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Is it permissible for an insurer to require its insured to sign a release when the insurer has paid policy benefits?  The answer is generally yes, as long as the release is not overly broad and does not encompass matters as to which the insurer has no right to request a release.  This issue often arises in liability and uninsured motorist claims, where the insurer agrees to pay its insured for a covered loss and then requests a release from the insured as a condition to payment. It can, however, come up in other types of claims as well.

Where the insurer has met its full obligation under the policy, it is reasonable for the insurer to ask the insured for a release that covers the full extent of that liability. Where the insurer pays less than the full obligation, or where the insurer pays its full obligation but attempts to obtain a release that includes liability for other claims (e.g., “bad faith” claims or claims arising from unrelated matters), then the matter may be different, depending upon the circumstances.

In Beers v. Hillory, 2010 OK CIV APP 99, the Court of Appeals found that it was not a breach of the duty of good faith for an insurer to require an insured to sign a release of contractual claims as a condition to receiving the maximum amount of UM benefits insured by the policy. While the insured’s attorney argued that the release was too broad and included a release of other claims, the Court found that the release could not be interpreted so broadly. The Court also noted that before suing the insured’s attorney never made that assertion to the insurer, nor did he ask that the insurer clarify the release language. The Court found that Oklahoma’s Unfair Claims Settlement Practices Act, 36 O.S. Sec. 1250.1 et seq (Act) did not prohibit the practice of asking for a release, and in fact seemed to endorse the practice, as it only proscribed asking an insured “to sign a release that extends beyond the subject matter that gave rise to the claim payment.” The Court also noted that the breach of a duty set forth in the Act was not necessarily a violation of the Act, and that the Act does not create a private right of action. Also, a violation of the Act  does not necessarily give rise to a bad faith claim.

The Court went on, however, to conclude that a provision in the release that would have required the insured to “defend, indemnify and hold harmless” the insurer from third-party claims, which went beyond the contract claim, may be considered as unreasonable under the circumstances. While the insurer claimed that it needed the hold harmless clause to protect it against lien claims by medical providers, the Court found that the insurer was protected against such claims by Oklahoma’s lien statute. Thus, a fact issue existed as to whether the insurer’s request was reasonable or a breach of the covenant of good faith.

 The takeaway from Beers and the Oklahoma statute is that insurers should be careful when asking insureds to sign releases in return for payment of policy benefits or proceeds.  A release of a contractual claim in return for full payment of contractual benefits should not pose a problem, so long as the release is limited solely to the contractual benefits at issue. If there are any non-monetary obligations on the part of the insured that survive the payment and need to be preserved, an insurer may be entitled to ask the insured to take on such obligations in the release (duty to cooperate, preserve records, etc.). However, where the insurer is paying less than full policy benefits and/or is not compensating the insured for a release of potential claims as part of the resolution, is seeking to obtain a broad release of claims that goes beyond the matter at issue, or is seeking to require an insured to defend, indemnify or hold the insurer harmless where there is no chance of the insurer being exposed to such liability, the insurer may be asking for trouble, depending upon the specific circumstances.  The best practice in these circumstances is for the insurer to seek legal advice concerning its rights in asking for a release.