Indemnification and Releasing Claims in Settlement, Considerations Before Signing

Every transaction or service between business parties needs a contract. They outline the expectations and legal protections that are included in an agreement, and help parties understand how to perform to reach their goals. What happens when one party does not perform as expected or exposes another party to liability through its actions? If a business is worth its salt, it files suit

Lawsuits over contract disputes are common in contracts that do not adequately address resolution. As a result, settlement agreements between parties in lieu of going to court and seeking judgment are likewise a common form of resolving contract cases. Settlement agreements are a great tool in that they short circuit the drawn-out process of a lawsuit. The parties give up the claims that lead to the dispute in exchange for payment and mutual promises to release the other party from liability, and in some cases, actively protect the party paying the settlement funds through indemnification.

In North Carolina, Superior Court civil actions undergo mandatory mediated settlement conferences where a neutral mediator will help the parties reach a settlement on definite terms. This helps the parties, and the courts settle cases promptly rather than let those involved experience tunnel vision in their effort to go to trial. This alternative appeals to most parties, however the terms of a settlement agreement are enforceable through law in the same exact way as business contracts, so the terms of the agreement are worth careful consideration before a party signs the rights to their case away.

Parties must consider the implications of a settlement agreement over enforcement of the underlying claim or contract. As an example, say a settlement agreement has the magic words; “MiddleMan agrees to indemnify, hold harmless, and defend Business Corp against all claims that may arise from the contract.” MiddleMan’s customer then comes along and sues MiddleMan for providing improper equipment that led to property damage. MiddleMan is now defending their own lawsuit where they have no recourse to seek anything from Business Corp, and they are obligated to handle the defense if Business Corp gets sued, all because Middleman decided to settle a dispute in the first place.

There is a saying in the legal field that attorneys should encourage their clients to settle bad cases and try good ones. Everyone wants to keep their legal expenses down when involved in litigation and it can sometimes be a prudent business decision to bear the cost of settlement over going to court. However, every case and subsequent settlement needs a professional legal evaluation to advise a client on how far a settlement agreement will reach, and whether to sign one or to have their day in court. Especially with indemnification, parties may find the obligation to hold an opposing party harmless after settlement is a worse option than if they had put up a solid defense and paid on a judgment for a claim the opposing party otherwise might have released.

The Cooper Legal Firm can help negotiate and evaluate the scope and strengths of your settlement agreements within the context of your claim or defense to suit your business and personal needs.