The purpose of a full and final release is simple. It is an explicit acknowledgement by the settling Plaintiff that it has agreed to resolve its claims as against one or more Defendants, and as a result of that settlement, it is releasing those Defendants from the claims at issue. A full and final release acts as a complete defence in the event that a subsequent action is brought by the same party, for the same cause of action.
Full and final releases are implied in all settlement agreements. However, the comprehensive releases that are typically exchanged are not strictly required if the release is implied. A party is required to include a reference to any clauses required in a release, or a specific form of release in order to demand more complicated terms.1 In essence, the terms of the full and final release must do no more than reflect the terms of the settlement reached between the parties.
In practice, settlement agreements will often make reference to specific clauses (eg. "claims over" and "confidentiality"), or will refer to specific forms of release (eg. LawPro form). In most cases, however, the only reference to a full and final release in a settlement agreement is to indicate that is must be in a form agreed upon by counsel.
Two of the most important clauses which can be included in a release are the claims over, and confidentiality clauses. A "claims over" clause is a usual clause to be included in a full and final release, whereas a confidentiality clause is considered unusual.
A typical "claims over" clause states that the settling party cannot commence or continue an action against persons who are not parties to the release, where those individuals would be able to seek contribution and indemnity from the settling defendants. The purpose of such a clause is to protect the settling defendant from the claims of the plaintiff, whether those claims are direct or indirect. If the plaintiff commences such a claim, and a party in that action seeks contribution and indemnity from the settling defendant, the settling defendant is entitled to use the release as a defence to the action seeking contribution and indemnity, and may be able to strike out the plaintiff's claim altogether, and obtain full indemnity for any costs incurred in defending that action.2
In most cases, there is very little risk to utilizing a "claims over" clause, as the intent is not to pursue any further actions in respect of a particular loss. However, where there are multiple actions brought or anticipated, there is a risk that a non-settling defendant will seek contribution and indemnity from a settling defendant, which would trigger the claims over clause, and expose the plaintiff to the risk of costs, and the risk of its non-settling action being dismissed.
In order to avoid this, one could draft a release to specifically permit certain actions to be pursued. For example, a line could be added to a release which states "It is specifically acknowledged and agreed that the plaintiff may commence or continue an action as against" an additional party. Alternatively, when settling with one party it may be wise to specifically limit the claim against remaining parties to their respective liabilities, rather than pursuing joint and several liability.3
Confidentiality clauses are typically requested by self-insured Defendants, as any actions settled are paid directly by them, and they perceive the settlements to affect their reputation to a greater degree than when settled by their Insurer. The confidentiality clause is intended to prevent any dissemination of the settlement terms, in order to further protect the reputation of the settling Defendants. These clauses typically require the fact of settlement, and the details of the settlement to be disclosed to no one except A) where necessary to seek legal or financial advice, and B) as may be required by law.
Confidentiality clauses may be accompanied by "non-disparagement" clauses. These clauses require the settling Plaintiff not to publicly speak poorly of the settling Defendant, or otherwise make public any criticisms of them. This type of clause is also intended to protect the reputation of the settling Defendant, and will be strictly enforced by the courts.
When negotiating these clauses, it may be wise to seek to remove the confidentiality in regard to the fact of the settlement, as it is almost inevitable that the fact of a settlement will either be specifically disclosed, or could be easily inferred from the fact that the litigation has come to an end.
The primary risk of a confidentiality clause is that if the terms of the settlement are disclosed other than as permitted, it will typically allow the settling Defendant to recover their payment. As subrogating Insurers typically close their file after settlements, and seldom think of them again, the risk of the Insurer violating a confidentiality clause is low. However, the Insured may inadvertently disclose the terms of settlement in casual conversation. As such, on the rare occasion that such a clause is permitted into a release, the Insured should be expressly warned about the confidentiality clause, and that any disclosure of the settlement terms will entitle the Defendant to recover the settlement funds. The insured should also be warned that such a disclosure might be considered a violation of the terms of their insurance policy, as it amounts to frustrating the Insurer's ability to subrogate.
Subrogated Release vs. Direct Release
A subrogated release is specifically drafted such that it is the Insurer, as subrogee for the Insured, that is releasing the claim. This type of release can only be used where the Insurer has sole power to settle the action. This means that there are either no uninsured losses (other than perhaps a deductible), or that only the subrogated portion of a claim is being settled. A subrogated release does not bind the Insured in respect of their direct losses.
Opposing Insurers typically prefer to be given a release signed by the Insured, as it will specifically bind the Insured in respect of their own losses, and will also bind the Insurer. However, where the limitation period has expired, many Insurers are more comfortable with accepting a subrogated release, as they have the additional protection of a limitation period in the event that the Insured does bring their own claim at a later date.
When a third party has been put on notice of a subrogated interest, and proceeds to obtain a full and final release from the Insured, this release does not bind the Insurer. It only binds the Insured. The logic behind this is simple: it would be unjust to allow the third party to negotiate a release directly with the Insured when it is fully aware that the Insurer has a subrogated loss that it is seeking to pursue.
In the United States, the signing of a full and final release is often required to be witnessed by a Notary Public, who would then notarize the document to indicate that he witnessed the signature. This practice is intended to provide some extra security in the event that an individual later alleged that he did not sign the release, as the notary would become an independent witness to the signature.
While this is a sensible notion, it tends to be redundant where subrogation settlements are negotiated between sophisticated Insurers, and confirmed in writing. Nevertheless, many U.S. insurers will insist upon using standardized release forms which require a notarial seal.
1. Cellular Rental Systems v. Bell Mobility, (1995) O.J.
2. Ieradi v. Gordin, 2007 CanLII 48637 (ON SC)
3. Essentially a Pierringer agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.