The insurer and the insured had entered into releases “in settlement of a claim”. The court found that the agreement was not necessarily a settlement or compromise agreement as opposed to simply an agreement to pay an insurance claim.
There is a distinction between settlement of a claim and settlement of a dispute. The settlement of a claim is no more than the customary language used where the insurer considers a claim presented in the light of the evidence and the terms of the policy and the parties agree to the amount of the indemnity. A true settlement (compromise) is where there is an underlying dispute. There is no bright line between a settlement of a claim in the ordinary course of the conduct of an insurer’s business and a contract of compromise settling a dispute. The law of compromise relates to dispute settlements. It can depend on the nature of the negotiations and how the agreement of settlement is worded. In this matter the insured gave up the right to pursue any larger claim and both parties obtained certainty resulting from the conversion of an unascertained claim to an ascertained and agreed amount. It was therefore a compromise if there is no dispute.
The South African law of compromise is similar but the test of giving up a greater right is not sufficient.