Releasing Unknown Claims And The Secret Ingredient!

Rachael R Presler

By Rachael R. Presler

Minnesota law encourages the settlement of litigation. See Jallen v. Agre, 119 N.W.2d 739, 743 (Minn. 1963). Considering settlement options and having frank discussions with clients about the benefits of settlement occurs nearly every day and in nearly every practice area. By some measures, studies show that upwards of 97 percent of all civil cases settle before trial. At the very least, parties are often required by court order to engage in mediation in an attempt to avoid the expense and uncertainties of trial. There are a number of generally accepted benefits to settlement on which most lawyers agree, but the ever-growing number of settled cases requires practitioners to consider the scope and effect of the settlement agreement’s language on the released claims. Complexities arise when the parties agree to release unknown damages for unknown claims.

Many settlement agreements and releases contain language releasing claims that are unknown at the time of the settlement. However, there is a body of caselaw that gives pause to parties releasing unknown claims in the context of personal injury, minor settlements, and cases that weigh the societal costs of settling undiagnosed medical conditions. See Barilla v. Clapshaw, 237 N.W.2d 830 (Minn. 1976); Doud v. Minneapolis St. Ry. Co., 107 N.W.2d 521(Minn. 1960); Aronovitch v. Levy, 56 N.W.2d 570 (Minn. 1953). These cases have a similar theme in that the releasing party may not be fully aware of the nature and extent of the known and unknown injuries.

This question was recently considered by the Minnesota Court of Appeals in the construction law context in Waters Edge Community Association, Inc., et al. v. Pulte Homes of Minnesota, LLC, et al., 2017 WL 1838910 (Minn. Ct. App. May 8, 2017). The Waters Edge court affirmed a 10th Judicial District Court’s decision upholding three separate settlement agreements that arose from two lawsuits concerning the same property. The Waters Edge holding highlights a party’s ability to enter into an enforceable contract forever releasing future unknown construction-defect claims.

Waters Edge involved a residential development consisting of 892 townhomes. Waters Edge Community Association, Inc., 2017 WL 1838910 at *1. In 2012, the homeowners began complaining about various construction issues and performed an investigation. The homeowners brought suit against the developer/general contractor shortly thereafter for breach of contract, negligence, and breach of express and implied warranties. Id. Ultimately, the parties entered into two mediated settlement agreements resolving the claims. Id.

In 2014, the homeowners brought a second lawsuit against the developer/general contractor and three individuals for breach of warranty and breach of fiduciary duty. Id. The parties again resolved the matter and entered into a third settlement agreement. Id. at *2.

In 2015, the homeowners underwent another inspection and subsequently commenced a third lawsuit again naming the developer/general contractor. Id. The suit was dismissed on res judicata grounds finding the parties intended the third release to be a global release of all claims and there was no evidence suggesting the alleged defects did not exist at the time of the third settlement and release. Id.

On appeal, the homeowners argued the settlement agreements did not release claims for future unknown injuries. Id. at *3. The court of appeals engaged in an analysis of the language in all three settlement agreements and considered the course of litigation between the parties. Id. at *3-4. The court found the language in the third settlement agreement was broader than the prior two agreements and specifically released “all unknown damages … on account of … any claims asserted or that could have been asserted.” Id. at *3. This provision was defined to include both the 2012 and 2014 lawsuits. Id. at *3 n.3. The court noted the broad language in the third agreement demonstrated a desire to settle all remaining claims and a shared intention to conclude the issues between the parties once and for all. Id. at *4. The court affirmed the understanding that “[a] party may release claims for unknown injuries.” Id. at *4.

The court in Waters Edge upholds the general principle that parties may contract to release unknown damages for unknown claims as long as the parties’ motive is clear and supported by the language of the settlement agreement. Drafters should be intentional about the scope of their releases and the language’s affect on unknown claims.


Rachael R. Presler is a member of Foley & Mansfield’s commercial litigation group. Her practice consists of general litigation, construction, and employment matters. Rachael can be reached via email at rpresler@foleymansfield.com.