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We see a great many underpaid insurance claims, particularly following damaging weather events. The insurer paid the insured something following the loss, just not enough. I am frequently asked, “But doesn’t accepting and endorsing a claims check release the insurer from further liability on the claim?” The answer depends on the relationship between the insurance company and the person receiving the check.

Third-party insurance benefits are paid on claims made by persons not named as insureds under the contract. The best example of a third-party claim follows from a motor vehicle accident. Assume that A’s car collides with B’s car damaging it and that A is at fault. B then makes a demand on A’s insurance policy for benefits. Since B is not named as insured under A’s policy, she is considered to be a third-party insured. Her relationship with A and his insurer is adversarial: B will sue A if her damages are not paid. If A’s insurer writes B a check for her damages and it contains language releasing A (and her insurer) from further liability, a court will generally enforce it.

On the other hand, if a tree falls on B’s car she will look to her own insurer to provide coverage. B has a contract with her insurance company to cover damage to her car caused by, among other things, trees falling on it. The insurance company is only keeping a promise that it previously made when it pays for B’s damage to her car.  It remains obligated to do that even after it has made the payment. If there is release language on the check, it is unenforceable because it has no effect on the policy.

The policy would have to be changed in order to cut off the insurer’s liability to pay B all of her damages. The law says that the terms of a valid contract can only be changed on the exchange of new consideration. In order to avoid further liability, the insurance company would have to pay B something separate than the value of her claim. If there is no new consideration, the law would say that any release of the insurance company would be unenforceable

If your insurance company tries to get you to sign a release in any form on a first-party claim, be sure to consult a qualified insurance claims attorney.