Mark it up, fax it back and see what happens

The Doctrine of Acquiescent Conduct in Settlement Agreements

Settlement stipulations form the backbone of dispute resolution in no-fault insurance litigation, allowing parties to resolve claims efficiently without protracted litigation. However, the formation and modification of these agreements can become complicated when one party makes handwritten changes to proposed settlement terms before signing. Under New York law, the question of whether such modifications become binding depends on the conduct of the party who received the modified document.

The doctrine of acquiescent conduct provides that when one party receives a modified agreement and takes no action to object or pursue the matter further, that party’s silence and inaction may be interpreted as acceptance of the modified terms. This principle serves important policy objectives by encouraging parties to promptly communicate objections to proposed modifications rather than lying in wait and attempting to enforce more favorable original terms months or years later.

The case of Preferred Services v Country Wide Insurance Co. illustrates how dramatically this doctrine can impact litigation outcomes, particularly when substantial sums are at stake and one party has strategically delayed objecting to modifications that were unfavorable to their interests.

Case Background: A Modified Stipulation and Six Months of Silence

In this no-fault reimbursement dispute, the plaintiff healthcare provider and the defendant insurance company engaged in settlement negotiations to resolve outstanding claims. As is common in such matters, the plaintiff’s counsel drafted a proposed stipulation outlining the settlement terms, including payment amounts and consequences for the insurer’s failure to comply with the agreed-upon payment schedule.

The proposed stipulation contained a paragraph addressing payment defaults, which included liquidated damages provisions and other consequences that would apply if the insurance company failed to make timely payments. These provisions were favorable to the plaintiff and created significant financial incentives for the insurer to comply with the payment terms.

When defense counsel received the proposed stipulation, rather than signing it as drafted, they took a different approach. Defense counsel made several handwritten changes to paragraph 2 of the document, which addressed the consequences of payment default. These modifications had two significant effects: first, they extended the time period the defendant would have to comply with the payment terms, and second, they substantially reduced the defendant’s payment obligations in the event of non-compliance. After making and initialing these handwritten changes, defense counsel returned the modified stipulation to plaintiff’s counsel.

What happened next proved critical to the litigation outcome. Upon receiving the modified stipulation with defense counsel’s handwritten changes, the plaintiff took no immediate action. Plaintiff’s counsel did not object to the modifications, did not propose counter-modifications, did not file any motions with the court, and did not engage in any further settlement negotiations. Instead, the plaintiff simply remained silent for six full months while taking no further litigation action on the underlying no-fault claim.

Jason Tenenbaum’s Analysis:

Preferred Servs. v Country Wide Ins. Co., 2012 NY Slip Op 22098 (App. Term 1st Dept. 2012)

“Upon receipt of plaintiff’s proposal, defense counsel made and initialed several handwritten changes to paragraph 2 of the document — addressing the consequences of a payment default on defendant’s part — with the changes designed to extend the time allotted to defendant to comply with the agreement’s payment terms and, more importantly here, to reduce defendant’s payment obligations in the event it failed to comply. So far as shown, plaintiff voiced no objection to the modifications proposed by defendant or took any other action in the case for a full six months after defense counsel marked up and returned the stipulation, until March 2009, when plaintiff entered judgment in accordance with the original terms of the stipulation favorable to it.

“since plaintiff itself acknowledges that the parties’ correspondence yielded an enforceable settlement agreement, we conclude that plaintiff, through “acquiescent conduct” (Eldor Contr. Corp. v County of Nassau, 272 AD2d 509 ) — including its election to forego any further litigation activity on its no-fault claim — accepted and is bound by the stipulation’s revised terms”

Well, somebody figured out how to limit the liquidated damage provision portion of the stipulation…

Legal Significance: When Silence Equals Acceptance

The Appellate Term’s decision in Preferred Services establishes important precedent regarding the formation of settlement agreements through modified proposals and acquiescent conduct. The court emphasized that the plaintiff’s six-month period of silence following receipt of the modified stipulation, coupled with its complete cessation of litigation activity on the underlying claim, constituted acceptance of the defendant’s modifications.

This holding reflects the principle that parties cannot strategically delay objecting to unfavorable modifications while waiting to see whether the counterparty will perform under the agreement. Had the defendant timely paid under the modified terms, the plaintiff presumably would have accepted those payments without complaint. The plaintiff’s attempt to enforce the original, more favorable terms only after the defendant allegedly defaulted struck the court as fundamentally unfair.

The decision also highlights the importance of the totality of circumstances in determining whether acquiescent conduct has occurred. The court noted multiple factors: the plaintiff received the modified document, voiced no objection, took no further action in the case, and allowed six months to pass. This combination of inaction and passage of time demonstrated acceptance more clearly than any single factor could have.

Furthermore, the court rejected the plaintiff’s argument that no binding agreement existed because the parties never signed a fully executed stipulation with matching terms. The court held that when the plaintiff acknowledged that the parties’ correspondence yielded an enforceable settlement agreement, the plaintiff could not then cherry-pick which version of that agreement would govern. By conceding that some agreement existed, the plaintiff became bound by the version they had accepted through acquiescent conduct: the modified version proposed by the defendant.

Practical Implications for No-Fault Practitioners

This decision carries crucial lessons for both plaintiffs’ and defendants’ counsel in no-fault insurance litigation. For plaintiffs’ counsel, the case demonstrates the critical importance of promptly reviewing any modified settlement documents and immediately communicating objections. When an opposing party returns a marked-up stipulation, counsel must either accept the modifications, propose counter-modifications, or explicitly reject the proposed changes. Silence is not a neutral option; it constitutes acceptance.

The decision also illustrates a strategic opportunity for defendants’ counsel when faced with unfavorable settlement proposals. Rather than simply rejecting proposed stipulations or attempting to negotiate entirely new terms, defense counsel can make specific, targeted modifications to the most problematic provisions and return the document. If opposing counsel fails to promptly object, those modifications may become binding through acquiescent conduct.

However, practitioners must exercise caution when employing this strategy. The modifications should be clearly marked and initialed, ensuring there can be no dispute about what changes were proposed. Additionally, counsel should document the date the modified stipulation was sent to opposing counsel, as the passage of time without objection becomes a critical factor in establishing acquiescent conduct.

For plaintiffs, the case underscores the dangers of entering into settlement agreements that contain liquidated damages provisions without carefully considering how those provisions might be modified by defense counsel. When such provisions are critical to the settlement’s value, plaintiffs should consider making them non-negotiable terms that must be accepted without modification.

Key Takeaway

When a party receives a modified settlement agreement with handwritten changes and remains silent for an extended period while taking no further action on the underlying claim, that silence constitutes acceptance of the modified terms through acquiescent conduct. Parties cannot selectively enforce the most favorable version of settlement terms after allowing modified proposals to go unchallenged for months. Legal practitioners must promptly object to unfavorable modifications or risk being bound by them, regardless of whether those terms differ substantially from the original proposal.

Related Articles

• Understanding stipulation modifications and silence as acceptance
• When inability to pay won’t void a stipulation agreement
• How stipulations relate to collateral estoppel principles
• Combating delay tactics in no-fault insurance litigation
• New York No-Fault Insurance Law