In almost every civil case, binding settlement authority rests with the client. An attorney can negotiate, an adjuster can offer, and a corporate officer can sign, but each is acting as an agent, and each is bound by whatever authority the actual party has granted. Who holds that authority, and how it has to be documented, depends on whether the party is an individual, a company, a government body, an insurer, a minor, or a certified class.
The Client Decides Whether to Settle
ABA Model Rule 1.2(a) requires a lawyer to abide by the client’s decisions about the objectives of representation, and settling a case is the most consequential objective decision in most lawsuits.1American Bar Association. Model Rules of Professional Conduct Rule 1.2 – Scope of Representation and Allocation of Authority Between Client and Lawyer A lawyer who accepts an offer without the client’s permission exposes themselves to discipline and malpractice liability. The lawyer evaluates risk and recommends. The client decides.
That decision depends on getting the information. Under Model Rule 1.4, an attorney who receives a settlement offer must promptly communicate it to the client, whatever the lawyer thinks of it.2American Bar Association. Model Rules of Professional Conduct Rule 1.4 Communications – Comment The only exception is where the client has already instructed the lawyer in advance to accept or reject offers matching set criteria. Filtering offers based on the lawyer’s own view of what’s worth presenting violates the rule.
When an Attorney’s Agreement Binds the Client
Lawyers are agents, and ordinary agency doctrine governs how far their authority reaches. Actual authority exists when a client has directly told the lawyer to accept a particular amount or stay inside a particular range. Apparent authority arises when the client’s own conduct leads the other side to reasonably believe the lawyer can close the deal. Sending counsel to a settlement conference with no disclosed limits can produce apparent authority even where the client never meant to grant it.
On-the-record agreements are especially hard to undo. When an attorney states terms in open court and the opposing side agrees, most courts treat that exchange as a binding contract. In Kokkonen v. Guardian Life Insurance Co., the U.S. Supreme Court held that once a settlement is incorporated into the court’s dismissal order, the court keeps jurisdiction to enforce it. If your lawyer says “we accept” in front of a judge and the terms go on the record, changing your mind afterward almost never works.
Private settlements that never reach the record are harder to pin down. Some federal courts look to state law on whether an oral agreement is enough or whether writing and a signature are required. Insisting on a signed writing before treating anything as final is the safe path, but an oral agreement reached in mediation is not automatically unenforceable.
Corporate and Government Parties
When the party is an organization, identifying who actually holds authority takes work. Corporate bylaws typically set dollar thresholds that determine whether a CEO can approve a settlement alone or whether the board must vote. A board resolution or secretary’s certificate is the standard proof that a named officer has been authorized to settle for a stated amount. Asking for that documentation early matters, because learning at the end of a mediation session that the person across the table still needs board approval wastes everyone’s time.
Government parties add a layer. A city attorney or agency counsel almost never has independent authority to commit public funds. Settlements involving municipalities, school districts, or state agencies routinely require a vote by the governing body, whether that is a city council, a county board, or an agency commission. Those votes happen on scheduled public meeting dates, so authorization can take weeks. Deadlines set to expire before the next meeting are deadlines set to be missed.
Insurers and the Shift of Authority
When an insurance policy covers the defendant, settlement authority often moves from the insured to the carrier. Most commercial general liability policies include a cooperation clause requiring the insured to help with the defense and a voluntary payments clause barring the insured from settling or assuming obligations without the insurer’s consent. Within the policy limits, the insurer controls the negotiation.
The adjuster at the mediation typically carries a pre-approved authority ceiling, meaning the maximum amount they can offer without going back to a supervisor. That ceiling is not disclosed to the other side. If the case settles within policy limits, the insurer writes the check. If the demand exceeds policy limits, the policyholder has to separately authorize and fund the difference, and two parties then each hold a piece of the settlement authority.
Bad Faith Exposure for Refusing to Settle
An insurer that unreasonably refuses an offer within policy limits takes on real risk. If the case goes to trial and produces a judgment above the limits, the insurer can be held liable for the entire excess under a bad faith theory. The insured generally must show that a reasonable offer was made within limits, that the insurer refused without justification, and that the refusal produced a larger judgment. Damages can include the excess judgment, consequential financial losses, emotional distress, and in some cases punitive damages. It is one of the few places where holding settlement authority can backfire on the party holding it.
Minors and Incapacitated Persons
A minor or a legally incapacitated person cannot authorize a settlement on their own. Courts treat this as a hard rule. A court-appointed guardian of the minor’s estate, or someone performing a similar function under judicial supervision, is generally the only person who can execute a binding settlement on the minor’s claim.3eCFR. 32 CFR 536.63 – Settlement Agreements Even then, the agreement is not enforceable until a court approves it.
The person who usually runs this process is a guardian ad litem appointed to protect the minor’s or incapacitated person’s interests in the lawsuit. The guardian ad litem negotiates terms, decides whether to accept or reject, and files a petition asking the court to approve the deal. The court then conducts its own inquiry into whether the proposed settlement actually serves the minor’s best interests. A judge can reject terms that look adequate on paper if they fail to account for long-term needs. The minor has no independent right to repudiate a compromise the guardian ad litem has negotiated.
The minor’s state of residence determines the age of majority and the required type of court approval, measured by the minor’s age at the time of settlement rather than at filing.3eCFR. 32 CFR 536.63 – Settlement Agreements If a minor turns 18 during the litigation and has reached the age of majority in that state, the court-approval requirement falls away.
Class Actions
Class actions are the most restricted. Under Federal Rule of Civil Procedure 23(e), a certified class’s claims can be settled only with court approval, following a formal hearing.4Legal Information Institute. Federal Rules of Civil Procedure Rule 23 – Class Actions Neither the named plaintiff nor class counsel can finalize a deal independently. The judge must find the proposal fair, reasonable, and adequate after weighing whether the class representatives and class counsel adequately represented the class, whether the deal was negotiated at arm’s length, whether the relief is adequate given the costs and risks of trial, and whether the proposal treats class members equitably.
Before the hearing, the court must direct notice to all class members who would be bound. In cases certified under Rule 23(b)(3) seeking monetary damages, class members who do not want in have to affirmatively opt out within a set period. Anyone who does not opt out is bound by the outcome, even if they never read the notice. That transfers a significant piece of settlement authority away from individual claimants, which is why courts scrutinize class settlements closely.
Documentation That Proves Authority
Verbal claims of authority are not enough in most formal settings. Courts, mediators, and opposing counsel expect written proof.
- A power of attorney, when an individual client cannot attend in person, naming the representative and specifying whether the authority covers settlement of the particular case and any dollar limits on the representative’s discretion.
- A board resolution or secretary’s certificate for a corporation or other business entity, confirming that the governing body has authorized a specific officer to settle for a defined amount or range, and identifying the case, the officer, and the scope.
- An insurer authorization letter, which internally documents the maximum amount an adjuster can extend. It is not typically shared with the opposing party, but it serves as the adjuster’s proof of authority if challenged.
These documents should be prepared, signed, and if local rules require it, notarized before negotiation begins. Promising a mediator that the paperwork will follow creates delays that can kill a deal. Include the case number, the names of the parties, the specific dollar range authorized, and an expiration date.
Showing Up Without Authority
Federal judges enforce authority requirements, and they have the tools to do it. Rule 16(c)(1) of the Federal Rules of Civil Procedure empowers a court to require that a party or its representative be present, or at least reasonably available, to consider settlement at pretrial conferences.5Legal Information Institute. Federal Rules of Civil Procedure Rule 16 – Pretrial Conferences; Scheduling; Management When someone appears without real authority, Rule 16(f) applies.
Under Rule 16(f), a court may impose any just order, including sanctions from the discovery-abuse toolkit, if a party fails to appear, is substantially unprepared, does not participate in good faith, or fails to obey a pretrial order. The court must also order the noncompliant party or attorney to pay the reasonable expenses, including attorney’s fees, that the other side incurred as a result, unless the failure was substantially justified.5Legal Information Institute. Federal Rules of Civil Procedure Rule 16 – Pretrial Conferences; Scheduling; Management Courts have held that having an insurance representative available only by phone is not attendance and is not good-faith participation. If the order says to appear with authority, the person with authority has to be in the room.