Should I Cash the Insurer’s Check?

By and | April 10, 2019

In the midst of a coverage dispute, an insurer will often issue a check to the policyholder for less than the amount the policyholder contends is due. On these occasions, the policyholder will ask, “Should I cash the check?” The policyholder’s legitimate fear is that cashing the check will eliminate the right to chase the insurer for more money.

Sometimes an insurer will provide a check as an advance or partial payment and does not intend payment in full.  Sometimes the insurer may intend the check to constitute payment in full, even though there’s a dispute and the policyholder believes more is due. Or, after the fact, the evidence may be murky, and the insurer’s lawyers may argue and try to prove that the policyholder waived its rights by cashing the check. On these occasions when the insurer intends payment in full (or when the lawyers may be able to prove that intent later on), the policyholder may, in fact, waive the ability to pursue the insurer for a deficiency by cashing the check.

Whether a policyholder waives rights by cashing the check is governed by a doctrine called “accord and satisfaction.” An “accord” is an agreement to substitute a new obligation for an existing obligation. The “satisfaction” occurs with the performance of the new obligation agreed under the “accord.” Importantly, there can be no “accord and satisfaction” in the absence of an offer and acceptance that is supported by consideration.

In context, this means that there must be a conspicuous offer of an accord. The conspicuous offer of accord is sometimes communicated in the check memo with a notation of “Payment in Full,” or something similar. The offer of accord might also be communicated separately, for example, in a cover letter accompanying the check. If there is no conspicuous offer of accord, cashing the check cannot consummate the accord or constitute satisfaction. Additionally, there must be a bona fide dispute as to the fact or amount of the insurer’s obligation. If there is no dispute, then there is no consideration — the insurer is not offering anything to the policyholder in exchange for reducing the amount of the payment obligation. In the absence of consideration, there can be no accord and satisfaction.

Assuming there is consideration (and there usually is), when a policyholder receives a check accompanied by a conspicuous statement of accord (e.g., a “Payment in Full” notation), the policyholder has only two options:  (1) to cash the check and accept the partial payment as payment in full, or (2) to decline to cash the check and reject the offer of the purported payment in full. Notably, cashing the check, but erasing or altering a “Payment in Full” notation or sending a letter rejecting the separate offer of accord, will not avoid the accord and satisfaction. The policyholder can only avoid accord and satisfaction by securing the insurer’s withdrawal of the offer of accord in writing before cashing the check.

Scott Hecht

Contact Scott Hecht or Kate Bechina for more information.