What Is a Covenant Not to Sue in Personal Injury Cases?

James Wong — Founder & CEO, LienScripts | March 4, 2026 | 6 min read

A covenant not to sue is an agreement in which the plaintiff promises not to file or continue a lawsuit against a specific defendant, without technically releasing the underlying claim. Understanding this instrument helps attorneys manage multi-defendant settlements and lien obligations.

A covenant not to sue is a contractual agreement in which the plaintiff (or potential plaintiff) agrees not to initiate or pursue litigation against a specified party, while technically preserving the underlying legal claim rather than extinguishing it. Unlike a release — which permanently discharges the defendant's liability — a covenant not to sue is a promise to refrain from enforcing the claim through litigation, leaving the claim itself legally intact.

• A covenant not to sue is functionally similar to a release but differs in legal structure: it does not extinguish the cause of action, which has implications for contribution rights among co-defendants and lien holder obligations
• In multi-defendant personal injury cases, a covenant not to sue with one defendant can preserve the plaintiff's claims against remaining defendants while settling with the covenanting party
• Pharmacy lien holders must understand how covenants not to sue affect the flow of settlement proceeds and lien satisfaction obligations
• LienScripts generates a MERIT (Medication Evaluation & Rationale for Injury Treatment) report for every case, providing pharmacist-signed documentation for demand packages
• According to James Wong, PharmD, founder of LienScripts, "When a personal injury case involves multiple defendants and partial settlements through covenants not to sue, the pharmacy lien resolution must account for all settlement sources to ensure proper payment"

Covenant Not to Sue vs. Release

The distinction between a covenant not to sue and a release is legally significant:

Release:

• Extinguishes the cause of action entirely
• Permanently discharges the defendant's liability
• In joint tortfeasor situations, a release of one defendant may release all defendants (depending on state law)
• Cannot be breached — the claim no longer exists

Covenant not to sue:

• Does not extinguish the cause of action
• Creates a contractual promise not to sue (or to dismiss existing litigation)
• Does not automatically affect claims against co-defendants
• If breached, the covenanting defendant can raise the covenant as an affirmative defense and potentially sue for breach of contract

In practice, modern courts in many jurisdictions treat covenants not to sue and releases similarly, particularly regarding their effect on co-defendants. However, the distinction remains important in states that differentiate between the two instruments for contribution and indemnity purposes.

When Covenants Not to Sue Are Used

Multi-defendant settlements — when a plaintiff wants to settle with one defendant while preserving claims against others, a covenant not to sue allows the settling defendant to exit the case without the release potentially affecting claims against remaining defendants.

Pre-suit resolution — before litigation is filed, a potential defendant may offer a payment in exchange for a covenant not to sue, resolving the claim without the formality of a lawsuit being filed and dismissed.

Structured settlements with multiple parties — in complex cases involving insurers, employers, and third parties, covenants not to sue allow staged resolution of different claims.

Insurance coverage disputes — an insurer may require a covenant not to sue (rather than a release) as part of a coverage resolution to preserve its subrogation rights against third parties.

Impact on Pharmacy Liens

Pharmacy lien resolution in cases involving covenants not to sue requires careful attention to several issues:

Settlement proceeds identification — the pharmacy lien attaches to the proceeds of the personal injury case. When a covenant not to sue produces a payment from one defendant while the case continues against others, the attorney must determine whether the lien attaches to the covenant payment, the subsequent recovery, or both.

Notice obligations — pharmacy lien holders must receive notice of any settlement or covenant not to sue that produces proceeds from which the lien may be satisfied. Failure to provide notice can expose the attorney to personal liability for the lien amount.

Allocation — if a covenant not to sue resolves only part of the case, the attorney must allocate the lien obligation fairly between the partial settlement and any future recovery.

As Amar Lunagaria, PharmD, LienScripts' Chief Pharmacist explains, "LienScripts works with attorneys to track settlement sources across all defendants in multi-party cases. Whether the recovery comes from a release, a covenant not to sue, or a trial verdict, the pharmacy lien resolution is structured to account for the total recovery."

Good Faith Settlement and Contribution

In states that recognize contribution among joint tortfeasors, the form of the settlement instrument (covenant not to sue vs. release) can affect contribution rights:

• A release of one tortfeasor may bar contribution claims against the released party
• A covenant not to sue may preserve the non-settling defendants' contribution rights against the covenanting party because the cause of action was not extinguished

This distinction is most important in states that follow the Uniform Contribution Among Tortfeasors Act (UCATA) or similar frameworks. Many states have adopted good faith settlement statutes that protect settling defendants from contribution regardless of whether the instrument is a release or a covenant.

Related Resources

• What Is a Mary Carter Agreement?
• Pharmacy Lien Settlement Process
• Multiple Pharmacy Lien Coordination
• Coordinating Multiple Lien Providers at Settlement