Like settlements made with estates, Pennsylvania law provides a mechanism for court-approved settlement with minors. The law surrounding the court-approval of settlements with minors, however, differs in slight degrees and comes with distinct nuances. When settling claims with unrepresented minors, insurers should understand the nuances, the possible need for legal counsel, and the process for a petition for a minor’s compromise. We will discuss this below.
Is Court Approval Needed?
Unlike the settlement with estates, governed by 20 Pa. C.S. § 3323, settlement with minors is governed by the Pennsylvania Rules of Civil Procedure, specifically Pa. R.C.P. 2039. Pa. R.C.P. 2039 only requires court approval in the “action to which a minor is a party.” One Superior Court decision in 1957 interpreted this to mean that there is no requirement for court approval if there is no “action” in Court. Bollinger v. Randall, 135 A.2d 802, 805 (Pa. Super. 1957). No later decision states otherwise. If the claim was settled before litigation, a Court can nonetheless approve the minors’ settlement petition in the Orphans’ Court, and many judicial districts have their own special rules on how to obtain court approval for the pre-suit settlement of claims. Despite the language in the rule, insurers who settle claims with minors before litigation often opt to file petitions to (i) protect the guardian, sometimes the named insured, from allegations of improper settlement handling on behalf of the minor and (ii) protect the insured defendant’s interests if the minor later claims the settlement is void.
Whether a minor can later void a settlement is a matter for debate. Generally, the law in Pennsylvania is that minors may disaffirm their contracts or those made on their behalf upon reaching the age of majority. But in cases involving releases and the settlement of claims, Courts historically have not permitted a minor’s voiding of a settlement and release if the minor has personally received part of the consideration paid for the release or has participated in its benefits. Schmucker v. Naugle 231 A.2d 121 (Pa. 1967) (holding minor who had not received any part of settlement may disaffirm settlement agreement); Frank v. Volkswagenwerk, A. G. of W. Germany, 522 F.2d 321 (3rd Cir. 1975); Simmons by Grenell v. Parkette Nat. Gymnastic Training, 670 F.Supp. 140 (E.D. Pa. 1987). Still, given the paucity of recent appellate authority on the issue, and the requirement of a court petition to finalize settlement in the analogous context a decedent’s estate, many insurers chart the cautious approach and file a petition for a minor’s compromise whenever settling with a minor before litigation. See also Power by Power v. Tomarchio, 701 A.2d 1371, 1374 (Pa. Super. 1997) (interpreting Pa. R.C.P. 2039 and holding “the courts were given the mandate to supervise all aspects of settlements in which a minor is a party in interest.”) (emphasis in original).
Who Can File the Petition?
In a petition to settle with an estate, 20 Pa. C.S. § 3323 permits “any party in interest” to file the petition to settle. Yet this is not so in the case of a petition for a minor’s compromise. The language of Rule 2039 indicates the guardian, not any party, must present the petition to the Court. See Pa. R.C.P. 2039 (“No action to which a minor is a party shall be compromised, settled or discontinued except after approval by the court pursuant to a petition presented by the guardian of the minor”) (emphasis added). Consequently, insurers retain counsel to represent the claimant, not the insured, in settlements arising from third-party claims, or the insurer itself, in settlements arising from first-party claims, to file the petition.
This might place the insurer in an unusual position of hiring counsel to represent an insurance claimant. But is it a conflict of interest to pay counsel to file a petition on behalf of the claimant so the claimant can collect from the insurer? Typically, no. Because the insurer and the claimant have identical interests—settlement—there is no “conflict” present that would require informed consent. See Pa. R.P.C. 1.7. Nonetheless, the attorney representing the claimant must inform the claimant that the insurer is paying the attorney. Id., comment 13.
Contents of Petition
Although Pa. R.C.P. 2039 does not expressly discuss the contents of a petition to settle, local rules typically provide for specific requirements. Many counties, including Philadelphia and York counties, require the party filing the petition to append to the petition a report of a physician discussing the physical and mental condition of the minor. See, e.g., Phila. Civ. R. 2039(D)(5)(a). Occasionally, depending on the severity of the minor’s injuries, a Court might accept a treatment record if the record states the minor is expected to make a full recovery. Otherwise, the guardian will need to obtain a report from a primary care physician showing the minor’s current state of health. This, of course, slows down the process. The remaining content requirements will also require counsel to provide (i) their professional opinion on the sufficiency of the settlement (ii) a verified statement of the guardian certifying approval and distribution, and (iii) discussion on any Department of Human Services liens or compromised medical expenses. Philadelphia also requires the minor’s written approval if the minor is over sixteen years old.
Additionally, in the context of an unrepresented minor, counsel should also consider inserting language discussing the circumstances behind settlement and the retention for counsel. Doing so can inform the Court that the minor is unrepresented, and that the guardian is represented only with a narrow scope of representation.
Disbursing of Funds
The last obstacle comes after Court Approval. Pa. R.C.P. 2039 and local rules require that settlement funds be disbursed to a federally insured bank, credit union, or other financial account in the name of the minor only. See Pa. R.C.P. 2039(b)(2). This will usually require the guardian to go to the institution itself, but counsel should also be involved in the process and speak to the institution about the need that the account is opened only in the minor’s name. Often a financial institution will require the guardian or the lawyer to provide a copy of the Court Order requiring such accounting. Following this, local rules often require (i) counsel, and not the guardian, to arrange for the deposit of the settlement proceeds and (ii) counsel’s affidavit that the funds were deposited into the restricted account, annuity, structured settlement, or trust, with proof of deposit. See, e.g., Phila. Civ. R. 2039(H).
Conclusion
The above is only a brief overview of the minor’s compromise settlement process. While inconvenient, the Rules nonetheless require these steps to protect minors’ future assets. If you have a settled Pennsylvania insurance claim with an unrepresented minor, consider retaining Pennsylvania counsel to guide you through the process.
For additional questions, please contact Christopher S. Regan, Esq., Martin Beck, Esq., Glen Shikunov, Esq., or Scott J. Tredwell, Esq.
This article was prepared by McCormick & Priore, P.C. to provide information on areas of interest to our readers. This publication is in no way intended to provide legal advice or to create an attorney-client relationship. All Rights Reserved. This article may not be reprinted without the express written permission of McCormick & Priore, P.C.