When a defendant agrees to settle a lawsuit by paying the plaintiff a negotiated sum of money, she wants to be sure that the agreement disposes of all legal claims against her. This is the purpose of the legal document termed a general release. But in California, Civil Code section 1542 limits the claims a general release extinguishes.
Releasing Legal Claims
Many lawsuits in California never go through a trial. Given the time a trial takes and the lawyer fees likely to be incurred, parties often find it more reasonable to settle their differences outside of court. In a legal settlement, a defendant pays the plaintiff an agreed-upon amount and, in exchange, gets a general release of all claims arising from the incident. However, some claims might survive a general release under California Civil Code section 1542.
Civil Code Section 1542
California law specifies that a general release does not release every claim the plaintiff may have against the defendant. Civil Code Section 1542 provides that a general release does not include claims unknown to the plaintiff at the time she signed the release. Unknown claims are not extinguished under a general release if knowledge of their existence would have made a material difference in the settlement. Typical unknown claims include actions against insurance company defendants for bad faith or claims for professional malpractice.
Waiver of Section 1542
The enactment of Section 1542 made lawsuit settlements less attractive for a defendant because he could be sued again by the same plaintiff for claims she did not know about when she signed the release and accepted the settlement money. Once California courts ruled that the rights granted by Section 1542 could be waived, that waiver began appearing in general releases. Today, most general releases proposed by defendants in California include language waiving the protections of Civil Code Section 1542.
Releases that include Section 1542 waivers are common in California. However, parties and attorneys should review a proposed release and the specific facts of the case carefully before signing this kind of waiver. If a plaintiff knows of claims that should not be included in the release, her attorney should specifically exclude those claims in order to preserve them for possible future litigation. A plaintiff should only waive Section 1542 protections after careful evaluation of the possibility and value of unknown claims.