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Funding Settlements Involving a Minor’s Claim Without Court Approval Can Be Risky

You have just settled a personal injury action involving two plaintiffs, a mother and her minor child. The mother executes the settlement agreement, and plaintiffs’ counsel agrees to seek a court order approving settlement of the minor’s claim. However, counsel demands you immediately issue a check for the mother’s claim. It is a common request, particularly in cases where the minor’s injuries are relatively insignificant in comparison to the parents. Indeed, insurers frequently issue checks before the order approving the minor’s settlement is entered. But should you do it?

Settlement of a Minor’s Claim is Not Enforceable Absent Court Approval

Court approval is required for the compromise or settlement of a minor’s personal injury claim. (Prob. Code § 2504; Pearson v. Sup.Ct. (Nicholson) (2012) 202 Cal. App. 4th 1333, 1337.) If court approval is not obtained, the minor’s settlement is voidable. (Scruton v. Korean Air Lines Co., Ltd. (1995) 39 Cal. App. 4th 1596, 1603-1605.) Significantly, defendants cannot enforce the settlement pursuant to Code of Civil Procedure section 664.6; courts lack the authority to enforce settlements where the minor’s guardian ad litem repudiates the settlement before the order approving the settlement is signed. (Id. at 1607.)

In the above scenario, if the mother’s check has been issued, there is nothing preventing the mother from cashing the check, and then repudiating the settlement. Or consider the situation where the check is issued, but the court then declines to approve the settlement, finding the compensation to the minor insufficient. Counsel would be forced to renegotiate the settlement. In this situation the settlement funds have likely already been spent. So what should be done?

Petition for Court Approval

Counsel should prepare and submit a petition to approve compromise of a pending action under California Rule of Court 7.950. The judicial council form MC-350 must be used.

An expedited petition (form MC-350EX) can be used where:

(1) The petitioner is represented by an attorney authorized to practice in the courts of this state;

(2) The claim is not for damages for the wrongful death of a person;

(3) No portion of the net proceeds of the compromise, settlement, or judgment in favor of the minor or disabled claimant is to be placed in a trust;

(4) There are no unresolved disputes concerning liens to be satisfied from the proceeds of the compromise, settlement, or judgment;

(5) The petitioner’s attorney did not become involved in the matter at the direct or indirect request of a person against whom the claim is asserted or an insurance carrier for that person;

(6) The petitioner’s attorney is neither employed by nor associated with a defendant or insurance carrier in connection with the petition;

(7) If an action has been filed on the claim: (A) All defendants that have appeared in the action are participating in the compromise; or (B) The court has finally determined that the settling parties entered into the settlement in good faith;

(8) The judgment for the minor or disabled claimant (exclusive of interest and costs) or the total amount payable to the minor or disabled claimant and all other parties under the proposed compromise or settlement is $50,000 or less or, if greater: (A) The total amount payable to the minor or disabled claimant represents payment of the individual-person policy limits of all liability insurance policies covering all proposed contributing parties; and (B) All proposed contributing parties would be substantially unable to discharge an adverse judgment on the minor’s or disabled person’s claim from assets other than the proceeds of their liability insurance policies; and

(9) The court does not otherwise order. (CRC 7.950.5(a).)

Generally, the court must rule on the expedited petition within 35 days of filing, and ordinarily does so without a hearing. (CRC 7.950.5(b).)

The court must also approve attorney’s fees paid to the minor’s counsel (Fam. Code § 6602; Prob. Code § 3601), and reasonable expenses and court costs (Prob. Code § 3601).

The petition may be heard ex parte. (Pearson v. Sup.Ct. (Nicholson) (2012) 202 Cal. App. 4th 1333, 1337-1338.)

Conclusion

Defendants, and the attorneys and insurance professionals that represent them, should take care in obtaining court approval of all settlements involving minors, prior to funding the settlement, or face the consequences.