Weekly Law Resume - September 2, 2010: Settlement - Rescission - Right to Sue


An insured executed a full and complete release of a claim and kept the money the insurer paid in settlement without rescinding the release and then sued the same insurer for fraudulently inducing the insured to settle for less than the claim was worth under the policy. The Supreme Court examined this case to determine if this procedure was allowed.

This case arose out of the 1994 Northridge earthquake. State Farm paid Village Northridge $2,068,000 for damages arising from the earthquake. As time passed, additional claims were made and additional payments were made while a compromise settlement was attempted of the remainder. Finally, State Farm paid an additional $1.5 million, pursuant to a release of all known or unknown claims related to the earthquake.

It included a Civil Code §1542 waiver of all unknown claims. In late 2000, Village Northridge asked State Farm to reopen the claim. State Farm refused. Village Northridge then sued State Farm for breach of contract and breach of the implied covenant. Village Northridge insisted it did not need to rescind the settlement agreement and did not intend to do so. It sought to affirm the release as a partial payment and seek additional damages. The trial court granted State Farm's motion for summary judgment. The Court of Appeal reversed, indicating there were triable issues of fact as to whether the release was enforceable. Village Northridge then filed a second amended complaint, substantially the same as the first. The trial court sustained a demurrer without leave to amend. The Court of Appeal again reversed. State Farm petitioned the Supreme Court for review, which was granted.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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