I have devoted a good amount of commentary on cases in which signed releases are challenged based upon claims of fraud and other alleged questionable circumstances. See Challenging Releases and Settlements Based on Fraudulent Inducement is a Challenge; Alleged Inability to Read English Insufficient Ground to Avoid Executed Release; More on Challenging Releases for Alleged Fraud. There is a reoccurring theme in the caselaw in a certain factual scenario for which the courts are particularly willing to afford the releasor an opportunity to be freed from the release: Insurance company overreaching.
A recent case in point is the decision of the Appellate Division, Second Department, in Wei Qiang Huang v Llerena-Salazar, 2023 NY Slip Op 06772 (2d Dep’t Decided Dec. 27, 2023).
Basic Release Doctrine: “Fairly and Knowingly Made”
As the Court of Appeals noted in the leading case of Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269 (2011), there is no question that because a signed release is a contract, it can be challenged on any of the traditional grounds for avoiding an agreement, “‘namely, duress, illegality, fraud, or mutual mistake.’” (quoting Mangini v McClurg, 24 NY2d 556 (1969)).
But the Court in Mangini explained a broader basis to avoid a release even if actual fraud had not been employed, based on the premise that the release must have been “fairly and knowingly made”:
In Farrington v. Harlem Sav. Bank ( 280 N.Y. 1), it was established that a release could be made covering both known and unknown injuries, “provided the agreement was fairly and knowingly made” ( id., at p. 4). This limitation on releases for unknown injuries, first applied to a claim that the plaintiff thought he was signing a mere receipt for money to pay a doctor’s bill, was applied in other cases of fraud ( Wheeler v. State of New York, 286 App. Div. 310; Scheer v. Long Is. R.R. Co., 282 App. Div. 724). Fraud, however, had long been a ground for setting aside a release (see Fleming v. Brooklyn Hgts. R.R. Co., 95 App. Div. 110). The requirement of an “agreement fairly and knowingly made” has been extended, however, to cover other situations where because the releasor has had little time for investigation or deliberation, or because of the existence of overreaching or unfair circumstances, it was deemed inequitable to allow the release to serve as a bar to the claim of the injured party (see, e.g., Duch v. Giaquinto, 15 A.D.2d 20; Landau v. Hertz Drivurself Stas., 237 App. Div. 141; Castenada v. Ruderman, 48 Misc.2d 321).
Mangini v McClurg, 24 NY2d 556, 563 (1969)(emphasis added).
It is this “fairly and knowingly made” requirement that most often catches insurance company representatives who have acted a bit overzealously. That is graphically shown in the recent Second Department decision in Wei Qiang Huang.
Second Department Allows Challenge to Release
The factual scenario of Wei Qiang Huang was, unfortunately, an all-too familiar one: Car accident. Plaintiff seeks damages for personal injuries from defendant, who rear-ended plaintiff’s vehicle. Problem for plaintiff: He had signed a release before bringing the lawsuit. Defendant moves to dismiss the personal injury action, based upon the release. Problem for defendant: The circumstances under which plaintiff signed the release were far from fair.
The lower court granted defendant’s motion to dismiss based upon the release, and denied the plaintiff’s cross-motion for summary judgment to dismiss the affirmative defense of release. The Second Department reversed on defendant’s motion to dismiss, reinstating the personal injury lawsuit, but also affirmed the denial of plaintiff’s cross-motion for summary judgment because there were legitimate issues of fact on the circumstances of the release.
The Second Department first offered an instructive and carefully-crafted road map of the applicable law:
“Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release” (Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269, 276). “‘A release may be invalidated, however, for any of the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake'” (Miller v Brunner, 215 AD3d 952, 953, quoting Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d at 276). In addition, a release may be set aside on the ground that it was not “‘fairly and knowingly made'” (Haynes v Garez, 304 AD2d 714, 715, quoting Mangini v McClurg, 24 NY2d 556, 566 [internal quotation marks omitted]). This basis for setting aside a release may be applied in situations “‘falling far short of actual fraud,’ such as when, ‘because the releasor has had little time for investigation or deliberation, or because of the existence of overreaching or unfair circumstances, it was deemed inequitable to allow the release to serve as a bar to the claim of an [*2]injured party'” (Haynes v Garez, 304 AD2d at 715, quoting Mangini v McClurg, 24 NY2d at 567-568 [citation omitted]). “Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release ‘shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release'” (Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d at 276, quoting Fleming v Ponziani, 24 NY2d 105, 111; see Miller v Brunner, 215 AD3d at 953).
The Second Department then noted the procedural context of the motion to dismiss: “‘In resolving a motion for dismissal pursuant to CPLR 3211(a)(5), the plaintiff’s allegations are to be treated as true, all inferences that reasonably flow therefrom are to be resolved in his or her favor, and where, as here, the plaintiff has submitted an affidavit in opposition to the motion, it is to be construed in the same favorable light” (Sacchetti-Virga v Bonilla, 158 AD3d 783, 784 [internal quotation marks omitted]).”
Finally, the Second Department nicely applied the factual context to the above legal principles and concluded that plaintiff should be given an opportunity to challenge the release under the circumstances because of the alleged overreaching conduct of the insurance representative who procured the release from plaintiff soon after the accident and while plaintiff was not represented by an attorney:
Here, in support of their motion, the defendants submitted, inter alia, a copy of a release signed by the plaintiff, which, by its terms, barred this action against them (see Cames v Craig, 181 AD3d 851, 852). In opposition, however, the plaintiff’s allegations were sufficient to raise questions of fact as to whether the release was signed by the plaintiff under circumstances that indicate unfairness, and whether it was not “fairly and knowingly” made (see Sacchetti-Virga v Bonilla, 158 AD3d at 784; Cabibi v Lundrigan, 7 AD3d 556, 557). The plaintiff averred, among other things, that shortly after the accident, an insurance representative for the defendants called him “repeatedly;” that he had difficulty understanding the defendants’ representative due to a language barrier; that the defendants’ representative, who had him sign the release to obtain money for medical bills, never explained that the document he signed was a release or had the legal effect of the release; and that the plaintiff was not represented by an attorney at the time he signed the release. Moreover, the plaintiff raised questions of fact as to whether there was mutual mistake as to the nature of the injuries sustained by plaintiff from the alleged accident (see Cabibi v Lundrigan, 7 AD3d at 557; Haynes v Garez, 304 AD2d at 715).
Commentary
As I have explained, in the commercial context where the parties are sophisticated and dealing at arm’s length, it is ordinarily an uphill battle to avoid a signed release. In such circumstances, the traditional grounds to avoid any contract would need to be established, including all of the elements of fraud if that is one of the bases for seeking to challenge the release. Where, however, the circumstances are less than even, the releasor is not represented by an attorney and not knowledgable or sophisticated in such transactions, and there are signs of overreaching by an insurance representative, courts are much more likely to give the releasor a chance to proceed with all claims.