Settlement agreements and unidentified future claims – take care not to get burnt
In the recent Western Australian decision of The State of Western Australia v Leicester  WASCA 153 the WA Court of Appeal considered an agreement to settle various claims brought by an insurer, and whether the release that had been given extended to a claim relating to the same underlying event which was unidentified at the time of the settlement.
In November 2011, a prescribed burn in the Margaret River region resulted in damage to several properties, including that of Mr Leicester. Mr Leicester was insured by Westpac, who brought a claim pursuant to its rights of subrogation against the State of Western Australia. As a preliminary issue, the State sought to argue that Westpac, by agreement, had released the State from Mr Leicester’s claim:
1. Solicitors acting for Westpac and solicitors acting for the State began
corresponding in relation to the fire in March 2016. In April 2016, in response to a
request for a quantified list of Westpac’s losses and supporting documentation for
each loss, Westpac provided a schedule setting out the loss and damage suffered
as a result of the fire by five property owners in respect of which Westpac was
exercising its rights of subrogation in respect of the indemnities provided to them
(Five Insureds). This schedule did not include Mr Leicester.
2. In May 2016, the State responded with its assessment of the quantum of each of
the claims and an offer to settle the claims on the basis of that assessment. Among
other things, the letter stated that:
(a) the offer amount would be paid in full and final settlement of any rights
Westpac has or may have against any person (including the State) arising
out of the Fire or the indemnification of its insureds, or any of them, with
respect to the Fire;
(b) the terms of the agreement were to be formed upon acceptance and were
to be reflected in a settlement agreement; and
(c) the offer was made in accordance with the principles of Calderbank v
3. Two counter-offers were subsequently made (first by Westpac, and then by the
State), both of which were expressed as incorporating the terms set out above
(among others) from the State’s original offer. Westpac accepted the State’s
counter-offer orally by telephone (the Oral Agreement).
4. Following the Oral Agreement, the parties’ solicitors continued to negotiate a formal
settlement agreement. During the negotiations of the terms, the State’s solicitor
indicated that the intention was that the settlement was to cover claims for
indemnification of any of Westpac’s insureds. However, the settlement agreement
was ultimately never executed by either party.
The judge at first instance found that Mr Leicester’s claim had not been released by Westpac. The State appealed this decision.
In dismissing the appeal, the Court of Appeal held that:
1. as the formal settlement agreement had not been entered into and there had been
no variation to the Oral Agreement, the terms of any agreement between the parties
could only be those contained in the Oral Agreement;
2. a reasonable businessperson would have understood the Oral Agreement as
concerning only the claims related to damage suffered by the Five Insureds, noting
in particular that:
(a) the broader context of the dispute related to liability for the loss of the Five
Insureds as particularised by Westpac and responded to by the State;
(b) the making of a Calderbank offer would not ordinarily be understood to apply
to proceedings beyond the Five Insureds;
(c) whilst the words ‘has or may have’ are commonly used with the intention of
capturing any claims connected with a dispute that have not previously been
made or foreshadowed, it is difficult to interpret them as settling unidentified
insurance claims unconnected with the dispute that was the subject of the
correspondence between the parties’ solicitors; and
(d) the amount payable by the State pursuant to the Oral Agreement was
derived from an assessment of the losses of the Five Insureds.
This decision serves as a reminder that parties should take care when drafting any settlement of claims to ensure that all matters intending to be settled are indeed settled, and reiterates that particular care should be taken if the intention is to settle future disputes which are not yet identified or known to the parties.
The full decision can be found here.