificity. However, in the Department’s estimation, it does not include an explanation and calculation of the payment that ABC will make to settle Mr. Doe’s claim. Furthermore, the release is broader than the scope of the settlement. The purpose of prohibiting a release that is broader than the scope of the settlement is to guarantee that the claimant can recover for all damages to the claimant’s property arising from a particular accident, whether the claimant discovers the damages at the initial inspection, or subsequent to the initial repair and signing of the release. ABC, like Mr. Doe, had an opportunity to inspect Mr. Doe’s vehicle. Thus, any damages that are hidden from ABC are also hidden from Mr. Doe. It therefore would be unfair to preclude Mr. Doe from recovering for any hidden damages arising from the accident that Mr. Doe discovers after signing ABC’s release. Because the release in question here prevents Mr. Doe from recovering any damages discovered subsequent to the initial repair of his automobile and the signing of the release, the release is broader than the scope of the settlement, and thereby violates 11 NYCRR § 216.6(g).
In defense of ABC’s release, the inquirer argues that nothing in OGC Opinion 87-28 (NILS) (Jun. 18, 1987), OGC Opinion 87-37 (NILS) (Aug. 13, 1987), and OGC Opinion 2002-122 (NILS) (May 1, 2002) prohibits “an insurance carrier and a third-party claimant from negotiating, settling and releasing any and all claims resulting from an automobile accident, including those for future damages.” In addition, the inquirer asserts that “OGC Opinion No. 87-28, indicates that the use of a ‘Release of Property Damage Claim’ form, which is limited to the settlement of a third-party property damage claim and does not limit any potential bodily injury liability, does not violate the above regulation.”
While OGC Opinion 87-28 (NILS) (Jun. 18, 1987) and OGC Opinion 87-37 (NILS) (Aug. 13, 1987) (which opines on a revised version of a release that was previously submitted and discussed in OGC Opinion 87-28) do not explicitly state that an insurer can use a third-party release that releases the insurer from any unknown property damage claims, the Department can understand how the insurer could interpret those opinions to support such a proposition.
Nonetheless, it is the Department’s position that a release may not set forth language that releases an insurer from all unexpected, unknown, and/or unanticipated property damage claims without violating 11 NYCRR § 216.6(g). Thus, to the extent that OGC Opinion 87-28 (NILS) (Jun. 18, 1987) and OGC Opinion 87-37 (NILS) (Aug. 13, 1987) appear to imply otherwise, these opinions should no longer be followed.
Therefore, ABC’s “Property Damage Receipt and Release” violates 11 NYCRR § 216.6(g) because it is broader than the scope of the settlement. If Mr. Doe has not already signed the release, then ABC must revise the release to comply with 11 NYCRR § 216.6(g). In addition, from this point forward, ABC: may not include language in its releases that release ABC from all unexpected, unknown, and/or unanticipated property damage claims; must describe each claim with specificity; and must include an explanation and calculation of the payment that ABC will make to the claimant to settle the claim. We ask that the inquirer please confirm in writing within ten (10) business days of receipt of this letter that ABC will comply with the above.
For further information you may contact Assistant Attorney Joana Lucashuk at the New York City Office.