The Enforceability of Releases in Property Insurance Claims

The article deals with an important issue in property insurance. After a property loss, the property insurance company's adjuster offers an amount to settle the claim and the owner accepts payment of that amount. The adjuster may have the owner execute a release as a condition of payment. Subsequently the owner discovers that the assessment of the loss at the time payment was made failed to account for all of the damage for which it was entitled to payment under the policy. The owner files a claim with the company for additional compensation, and the company proffers the release as a defense to any further liability. Is the company obligated to pay, or does the release bar any further claim?This issue arises particularly frequently after hurricanes and other catastrophes. Releases are often demanded from property owners, who are under financial and emotional pressure to accept a settlement in order to begin repairs or rebuilding. Only later does the owner discover that the settlement is inadequate, and the release is presented as a roadblock to full recovery.Part I of the article explains the process of adjusting property losses and how releases are sometimes used in that process. Part II discusses the application of the pre-existing duty rule to this process and concludes that the rule makes a release ineffective unless it is given as part of the resolution of a good faith, genuine dispute between insurer and insured. Part III addresses the modern function of the pre-existing duty rule and criticism of it, the public policy favoring the settlement of disputes, and the public policy favoring the payment of insurance claims, and explains how the purposes of the rule and the policies coalesce to support its application in the releases cases