Settlement Agreement

Updated: 28 November 2024

What Does Settlement Agreement Mean?

A settlement agreement is a contract signed by two parties, typically in the context of a civil suit, that resolves a dispute and prevents one party from making future claims or demands related to the issue that was contested and settled in the agreement.

Insuranceopedia Explains Settlement Agreement

A settlement agreement is typically negotiated by the lawyers involved in a civil case and can be reached outside of court. Once signed, the agreement ends the civil suit and prevents the issue from being brought up again in the future. The terms of the agreement should be favorable to both parties. A common scenario involves a defendant agreeing to pay a sum of money to the plaintiff. Once the plaintiff accepts the payment and signs the agreement, the case is considered resolved, and the plaintiff agrees to drop the suit.

In the context of insurance, a settlement occurs when an insurance company offers a monetary sum to a person making a claim on behalf of a policyholder. For example, if a complainant files a claim for a vehicular accident where the policyholder is liable, the insurance company may offer a settlement. If the complainant agrees to the offer, they forfeit the right to make any future claims related to that accident.

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