WHEN DOES AN APPROVAL CONTINGENCY CONTROL THE SETTLEMENT?

Procedural posture and result

Appellate or judicial review concerning whether mediation emails formed a settlement and whether a third-party approval condition prevented performance. RESULT: The Michigan Court of Appeals concluded that the communications established agreement on essential terms and satisfied the subscription requirement. It nevertheless reversed enforcement because the stated approval condition did not occur and the insurer had not wrongfully prevented it.

What happened and what the authority decided

After facilitative mediation, the parties exchanged proposals and emails concerning past and future insurance benefits. Their lawyers’ typed email signatures supported assent, but the agreement expressly remained contingent on approval by the Michigan Catastrophic Claims Association, which later refused approval.

The Michigan Court of Appeals concluded that the communications established agreement on essential terms and satisfied the subscription requirement. It nevertheless reversed enforcement because the stated approval condition did not occur and the insurer had not wrongfully prevented it.

What this tells the mediator

Formation and performance are separate questions. A mediator should identify whether an approval clause delays performance, delays formation, or gives a decision-maker complete discretion to reject the deal.

Practical guidance

• Identify every required internal, governmental, insurer, or lienholder approval.
• State whether approval is a condition to formation or only to performance.
• Set a deadline and a defined process for obtaining the approval.
• Specify what occurs if approval is denied or delayed.
• Avoid announcing a final settlement while a controlling contingency remains unresolved.