Waiver of California Civil Code section 1542 and Unknown Claims in Personal Injury Litigation

By Michael Reiter, Attorney at Law

In California, a release is often the end of a dispute or lawsuit.  Commonly, you will see language waving California Civil Code section 1542.  California Civil Code section 1542 reads:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Waiving rights under California Civil Code section 1542 is so routine, many attorneys mistakenly use the pre-2005 version of the section (which added “or her” in three places).  Releases are among the most copied documents amongst lawyers.  The problem is that some copy verbiage that does not necessarily apply in every situation (for example the Insurance Code verbiage where there is no insurance carrier is involved).

In a case where there was no express California Civil Code section 1542 waiver, the court still found that the release waived all claims:

Plaintiff testified he understood he was releasing claims arising under all statutes the agreement referred to, even those he did not understand. This knowledge is sufficient to withstand the provisions of Civil Code section 1542. Nothing in that statute requires that it be designated in the release or that a party specifically waive its provisions. While it might have been more comprehensive to have a reference to Civil Code section 1542 in the release, “ ‘To be effective, a release need not achieve perfection….’ [Citation.]” (Skrbina v. Fleming Companies, supra, 45 Cal.App.4th at p. 1368, 53 Cal.Rptr.2d 481.) Thus, as to defamation and the overtime claim, the release is enforceable.  Perez v. Uline, Inc. (2007) 157 Cal. App. 4th 953, 959,

Even when the release recites a waiver of California Civil Code section 1542, that may not be enough to actually waive the rights and release the tortfeasor:

Furthermore, mere recital, as in the release signed by plaintiffs, that the protection of Civil Code, section 1542 is waived, or that the release covers unknown claims or unknown parties is not controlling. Whether the releaser intended to discharge such claims or parties is ultimately a question of fact. Leaf v. City of San Mateo (1980) 104 Cal. App. 3d 398, 411, 163 Cal. Rptr.

That does not mean that the obligations are not discharged at the time of signing.  Some cases find that mistake or fraud require the release’s rescission.  Some cases find that the waiver is valid, based on the facts of the situation:

Review of the circumstances confirms our interpretation that the release was designed to extinguish all claims extant among the parties. First, Winet was represented by counsel and was aware at the time he entered into the release of possible malpractice claims against Price relating to certain services Price had rendered to him.  With this knowledge and the advice of counsel concerning the language of (and the import of waiving) section 1542, Winet expressly assumed the risk of unknown claims. Second, it is significant that the parties were able to, and did, fashion language memorializing their agreement to preserve identified claims from the operation of the release when such was their intention, specifically, the Canoga Storage Partners, Ltd. malpractice claim exclusion. Finally, Winet was represented by his own counsel, who explained to Winet the import of the release in general and of the waiver of section 1542 in particular. Under these circumstances we may not give credence to a claim that a party did not intend clear and direct language to be effective. (Bodle v. Bodle (1978) 76 Cal.App.3d 758, 764, 143 Cal.Rptr. 115 [“Where a formal contract has been prepared by persons learned in the law, the words should be given their ordinary legal import.”].)  Winet v. Price (1992) 4 Cal.App.4th 1159, 1168.

The moral of the story is that claimants and their attorneys should very carefully review any release before signing.  If specific causes of action or claims need to be preserved (for example, insurance bad faith), they should be expressly removed from the release.   The release should not be boilerplate that does not apply to the situation, and should be narrowly tailored to the facts of the situation.  The  should be satisfied with the deal before signing the release, because there may be no opportunity to undo the deal after the release is signed.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

Copyright 2011 Michael Reiter, Attorney at Law.