As a general premise, private settlements of lawsuits are encouraged and often regarded as the quickest and most efficient way to either avoid or end a lawsuit. Typically, if settlement negotiations break down, they are considered confidential and cannot later be used during litigation of the matter. This prevents parties from alleging that the other side admitted liability by offering to pay a settlement. If offering to pay a settlement could be used against someone during litigation, then parties would be discouraged from making settlement offers, and the courts would be even more overwhelmed with cases than they are now.

By way of example, if you are involved in a car accident and you offer to pay the other driver a small sum of money to avoid making an insurance claim, that gesture cannot later be used against you as evidence that the accident was your fault. If it could, why would anyone ever try and be the nice guy?


When settlement negotiations might be used against you

However, as with all areas of law, there are certain exceptions to this rule. These exceptions apply if you want to use evidence of settlement negotiations to prove or show something other than the liability or fault of the party who made the offer.

For instance, you can use evidence of settlement negotiations to show that a party was aware of a dispute if they try to deny it. A situation like this may arise when a business owner and an injured patron fail to reach a settlement but then the business owner later claims they were not ever made aware of a dangerous condition.

Another proper instance to cite a settlement negotiation in court is for an insurance company negotiating in bad faith. If an insurer makes an offer to settle a claim that the injured party does not accept, evidence of the insurer’s offer pre-litigation may be used as evidence of bad faith if they try to deny the claim post litigation.

Another use in the bad faith context would be an insurance company using pre-litigation settlement offers to prove they did negotiate in good faith with an injured party when they are accused of stonewalling. The Ninth Circuit has noted that sometimes parties try to couch correspondence as a “settlement offer” to keep it confidential even through the true nature of the document was not really a settlement offer, and in this situation, the evidence will be admitted. 1)See Cassino v. Rechhold Chemicals, 817 F.2d 1338 [9th 1987]. In that case, an employer tried to condition payment of a severance package on an employee’s signing a release of all potential claims against that employer. The Court held that evidence surrounding that exchange could validly be presented because a wrongful conditioning of payment was not a good faith “settlement offer.”

Although a true settlement offer is generally kept confidential, there can be instances that evidence of the offer may be exposed. For that reason, circumstances may arise where it is best to make a verbal offer or not document a settlement offer if you think your actions surrounding the offer could be used in some way to your detriment. With that in mind, settlement offers are more often than not a very useful tool in avoiding costly litigation. Each and every scenario is unique, so if you find yourself faced with a legal dispute of any sort, contact our attorneys at Clear Counsel Law Group for a free consultation.


1 See Cassino v. Rechhold Chemicals, 817 F.2d 1338 [9th 1987]
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