United States: CSAA Insurance Exchange V. Raed Hodroj

Acceptance of Settlement Offer Constituted a Binding Contract, Notwithstanding Failure to Reduce the Parties' Settlement to a Formal Agreement

(December 2021) -  In CSAA Ins. Exch. V. Hodroj, 72 Cal.App.5th 272 (December 1, 2021), the California Sixth District Court of Appeal affirmed the trial court's entry of summary judgment in favor of CSAA in connection with a dispute arising out the settlement of a bodily injury claim made by Raed Hodroj (“Hodroj”) against CSAA Insurance Exchange's (“CSAA”) insured. The claim arose out of an automobile accident. Hodroj's attorney offered to settle his claim for bodily injury for policy limits, conditioned on receipt of the policy face page, a declaration confirming policy limits and delivery of a check within 21 days of acceptance of the offer. The offer also noted CSAA could condition its acceptance on Hodroj signing a written release of all bodily injury claims against CSAA's insured.

Fifteen days later, CSAA send a written acceptance of the offer. The letter accepting the offer included the policy face page and a signed declaration confirming policy limits. In addition, CSAA sent a formal release for signature by Hodroj. A $100,000 check was sent separately with the proviso that it should not be cashed until the release was signed.

The next day, Hodroj advised that there was no settlement as the release sent by CSAA included Hodroj's claim for property damage. Hodroj contended that the release constituted a counteroffer, abrogating the parties' settlement. Hodroj than filed a lawsuit against CSAA's insured alleging bodily injury and property damage claims. In response, CSAA file a separate lawsuit for breach of contract contenting that Hodroj's settlement offer and CSAA's acceptance constituted a binding agreement.

Subsequently, CSAA filed a motion for summary judgment arguing that Hodroj breached the contract by filing a lawsuit alleging bodily injury damages. Thereafter, the trial court granted CSAA's motion, finding that the parties entered into a binding contract, notwithstanding the absence of a formal agreement.

In affirming the trial court's entry of summary judgment, the Court of Appeal reasoned as follows:

A well-established principle of contract law dictates the result here: when parties agree on the material terms of a contract with the intention to later reduce it to a formal writing, failure to complete the formal writing does not negate the existence of the initial contract. (Harris v. Rudin, Richman & Appel  (1999) 74 Cal.App.4th 299, 307; Banner Entertainment, Inc. v. Superior Court  (1998) 62 Cal.App.4th 348, 358.) If the parties do not agree on the content of the formal writing (for example because one party wants to include something not agreed on in the first place, as Hodroj says happened here), the proposed writing is not a counteroffer; rather, the initial agreement remains binding and a rejected writing is a nullity. (American Aeronautics Corp. v. Grand Central Aircraft Co. (1957) 155 Cal.App.2d 69, 82; Khajavi v. Feather River Anesthesia Medical Group (2000) 84 Cal.App.4th 32, 61.)

Given that rule, the propriety of the summary judgment here comes down to one question: Would a reasonable person looking at the parties' communications think they intended to be bound by a settlement agreement that would later be reduced to a more formal writing? (See Beard v. Goodrich (2003) 110 Cal.App.4th 1031, 1038 [contract formation is governed by objective standards; the test is what the outward manifestations of consent would lead a reasonable person to believe].) We conclude the communications between Hodroj's lawyer and CSAA reflect a settlement which could be later memorialized in a formal writing. No reasonable trier of fact would find otherwise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.