Court Approval of Minor Settlements: A Step-by-Step Guide

This guide is intended for North Carolina claims examiners and focuses on two primary topics: (1) the legal background regarding when and why court approval of settlements involving minors is required, and (2) a practical step-by-step explanation of the court approval process, including common questions regarding when, where, and how approval is obtained.

First and foremost, North Carolina courts have “inherent authority over the property of infants¹ and will exercise jurisdiction whenever necessary to preserve and protect children’s estates and interest.” Creech v. Melnik, 147 N.C.App. 471, at 477 (2001). This authority includes the courts “look[ing] closely into contracts or settlements materially affecting the rights of infants.” Id. In light of this authority, the settlement of a minor’s claim becomes effective and (more importantly) binding only after a “judicial examination and adjudication.” Payseur v. Rudisill, 15 N.C. 57 (1972). This is significant, as without the court’s review and adjudication of the settlement, any release or covenant not to enforce judgment signed by or on behalf of the minor is invalid. See Ballard v. Hunter, 12 N.C.App. 613 (1971). Moreover, the minor’s claim will generally not be barred by the statute of limitations until three years after removal of the “disability”, i.e., the minor turning 18 under N.C. Gen. Stat. § 1-17.²

When a minor suffers an injury as the result of the negligence of another, this generally gives rise to two separate claims: (1) the minor’s claim for pain and suffering; and (2) a claim by the parent of the minor for medical expenses incurred and any loss of services of the minor. Flippin v. Jarrell, 301 N.C. 108 (1980). The parent’s claim is based on the parent having an obligation and duty to support their child until that child reaches the age of majority. Id. This parental obligation includes the provision of “necessaries,” which traditionally includes medical care. Alamance County Hospital Inc. v. Neighbors, 315 N.C. 362 (1986). Indeed, this duty survives divorce and survives even when custody may be transferred to another parent. Id. at 365-66.

When the Court does undertake an investigation into the minor’s settlement (which practically speaking, is generally an inquiry during the 10 – 15 minute hearing requesting the court’s approval of the settlement) the “welfare [of the child] is the guiding star in determining the reasonableness and validity” of the settlement. See Redwine v. Clodfelter, 226 N.C. 366 (1946). Note that the Court only has authority of the property of the minor. As such, court approval of settlement funds being paid to the parent of the minor is not strictly required. However, from a practical standpoint, it may make sense to advise the court (or the court may directly inquire) of the amount of settlement funds being received by the parent in order to confirm the minor child’s welfare is being taken care of to the best extent possible.

Having covered the "who," "what," and "why" of minor settlement approvals, we can now turn to the practical aspects of the process: the "when," "where," and "how."

When

As noted above, court approval is required for settlement funds being paid to a minor, which is anyone under the age of 18. As such, consideration must be given to settlements reached with minors who are age 17 and how close the minor is to turning 18. On a handful of occasions, I have personally dealt with cases where the minor simply turned 18 either before getting a hearing in front of a judge was even possible, or within such a short amount of time thereafter that the minor and his/her guardian ad litem decided just to wait until the minor turned 18 and accept the settlement funds in exchange for signing a release at that time.

Note: If the injury occurs during the time the plaintiff or injured party is a minor, the parent will always hold their claim for medical expenses incurred, if any. This claim does not transfer to the minor upon reaching the age of majority. As such, to settle a claim after the minor turns 18 will require full and separate releases (in exchange for settlement funds) from both the parent and the minor.

Where

Minor court approvals can be done in almost any trial court in North Carolina, with the consent of the parties. As to the trial division, i.e. whether to have the matter heard in District or Superior Court, consideration should be given to the jurisdictional amounts of each court. Pursuant to N.C. Gen. Stat. § 7A-243, District Court is generally appropriate for matters wherein the amount in controversy does not exceed $25,000.00, while Superior Court is for matters with amounts in controversy in excess of $25,000.00. Another factor will be the availability of the Court. Often times, smaller districts (i.e., more rural counties) have very few District Court civil motions hearings during the calendar year, making it difficult to schedule a hearing. As such, matters filed in those counties may wish to file in Superior Court in order to have access to more available motions’ calendars. If all parties consent to the filing, then the trial court division essentially becomes allowable forum shopping for the parties. In the age of Zoom or Webex hearings, often times parties look for counties willing to hold minor court approval hearings via remote video conference as that is often the easiest from a logistics and efficiency standpoint (and saves everyone time and money).

How

The most common method of obtaining court approval of a minor settlement is the filing of a “friendly lawsuit.” This lawsuit is often characterized as “friendly” because the sole purpose of the suit is to obtain the court’s approval of a settlement that has already been negotiated and agreed upon between the parties. If a settlement is reached during the pendency of an otherwise litigated lawsuit, which involves a minor, then the simple filing of an appropriate motion or petition with the court will suffice to enable the court to conduct an appropriate review.

Minor Court Approval Steps

Step 1 – Selection and Appointment of the guardian ad litem

Before proceeding with the friendly lawsuit, an appropriate person to serve as guardian ad litem (“GAL”) for the minor(s) will need to be identified. Certain situations may dictate the need for multiple GALs. If there is more than a single minor and the possibility of conflicting interest in the division of the settlement proceeds, please consult with your outside counsel regarding whether more than one guardian is appropriate.

Pursuant to Rule 17 of the North Carolina Rules of Civil Procedure, minors or “infants” must sue and appear by way of a guardian ad litem. See N.C. Gen. Stat. §1A-1, Rule 17. The Rule further provides that the appointment of the guardian ad litem must be done prior to or at the time of filing and commencement of the action, “upon the written application of any relative or friend…or by the court on its own motion.” See Rule 17(c)(1). After appointment of the guardian ad litem, “the court may proceed to final judgment, order or decree as if the party was under no disability.” See Rule 17(e).

It is very common to see the mother, father or close relative of the minor appointed to serve as the guardian ad litem. Typically, this raises no issue unless the parent or relative is the tortfeasor that gave rise to the minor’s negligence claim. In that instance, it is likely advisable to have either another relative or attorney appointed to serve as guardian ad litem. Additionally, if the settlement is for a large amount or presents more complex issues with regard to the disbursement of the settlement proceeds, having an attorney appointed as the guardian ad litem may also serve to assure the court that the settlement has been properly reviewed and explained to the plaintiff and/or the plaintiff’s family.

Step 2 – Commencement of the Action through the Hearing

After or contemporaneously with the appointment of the guardian ad litem, a friendly lawsuit must be filed in order to obtain court approval. If the minor is not already represented by counsel when a settlement is reached, then the general practice is for the insurance carrier to pay (in addition to their outside fee counsel) a separate lawyer a flat fee to serve as counsel for the minor. Doing so provides a lawyer for the minor, who can walk the minor (and likely the minor’s parents) through the court approval process and ensure proper distribution of the settlement funds (step 3) upon approval of the settlement. In simpler situations, the minor’s parents may be able to appear pro se, assuming all medical liens are being properly handled.

The Parties

The parties to the friendly action are generally going to be the minor by way of his or her guardian ad litem and the parent of the minor, assuming the parent is making a compensatory damages claim for reimbursement of medical expenses. While the court does not have the “inherent authority” over the property of the parent, having the parent’s share of the settlement before the court helps ensure a complete examination of the settlement terms prior to the court entering its order.

Filing the action is as simple as drafting a simple negligence lawsuit and appropriate corresponding documents, such as a summons and civil action cover sheet, and filing the same on behalf of the minor.

Service of Process

Obtaining service of process on the Defendant or alleged tortfeasor is always a prudent course of action; however, generally my experience has been that service of process has not been necessary in order to obtain approval. From the standpoint of the Insurer, the Insurer may desire to advise their insured that a settlement was reached with a particular claimant and that the settlement requires court approval. This courtesy avoids the insured being surprised to find that he or she is a named defendant in a lawsuit they knew nothing about. However, from time to time the insured cannot be located or is nonresponsive. In these scenarios proceeding with court approval can still be accomplished despite not having obtained service of process on the insured. Moreover, the matter should be dismissed with prejudice at the conclusion of the Court Approval hearing.

One item to note: On rare occasion, the minor or guardian will (after agreeing to the settlement with the Insurer) question the fairness of the settlement. If a lawyer has already been hired by the Insurer to represent the minor, this may lead to that Lawyer either withdrawing or representing the minor on a contingency fee basis and attempting to litigate the matter to increase the settlement (whether there was already an agreed upon settlement would likely provide a defense to that action). In this instance the “friendly lawsuit” may develop into the more typical personal injury lawsuit with discovery, depositions, etc. As such, making sure the insured is aware of these proceedings becomes more important in these types of scenarios.

The Hearing

Assuming all goes as planned, the friendly lawsuit is filed, and the matter is ready for the court’s examination and ruling on approval. A Petition and Order for Court Approval is typically the document used to place the issue of the minor’s settlement in front of the Court. This document serves as both the Motion and Order approving the settlement.

The contents of the Petition and Order needs to include key information, including but not limited to:

• (a) the total settlement reached³ and the proposed distribution of the settlement funds, to include any funds being paid to third parties such as lien holders and any funds being held for the benefit of the minor whether with the Clerk of Court’s office or being used to purchase an annuity or structured settlement;
• (b) If a parent is also an individual party to the action or if settlement funds are being paid outside of the Order to a parent, the Petition and Order should include the amounts being paid to the parent for reimbursement of medical expenses; and
• (c) If attorney’s fees are being paid out of the settlement funds, the Order should include the amount of attorney’s fees and costs incurred and being paid to plaintiff’s counsel, as a minor is incapable of contracting for legal services and, therefore, the Court’s ordering of those fees becomes necessary.

At the hearing, the Court will be presented with the Petition and Order and will then hear from counsel from each side. Typically, counsel for the minor will provide a brief factual background regarding the incident that gave rise to the lawsuit, a summation of the minor’s injuries and whether there has been a full recovery; and finally, a summation of the minor’s medical care, expenses and breakdown of the settlement distribution. The Court will also likely ask the guardian ad litem and sometimes the minor questions about the settlement including whether they understand the terms of the settlement and feel that it is a fair and reasonable settlement.

Assuming the Court finds the settlement to be in the best interest of the minor and otherwise fair and reasonable, the Court will enter the Order at the hearing, which will have the effect of simultaneously approving the settlement amount and proposed distribution and immediately dismissing the friendly lawsuit, with prejudice.

Step 3 - Distribution of Settlement Proceeds

The last step in the Court Approval process is distributing the settlement proceeds following the Court’s approval of the settlement. Typically, this task is handled by the Plaintiff’s attorney who may proceed one of two ways: (1) the Plaintiff’s attorney deposits the lump settlement into their trust account and issues checks from their trust account to the Clerk of Court (for the minor), any outstanding liens holders or Medicaid/Medicare, and any amounts for attorney’s fees, costs or amounts going to a parent; or (2) the Insurer issues multiple checks already payable to these various entities and the Plaintiff’s attorney simply takes care of ensuring the right people get the right checks to deposit. Either method effectively accomplishes the same goal.

If there are liens presented against the settlement funds either to counsel involved in the court approval or to the Insurer, consult with your outside counsel to ensure that any and all liens are properly discharged, especially those liens asserted by Medicare or Medicaid.

Once the Court has approved the settlement and the settlement proceeds have been properly distributed, the court approval process is complete and the defense file may be closed.

If you have any questions about the minor court approval process or this Step-by-Step guide, please feel free to contact me at slucente@tlg-law.com or 704-626-6552.