Insurance · Negotiation and Settlement

What is the 'Mary Carter' agreement in liability claim resolution?

Correct answer

A settlement agreement between the plaintiff and one defendant where that defendant remains in the case but has limited financial exposure or gain depending on the outcome; widely criticized for distorting trial dynamics, banned or restricted in some states

  1. A A specific lawsuit
  2. B A type of policy
  3. C A settlement agreement between the plaintiff and one defendant where that defendant remains in the case but has limited financial exposure or gain depending on the outcome; widely criticized for distorting trial dynamics, banned or restricted in some states
  4. D A standard release form

Why this is the answer

Mary Carter agreements (named after a 1967 Florida case, Booth v. Mary Carter Paint Co.) are settlement agreements that resolve part of a multi-defendant case while keeping the settling defendant in the litigation in a modified posture. Typical features: (1) Settling defendant agrees to pay an amount (sometimes immediately, sometimes contingent on case outcome); (2) Plaintiff guarantees the settling defendant won't owe more than a specified amount; (3) Settling defendant continues to appear at trial but in a manner that may help the plaintiff against remaining defendants; (4) Recovery from remaining defendants may reduce or offset the settling defendant's payment. Concerns: (1) Trial distortion — the settling defendant has incentive to help plaintiff, hidden from jury; (2) Confidentiality — terms may be secret from non-settling defendants; (3) Fairness — non-settling defendants face a stacked deck. Many states (Florida, Texas, others) have either banned Mary Carter agreements outright or required disclosure to the court and non-settling parties; some require disclosure to the jury. Standard alternative: a complete release of the settling defendant who is dismissed from the case (with allocation issues handled through pro tanto or proportionate fault reduction). Adjusters in multi-defendant claims should be aware of Mary Carter dynamics and state law restrictions.
Source: NAIC Adjuster Settlement Strategies

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About this topic: Negotiation and Settlement

Negotiation and settlement questions cover valuing a claim, releases, settlement authority, dealing with represented claimants and the ethical limits on negotiating with an unrepresented person. This is one of 6 Insurance Adjuster questions on negotiation and settlement, each with a full explanation on a single study page.

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