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Deep Pocket Initiative
It's imperative not to ignore the
new math for apportioning damages
in multiple tortfeasor cases
by Curtis D. Parvin
Eleven years ago, Californians passed Proposition 51, the California Fair Responsibility Act of 1986. Popularly known as the "Deep Pocket Initiative," Prop 51 ushered in a new math for the apportionment of damages in cases involving multiple tortfeasors. The new math should significantly affect case evaluations. How does settlement by one tortfeasor affect the exposure of others? What happens if a party is judgment proof? How is injury apportioned in vicarious liability situations?
These are just a few of the questions among many that need to be asked. Unfortunately, many attorneys and their clients tend to ignore the impact of the new math when evaluating their cases. Plaintiffs tend to still think in terms of getting a whole pie from a party who is responsible for only a slice. Defendants may focus on their slice, forgetting that they may end up paying for a larger share even if it is not the whole pie, or may be under the mistaken belief that they will still end up paying for the whole pie.
Old vs. new
The old math adhered to the principle of joint and several liability whereby a defendant with only minimal liability, such as 1 or 2 percent, could end up paying for a plaintiff's entire loss if other involved tortfeasors were unreachable or judgment proof. The new math abolishes joint and several liability for "non-economic damages" in personal injury, property damage and wrongful death cases. Civil Code §1431.2.
Non-economic damages "means subjective, non-monetary losses including, but not limited to, pain, suffering, inconvenience, mental suffering, emotional distress, loss of society and companionship, loss of consortium, injury to reputation and humiliation." §1431.2(b)(2).
Economic damages, for which joint and several is still the rule, are defined as "objectively verifiable monetary losses including medical expenses, loss of earnings, burial costs, loss of use of property, costs of repair or replacement, costs of obtaining substitute domestic services, loss of employment and loss of business or employment opportunities." §1431.2(b)(1). See also, §1431. Section 1432 retains the right of a party who pays more than its proportionate obligation to seek contribution from other tortfeasors.
Application of Proposition 51
Consider the following scenario: Passenger sues Driver and Contractor for an accident that occurred in a highway construction zone. Passenger wins at trial, with Driver and Contractor held 75 percent and 25 percent responsible at trial. The damages awarded are $10,000 economic and $20,000 non-economic. Driver is judgment proof. Under the old math, Contractor pays the full $30,000, despite its smaller share of blame.
Under the new math, Contractor pays the $10,000 in economic damage, but only $5,000 of the non-economic damage (its proportionate share), for a total of $15,000, considerably less than under the old math.
Cases with pre-trial settlements
Before Prop 51, a non-settling defendant knew when it went to trial that any award obtained by plaintiff would be offset by plaintiff's prior settlements with other defendants. Under Prop 51, an offset remains for economic damages, but there is no offset for non-economic damages. Otherwise, plaintiffs would bear the risk of the divergence of any settlement compared to the result at trial.
A low settlement would result in a lower recovery than that which would be had at trial, while a high settlement would always be reduced to the amount awarded at trial. (In a joint and several system, there is no winner or loser as the amount is always equal to the jury's award.) Therefore, under the new math, if a settlement is proportionately low, plaintiff "loses" compared to what might have been recovered at trial, but if the settlement is high, plaintiff "wins."
In either case, the defendant at trial still pays only its proportionate share of non-economic damages. Hoch v. Allied-Signal, Inc., 24 Cal.App.4th 48, 62-65 (1994). See also, Regan Roofing Co. v. Superior Court, 21 Cal.App.4th 1685, 1706 (1994); Espinoza v. Machonga, 9 Cal.App.4th 268, 276-277 (1992).
But how is the settlement allocated? Normally, the settlement is allocated along the terms set by the jury. For example, in our previous example, let's say Passenger settled with Driver for $10,000 before trial. The prior settlement is apportioned 33 percent to economic damages and 67 percent to non-economic damages, just as the jury's award was apportioned. Thus, Contractor is entitled to an offset of $3,333. It therefore pays the remainder of the economic damage, $6,667, plus its proportionate share of the non-economic damages, $5,000, for a total award of $11,667 (compared to $20,000 under the old math). As before, the setoff is allowed even where the settling party is ultimately found not liable. Poire v. C.L. Peck/Jones Bros. Constr. Corp., 39 Cal.App.4th 1832, 1837, 1839-1841 (1995).
There are pitfalls. In Conrad v. Ball, 24 Cal.App.4th 439 (1994), plaintiff settled for $50,000 with a retailer of a bottle which exploded, but went to trial against the manufacturer. At trial, the manufacturer failed to request a special verdict differentiating between the economic and non-economic damages. The court held that where one defendant settles with the plaintiff for an amount that does not differentiate between economic and non-economic damages, the non-settling defendant waives its right to offset the amount of the settlement against a verdict for the plaintiff unless it requests a special jury verdict differentiating between economic and non-economic damages. The court refused to make its own allocation in place of the jury. The manufacturer therefore lost the opportunity for any offset.
Conrad also suggested that a pretrial agreement apportioning between economic and non-economic damages could be used to determine the setoff allowed. Whether true or not, such an apportionment is not controlling over the jury's apportionment. In Greathouse v. Amcord, Inc., 35 Cal.App.4th 831 (1995), plaintiffs sought to apportion $284,000 in pretrial settlements 20 percent to economic damages and 80 percent to non-economic damages based on the language of pre-trial settlement agreements or "confirming letters" from the settling defendants.
The court rejected this attempt, electing instead to use the virtually reversed allocation used by the jury in the trial involving the remaining defendant. The court reasoned that such pre-trial allocations between economic and non-economic damages "will inevitably reflect a bias against economic damages that is prejudicial to the non-settling defendant."
Indeed, plaintiffs are most interested in allocating as little as possible of the settlement to economic damages in order to minimize the offset, while the settling defendants "have no incentive to oppose the plaintiff's allocation because they are entirely unaffected by it." Id. at 841.
It does not appear that the pre-trial settlement apportionment rule will be followed for post-trial settlements. In Torres v. Xomox Corp., 49 Cal.App.4th 1 (1996), the court felt the approach might result in allocation of more of the settlement to non-economic damages than the settling defendant's liability for such damages. Searching for a reasonable compromise between competing interests on how to allocate a post-trial settlement, the court selected a "ceiling approach" whereby the settling dollars are applied first to the settling defendant's share of non-economic damages, and whatever is left over is credited to economic damages. Id. at 37-42. As a cautionary note, a petition for review has been filed in the Torres case.
Prop 51 did not change the rules that (1) an employer cannot be sued in tort for a work-related injury to an employee, (2) the employer has the right to recover from a third-party tortfeasor the benefits paid to the employee either through a lien on the tort recovery or a credit on future benefits and (3) the employer's recovery rights against third parties are reduced by an amount equal to the employer's proportionate fault, up to the amount of the workers' compensation benefits paid. Prop 51 also did not address whether a third party could avoid liability for non-economic damages that were attributed to the employer.
In Dafonte v. Up-Right Inc., 2 Cal.4th 593 (1992), plaintiff tried to argue that an injured employee should be allowed to recover from a third-party tortfeasor any non-economic damages that are attributable to the fault of the employer. The Supreme Court rejected the argument, concluding that to hold otherwise would violate the spirit, if not the language, of Prop 51. Specifically, the Supreme Court would not permit a jury to hold a defendant liable for an employer's fault simply because the employer was not named as a co-defendant. In its ruling, the Court stated: "[T]he principal effect [of Proposition 51] is precisely that intended by the initiative; defendants no longer have to pay an injured employee's non-economic damages caused by the fault of another and the employee, like any other tort victim, bears the resulting risk of loss." Id. at 603.
Unfortunately, the court in Dafonte refused to rule on an equally important issue left open under Prop 51: whether the credit for any workers' compensation benefits received by the employee should be applied exclusively to economic damages (most workers' compensation awards are based on economic damage claims) or should be allocated between economic and non-economic damages like a settlement. How benefits are allocated can have a significant impact on the calculation of the net judgment against a third-party defendant that is held liable to an injured employee. Theoretically, the credit could be allocated: (a) solely to economic damages, (b) solely to non-economic damages, (c) between economic and non-economic damages, (d) to economic damages unless and until the benefits paid exceed the employer's share of liability, or (e) to economic damages up to either the limit of the employer's percentage of fault or the limit of any unreimbursed percentages, including the employer's.
Recently, in Torres v. Xomox Corp., 49 Cal.App.4th 1 (1996), the First District Court of Appeal finally ruled on this issue. After considering the various options in painstaking detail (Id. at 21-36), the court took the compromise route and apportioned the workers' compensation benefits in the same manner as a pre-trial settlement, stating that "[we] believe that a compromise is an appropriate solution when there are good arguments for more extreme opposing views." Id. at 37. See also, Scalice v. Performance Cleaning Systems, 50 Cal.App.4th 221 (1996). Nonetheless, as mentioned above, the issue remains in flux as a petition for review has been filed in Torres.
Strict liability/products liability
The principles of comparative fault apply to strict products liability actions involving negligence claims. See, Safeway Stores, Inc. v. Nest-Cart, 21 Cal.3d 322, 331 (1978); Daly v. General Motors Corp., 20 Cal.3d 725, 742 (1978). Therefore, it is no surprise that Proposition 51 has been interpreted to allow proportionate limitation of non-economic damages in products liability cases as between strictly liable and negligent defendants. See, Dafonte v. Up-Right, Inc., supra, (non-economic damages award against manufacturer defendant reduced by the plaintiff's comparative fault and his employer's negligence); Hoch v. Allied-Signal, Inc., 24 Cal.App.4th 48 (1994) (damages apportioned among strictly liable manufacturers; the non-settling defendant manufacturer was found 35 percent liable and was ordered to pay 35 percent of the non-economic damages awarded).
In Srithong v. Total Investment Co., 23 Cal.App.4th 721 (1994), plaintiff was injured when a roofer spilled tar through a hole in the roof. He sued both the roofer and the lessor of the premises, who were found 95 percent and 5 percent liable, respectively. The trial court granted the lessor's motion to enter a separate judgment as against it for 5 percent of the amount awarded. The Court of Appeal reversed, holding that the lessor's liability was not based upon principles of comparative fault, a requirement for application of Prop 51, but rather was a matter of status or relationship (vicarious liability for a nondelegable duty). The lessor remained jointly and severally liable for all of plaintiff's injuries. See also, Miller v. Stouffer, 9 Cal.App.4th 70, 83-85 (1992) (Prop 51 inapplicable where liability imposed based on respondeat superior).
Statutory auto liability
Similarly, where liability is imposed by statute, and is not based on fault, Prop 51 will not apply. In Rashtian v. BRAC-BH, Inc., 9 Cal.App.4th 1847, 1849 (1992), liability was imposed on the owner of a vehicle (a rental car company) under Vehicle Code §17150, which makes the owner of a motor vehicle liable to a limited degree for injuries caused by another's negligent operation of that vehicle so long as it is operated with the express or implied permission of the owner. Since the liability is imposed by statute, and has no bearing on the relative fault of the owner, Prop 51 was held to be inapplicable. Id. at 1849. See also, Galvis v. Petito, 13 Cal.App.4th 551,565 (1993).
Cases involving intentional torts
In Weidenfeiler v. Star and Garter, 1 Cal.App.4th 1 (1991), plaintiff was the victim of an assault and battery in defendant bar's parking lot. In an action against the bar for negligent failure to provide adequate security and lighting, the jury found for plaintiff, and apportioned fault 70 percent to the third-party assailant (who was insolvent), 20 percent to the bar, and 5 percent to plaintiff. The trial court applied Prop 51 to limit the bar's liability for non-economic damages to 20 percent of the amount awarded.
Plaintiff appealed, arguing that the statute applied only to cases based on "comparative fault," and that the assailant's acts were intentional. The court held that to so find would work an obvious injustice and fly in the face of the intent of the statute. It made little sense to the court that a negligent tortfeasor should be entitled to the protection of the statute as respects other negligent tortfeasors, but should bear greater liability if the co-tortfeasor was an intentional tortfeasor. The trial court's apportionment was affirmed. Id. at 6.
However, it does not appear that the appellate court would have been so inclined to rule in the reverse situation: where an intentional tortfeasor seeks an offset for contribution to the injury by a negligent tortfeasor. Rather, the court noted that an intentional tortfeasor is prohibited from seeking contribution (Code of Civ. Proc. §875 (d)), and the common law thread of cases provides that "a party who commits intentional misconduct should not be entitled to escape responsibility for damages based upon the negligence of the victim or a joint tortfeasor." Id. at 7.
The Medical Injury Compensation Reform Act ("MICRA") limits the liability of medical providers for non-economic damages to $250,000. In Gillman v. Beverly California Corp., 231 Cal.App.3d 121 (1991), the jury awarded plaintiff $400,000 in non-economic damages in a wrongful death medical malpractice action against a licensed nursing facility. The facility was found to be 90 percent liable while a deceased doctor was found 10 percent liable. Plaintiff argued that Prop 51 should apply first, and then MICRA (resulting in the award remaining at $250,000). The court rejected this argument, holding that to so rule would frustrate the purpose of MICRA, which provides that the maximum recovery as against all health care providers is $250,000. Accordingly, the court held that the MICRA cap is to be applied first, before Prop 51's application. Id. at 128-130. The liability of the nursing facility was therefore reduced to $225,000.
In the world of Prop 51, attorneys and their clients have to be more careful about how they analyze each party's potential exposure. The easy days of the old math are gone, and the new math creates results which are strikingly different than what was seen under the old rules. In addition, the scenarios can change quickly and dramatically as settlements occur. The practitioner has to learn how to apply the new math and be aware of the pitfalls that can be encountered along the way if he or she wants to effectively represent the client.
Curtis D. Parvin, partner in Sedgwick, Detert, Moran & Arnold of Irvine, is a member of the bar's Liti-gation Section executive committee.