Prepare in advance for any transfer of property. If the legal dispute involves claims over property such as a house, a business entity, or negotiable instruments, preparation often means obtaining an appraisal to determine the value of the property. Documents establishing title, possession, or a leasehold also may be necessary to write an agreement that properly refers to the property to be transferred. Some transfers of property, such as out-of-state real property, may require substantial investigation to determine condition, valuation, and requirements for transfer.
Determine the type of the release needed. Consider the procedural posture of the legal dispute. If a lawsuit has not yet been filed, a covenant not to sue might make most sense to prevent further conﬂict. If the settlement agreement is to address ongoing litigation, a release of liability and a plan for dismissal of the case is likely more appropriate. Releases come in many permutations: releases of only claims made, releases of claims made and those that could have, but have not yet, been asserted, releases based on known facts only, releases of known and unknown claims, and more.
Lay the groundwork to settle an insured claim. Insurance is a strange product. The buyer pays in hopes of never using it. The seller hopes to never pay on it. Even so, insurance policies play an integral part of many settlement agreements. The potential applicability of insurance coverage to a legal claim can make finalizing a settlement easier in some respects and more difficult in others. The availability of insurance proceeds to fund or contribute to a settlement increases the likelihood that the parties can agree on an amount to be paid for release of the legal claims. However, the world of insurance comes with its own set of rules, procedures, and timelines that vary from insurer to insurer. It is too late to begin pondering insurance coverage at the end of a mediation session. Preparation for an insured claim settlement agreement should begin at least two to three months before any mediation begins.
Determine whether the case involves, or even potentially involves, any payments by Medicare to the injured party. If the case to be settled involves any claims for medical expenses, attorneys must consider the possibility that Medicare has a claim to at least part of the settlement proceeds. Medicare, which pays medical expenses for qualifying elderly and disabled individuals, is considered to be a “secondary payer.” This means that Medicare can recover any payments it has made from a “primary” payer, such as automobile or liability insurance as well as the proceeds of a settlement agreement. See 42 U.S.C. § 1395y(b)(2)(A); see also Taransky v. Sec’y of U.S. Dept. of Health & Human Serv., 760 F.3d 307 (3d Cir. 2014). The consequences of misjudging the amount of settlement funds to set aside for Medicare can be dire if the plaintiﬀ is cut oﬀ from further Medicare payments (and thus medical care) until the reimbursement is made. Conversely, when Medicare is not reimbursed by the plaintiﬀ, the defendant is liable for double damages plus interest, even if the defendant has fulfilled the terms of the settlement by paying the plaintiﬀ.
Consider whether confidentiality will likely be a term. Confidentiality regarding a settlement agreement’s terms or very existence requires careful thought about which communications are to be restricted and which are to be allowed. Parties may agree that their private conﬂict should not be shared with outsiders or on social media, but the parties may need carve-outs to allow them to comply with applicable statutes, regulations, and court orders requiring disclosure. Carve-outs are often framed to include spouses and tax advisors. To be sure, discouraging breach of confidentiality is a delicate balancing act. An insufficient penalty will not incentivize compliance, whereas an excessive penalty will not be enforced by the courts. Thus, the scope and penalty should be carefully considered ahead of time along with the possible tax consequences that apply upon inclusion of a confidentiality provision.
Write a rough draft before the negotiations or mediation commence. Given that a blank page can be a formidable opponent for any writer, attorneys may wish to begin by surveying settlement agreements in similar cases. If the current case lies in an area of law in which the attorney frequently practices, the attorney may have comparable settlement agreements from which to draw. However, attorneys must resist the temptation to automatically cut-and-paste their way into new agreements without critically evaluating whether old boilerplate remains legally valid and is factually applicable to the case being settled. Ideally, the process of preparing to draft potential settlement terms generates ideas for workable solutions as well as revealing issues that must be resolved in order to end the conﬂict. At the very least, a carefully prepared draft will help avoid the risk of omitting important terms or including void terms.
Preparation is tremendously important to drafting an eﬀective settlement agreement. Effective settlement agreements help parties move beyond the wrongs of the past and into a future in which their expectations and obligations are known, and where the parties are absolved of the litigation resolved in the agreement.