Settlement Agreements Require Mutual Assent to All Terms
(September 2011) By Lydia S. Hu, Associate
For more information, contact Paul
Farquharson.
Erie Ins. Exch. V. Estate of Jeanne R. Reeside, et al.,
No. 2941, Sept. Term 2009
The Court of Special Appeals affirmed the trial court in
declining to enforce a settlement agreement when the agreement was not reduced
to writing and the mediator did not draft a memorandum memorializing the terms
of the agreement at the end of a mediation session. In the underlying case,
Plaintiff sought damages relating to a sewage flood at a residence. When the
Washington Suburban Sanitary Commission (“WSSC”) refused to reimburse Plaintiff
for the costs of clean-up and remediation, Plaintiff sought reimbursement from
her homeowner insurance company, Erie Insurance Exchange (“Erie”).
In September 2007, a mediation session was held in which
WSSC made a monetary offer. Erie would not contribute money and would not be
released by the settlement agreement, but would be dismissed with prejudice. By
e-mail dated October 2, 2007, Plaintiff’s counsel communicated to Erie and WSSC
that the assignment clerk had been informed to stay the case for thirty days
pending settlement agreement.
In follow-up correspondence, the parties were unable to
agree on all terms of the settlement agreement. Specifically, WSSC sought an
indemnity clause in which Plaintiff would indemnify WSSC. Additionally, the
Estate was not releasing or settling with Erie. However, the Estate agreed
to dismiss Erie with prejudice from the lawsuit.
By November 2007, the parties continued to disagree
about the indemnity clause. Plaintiff requested that the matter be put back
on the trial track and in April 2008 the Court reinstated the action.
In January 2010, Erie filed a motion to enforce the
settlement. Erie argued that the email correspondence from Plaintiff’s
counsel indicating that Erie would be dismissed from the action with
prejudice demonstrated an agreement to settle with Erie. Erie was not
seeking a release as that was never contemplated. However, Erie was seeking
to enforce the dismissal with prejudice. The trial court denied the motion
and Erie appealed.
Erie argued that there was no confusion or disagreement
about Erie’s role in the settlement. Erie was not to contribute any funds
towards settlement, would not be included in the release, but would be
dismissed from the case with prejudice. The Court of Special Appeals
conducted a de novo review and explained that settlement agreements are
enforceable as contracts. General rules of contract construction apply.
Here, the intermediate appellate court determined that
there was no final agreement executed. The mediation did not produce a
written agreement nor was there a memorandum prepared by the mediator
confirming terms to which the parties agreed. The follow-up correspondence
confirmed the numerous outstanding issues that the parties cannot agree to
and it was clear that at least the indemnity clause prevented mutual assent
to the settlement agreement. Dismissal of Erie was contingent upon the
settlement agreement being executed. As the parties never reached a full
agreement as to all of the terms of settlement, there was no agreement to
enforce. Erie’s motion to enforce the settlement agreement was, therefore,
denied by the trial court and affirmed by the Special Court of Appeals.
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