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Attorneys know, words mean everything. This is true whether taking a deposition, making an argument or preparing a contract; or, more, specifically, entering into a mediation settlement agreement. We were reminded of this in a recent case of Jerry Moorehead, et al. v. Tennessee Farmer’s Mutual Insurance Company (No. M2020-10319-COA-R3-CV, filed July 12, 2021).

In Moorehead, following suit being filed in a personal injury case, like so many personal injury litigants, the parties found themselves in mediation. And, also, like so many personal injury litigants, the parties were able to reach a settlement agreement at mediation. Following reaching the agreement at mediation, the parties memorialized the agreement.

The litigants participating in litigation, and eventually at mediation, were the plaintiffs, the defendants who were insured by Tennessee Farmers, and the plaintiffs' underinsured motorist carrier who also happened to be Tennessee Farmers. At some point prior to mediation, Tennessee Farmers in its capacity as the plaintiffs' underinsured motorist carrier, paid each plaintiff $25,000 under a medical payments provision of the plaintiffs’ policy. In other words, a total of $50,000 was paid out under the medical payments provision of the policy. The previously paid medical payments was not discussed at mediation.

When the parties reached the settlement agreement at mediation, in relevant part, the mediation settlement agreement stated:

2. The Moorehead[s’] UM carrier, Tennessee Farmers, will pay Debra Moorehead $50,000.00 for full and complete settlement of the case.

4. The Moorehead[s’] UM carrier, Tennessee Farmers, will pay Jerry Moorehead $50,000.00 for full and complete settlement of the case.

After mediation, when the parties intended to wrap up the case, a dispute arose as to whether Tennessee Farmers was required to separately pay each plaintiff $50,000 or whether Tennessee Farmers was entitled to the set-off amount that was previously paid under the medical payments provision of the plaintiffs’ Tennessee Farmers policy. If Tennessee Farmers was entitled to the set-off, it was only required to pay each plaintiff an additional $25,000 because $25,000 had already been paid to each plaintiff.

The case found its way to the Tennessee Court of Appeals. The appellate court analyzed the case under contract law. The appellate court cited some very important language applicable to the circumstances at mediation. The appellate court emphasized that the “sole object” of the rules of contract construction is “‘to do justice between the parties, by enforcing a performance of their agreement according to the sense in which they mutually understood it at the time it was made.’” (quoting McNairy v. Thompson, 33 Tenn. 141, 149 (1853)). And, the court observed that a “strong strain of textualism in Tennessee caselaw demonstrates [a] resolve to keep the written words as the lodestar of contract interpretation.”

After analyzing the unique circumstances, the appellate court’s opinion was that Tennessee Farmers, at mediation, agreed that it will pay each plaintiff $50,000 under the underinsured policy contract. Therefore, Tennessee Farmers was not entitled to the $25,000 medical payment set off previously paid to each plaintiff.

The mediation settlement agreement must be specific. It must set forth the parties intentions as far as who is paying what; who is getting credit for payments previously made; and, any other terms of the agreement. The settlement agreement must be crystal clear. The settlement agreement should not leave room for any assumptions. If one party has made a payment prior to the mediation, and that party is going to receive credit towards the remaining contribution, then the agreement should indicate so and give credit where the credit is due.

Tommy Santel is a co-founding partner of Santel | Garner. Tommy is a former government prosecutor. He is a Tennessee Supreme Court Rule 31 General Civil Mediator. Tommy’s practice areas include criminal defense and civil litigation.

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