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Beware of opt-out provisions in tort settlement agreements | Illinois State Bar Association

The newsletter of the ISBAs Section on Civil Practice & Procedure

October 2013, vol. 59, no. 4

Beware of opt-out provisions in tort settlement agreements

By Stephen Sotelo
Beginning on January 1, 2014, all settlements relating to personal injury, property damage, wrongful death, or other tort, as a general rule, will now be subject to the newly created Section 2-2301 of the Code of Civil Procedure.1 Under these new statutory provisions, once a settlement agreement has gone unpaid for more than 30 days after execution, interest will accrue at the same rate as a judgment, presently 9%.2 If an action to enforce the overdue agreement must be pursued in court, a settling plaintiff may also be awarded costs.3 Theoretically, these new provisions should encourage settling defendants to honor their contracts by adding some teeth to tort settlement agreements. However, litigators should be aware that a settling defendant can avoid these provisions simply by negotiating exemption language into the agreement.4 After explaining the mechanics of the new law, this article demystifies its opt-out provisions and warns practitioners what to look for when handling tort settlement agreements in the future.

Mechanics of Section 2 -2 3 01
Generally, the new law is triggered at the moment there is a written confirmation of the settlement.5 For example, an email confirming the essential terms of the settlement appears to suffice.6 After such written confirmation, a settling defendant has 14 days to tender a release to the plaintiff for execution,7 stating therein the consideration to be paid.8 Once the plaintiff receives the release to be executed, he then must take several affirmative steps to avail himself of Section 2-2301s protections. First, if court approval of the settlement is required by statute, such as for a minors settlement or a wrongful death action, the plaintiff must obtain a court order approving the settlement.9 Second, if there is a known third-party right of recovery or subrogation interest, such as an attorneys lien; a healthcare provider lien; or a right of recovery claimed by a private health insurance company, Medicare, Medicaid, or the Department of Healthcare and Family Services, then the plaintiff must account for such interests.10 Finally, the plaintiff must tender to the defendant the executed release, the court order approving the settlement (if applicable), and the writings evidencing that all known third-party interests have been accounted for (if applicable).11 It is at this point after the plaintiff has tendered all of the required documents that the settling defendant has 30 days to pay all sums due under the settlement agreement.12 If it fails to do so, the settling defendant may have a judgment entered against it in court for the amount set forth in the executed release, plus costs and statutorily-prescribed interest,
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Beware of opt-out provisions in tort settlement agreements | Illinois State Bar Association

calculated from the date that plaintiff tendered all requisite documents, not from the date of breach.13

Section 2 -2 3 01 Exemptions
Pursuant to several exemptions in the new law, no statutory interest shall be imposed on certain defendants. For example, if the defendant is the State of Illinois, its agencies, officers or employees, then these new provisions do not apply.14 Similarly, these provisions do not apply to any municipality or unit of local government.15 Nor do they apply to class action defendants.16 Most notably, however, is the following exemption: This Section applies to all personal injury, property damage, wrongful death, and tort actions involving a claim for money damages, except as otherwise agreed by the parties .17 This language appears to have no bounds, meaning that not only may the parties modify the 30-day payment period, but they may also repudiate the accrual of statutory interest. In support of this interpretation, the final House debate in the General Assembly produced the following dialogue: Rep. Martwick (D): It says there is an exemption to this, that the parties in their negotiations can agree that these provisions do not apply. Is that still correct? Rep. Sims (D) (Chief House Sponsor): That is correct. Martwick: So let me get this straight. Theyre negotiating a settlement and these rules are in place that would say they must pay within 30 days or else they would face interest, but they can agree in the settlement that the provisions of this law do not pertain to this settlement that theyre negotiating. Sims: Thats absolutely correct. Mr. Martwick, as you rightly acknowledge, unless otherwise agreed by the parties is in the bill. So if the parties enter into a settlement agreement and they somehow say, I cannot pay you within the 30 days, but we can agree to pay you over three months, or six months, or ninemonth period, then they can agree to that. Its driven by the parties.18 Importantly, this exemption language further means that the parties may disavow the accrual of statutory interest: Rep. Franks (D): Now, this interest rate deal. Thats nine percent. That would only kick-in if there was a settlement, it was signed, and it was agreed to, and for some reason the [defendant] didnt pay, correct? Sims: Thats correct. *** Franks: And theres also the opportunity for the parties to say, We dont even agree to that. Were not going to pay any interest, . . . and they can agree to that, cant they? Sims: Thats correct.19 As the foregoing makes clear, Section 2-2301 is not a mandate.20 To the contrary, There are plenty of procedural safeguards to allow the parties to opt-out.21 This is important, because groups such as the Illinois Insurance Association and Illinois State Chamber of Commerce lobbied hard against the protections provided by this new law.22 Thus, beginning January 1, savvy plaintiffs attorneys should beware the inclusion of such opt-out provisions and be prepared to challenge their scope and necessity. __________ 1. P.A. 98-548.

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2. 735 ILCS 5/2-2301(d),(e); 2-1303. 3. 5/2-2301(e). 4. Id. at (g) (This Section applies . . . except as otherwise agreed by the parties.) 5. Id. at (a). 6. Id. (Written confirmation includes all communication by written means.); see also 810 ILCS 5/1-201 (Writing includes printing, typewriting, or any other intentional reduction to tangible form. Written has a corresponding meaning.) 7. 5/2-2301(a). 8. Id. at (e). 9. Id. at (b). 10. Id. at (c). 11. Id. at (d). 12. Id. 13. Id. at (e). 14. Id. at (g)(1)-(4). 15. Id. at (g)(5). 16. Id. at (g)(6). 17. Id. at (g) (italics added). 18. SB1912, Third Reading (House), 98th General Assembly, 65th Legislative Day, May 28, 2013, Regular Session. 19. Id. 20. Id. (Rep. Frank s). 21. Id. 22. See Joint Memorandum in Opposition to SB1912, dated May 16, 2013, available at <http://www.isms.org/govtaffairs/hub/Documents/OppositionSB1912.pdf >. Back to the October 2013 Newsletter

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