shall be several only and shall not be joint. Moreover, the statute states:
Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant's percentage of fault, and a separate judgment shall be rendered against that defendant for that amount.
Cal. Civ. Code § 1431.2(a) (West Supp. 1992).
At oral argument, Defendant maintained that § 1431.2 was intended to address the issue of where the risk of insolvency is to be placed and that the statute is not controlling in the present situation. The Defendant reasons that under § 877(a), it is entitled to a set off of the full amounts paid by Verbil's insurance company to each of the three Plaintiffs.
This argument is not persuasive. Section 1431.2 seems strikingly clear in its intent to apportion liability for noneconomic damages among concurrent tortfeasors. Thus, while a set off for amounts of economic damages awarded through a settlement agreement are appropriate under both § 1431.2 and § 877(a), pursuant to § 1431.2, there should be no set off for the noneconomic damages awarded as liability for these damages arises separately.
3. The Two Statutory Provisions Are Not In Conflict
Passed by voter initiative in 1986 as the Fair Responsibility Act, § 1431 et seq. altered the law regarding joint and several liability by abolishing joint liability for noneconomic damages. The purpose of the statute, as noted above, was to abrogate the "inequity of the deep pocket rule" by which a defendant who was perceived to have substantial financial resources was included in a lawsuit although that defendant was only minimally at fault. Cal. Civ. Code § 1431.1 (West Supp. 1992)
The Court does not see an inherent conflict between the policy rationale of § 1431.2 and the mandate of § 877(a) to provide a set off for a pre-verdict award of a non-settling tortfeasor. Both statutes seek to ensure the fair apportionment of damages and the equitable distribution of loss. The goal of equitable sharing of loss has been a long-standing goal of tort doctrine as has the encouragement of settlement. Tech-Bilt, 698 P.2d at 163 (reaffirming the propriety of courts' attempts to accommodate goals of equitable sharing and encouragement of settlements even when these objectives are not always harmonious). Moreover, as the California Supreme Court recognized in Tech-Bilt, "neither statutory goal should be applied to defeat the other." Id. (quoting River Garden Farms, Inc. 103 Cal. Rptr. at 506). See also, Robert N. Pafundi, Proposition 51 Takes Hold: New Problems Emerge For Partial Settlements In Multi-Tortfeasor Litigation, 10 Cal. Lawyer 48 (July 1990)(noting that the equitable distribution of loss was integral to Proposition 51 [§ 1431.2] and to the law of good faith of partial settlements).
The effect of § 877(a) is to reduce the claims against other joint tortfeasors. In construing § 877(a), state courts and the Ninth Circuit have noted the intent of § 877 is to encourage settlement and provide for the equitable sharing of loss. Federal Sav. and Loan Ins. Corp., 904 F.2d at 513; Arbuthnot v. Relocation Realty Service Corp., 227 Cal. App. 3d 682, 278 Cal. Rptr. 135, 137 (Cal. App. 1991)(citations omitted). Thus, equitable sharing of loss is a significant concern of both statutory provisions.
Sound policy considerations also militate against allowing a set off for damages for which defendants are severally liable. In Wilson v. Galt, 100 N.M. 227, 668 P.2d 1104 (N.M. Ct. App. 1983), a New Mexico appeals court considered the issue and this Court concurs with its reasoning. The New Mexico court held that set offs for pre-verdict awards should not be applied to non-settling tortfeasors who are severally liable. The Court observed that to allow set off would engender situations in which non-settling tortfeasors would be able to take advantage of the good faith efforts of settling tortfeasors. Id. at 1109. The application of set offs in situations of several liability would discourage rather than encourage settlement.
As California no longer recognizes joint liability for noneconomic damages in actions such as the instant one,
the Court concludes that only economic damages should be set off. By declining to provide a set off for an award based on a tortfeasor's several liability, the Court complies with the provisions of § 1431.2 as well as § 877(a). One commentator has noted that the language of § 877 "refers to discharge of joint obligations only," Pafundi, supra, at 50. Under § 1431.2, liability for non-economic damages is no longer joint, but is only several. Thus, § 877 impliedly provides that no credit should be given to a non-settling tortfeasor for non-economic damages paid as part of the pre-verdict settlement agreement.
B. Pre-verdict Settlement Agreement and Adjustment to Jury Awards
An additional wrinkle in the instant case is provided by the fact that the amounts awarded in the settlement agreement were not identified as being either economic or non-economic damages. At oral argument, Plaintiffs advised the Court that the arbitrator involved in the settlement heard evidence from each Plaintiff on both economic and non-economic damages but did not break down the awards into respective categories. Copies of the analyses of economic damages submitted to the arbitrator were included as exhibits in the ADJUSTMENTS TO AWARD OF JURY'S DAMAGES.
In arriving at the adjustments, Plaintiffs calculated the economic damages portion to be credited to AVCO as a percentage of the settlement award and then subtracted that percentage from the jury award. Plaintiffs thus reason that no further set off is warranted. Defendant argues that it is entitled to a set off for the entire amount paid to each Plaintiff by Verbil's insurance company as part of the settlement.
1. Arbitrator's Calculation of Damage Awards
Plaintiff Verbil's insurance was limited to $ 1 million dollars. To resolve disputes among parties with competing interests, the Plaintiff and claimants against Verbil's insurance engaged a retired Superior Court Judge as a Special Master to assess each claim and make awards ignoring the insurance limits. The Special Master appears to have made an award which gave each claimant full economic and non-economic damages. Using the Special Master's award as 100%, the Plaintiff and the claimants determined the relative percentage of each award and applied that percentage to the total available sum of $ 1 million dollars. The actual settlement paid by the insurance company reflects that percentage of $ 1 million.
Plaintiffs contend that the Court should follow the reasoning used in the ADJUSTMENTS TO JURY'S AWARD OF DAMAGES and base its determination of the economic damage portion of the settlement payment on the ratio of economic damage to non-economic damages used by the Special Master. As an example, since the Smith family's economic loss represented 12.3% of the Special Master's award figure of $ 2,500,000, then 12.3% of the $ 552,240 actually paid to Smith or $ 67,925.52, should be allowed as a set off. This is the calculation formula that was utilized in the ADJUSTMENTS TO JURY'S AWARD OF DAMAGES.
Defendant contends that it is entitled to a set off of the entire amount paid by the insurance company to each Plaintiff.
The Court concludes that since the settlement was a pro rata
reduction of the Special Master's award, the Defendant is only entitled to a pro rata set off in the amount which represents payment of economic loss. The adjustments made to the jury's award and stated in the Judgment reflect such a pro rata reduction.
For clarity, the calculations of the set off for damages to each Plaintiff are provided below.
2. Set Off Amounts for AVCO as Reflected in Judgment
a) Smith Family:
Actual Economic Damages: $ 308,100
Settlement Award Figure: $ 2,500,000
Economic Damages represent 12.3% of Award.
Plaintiff Actually Recovered $ 552,240 from Verbil, 12.3% of $ 552,240 = $ 67,925.52.
The Judgment reflects a set off for $ 67,925.52 against the jury award of economic damages for the Smith Family.
b) Jones Family
Actual Economic Damages: $ 87,951
Settlement Award Figure: $ 500,000
Economic Damages represent 17.5% of Award.
Plaintiff Actually Recovered $ 110,440 from Verbil, 17.5% of $ 110,440 = $ 12,192.57.
The jury awarded NO economic damages to Plaintiff Jones. Therefore no set off was given for economic damages paid through the settlement. However, as noted previously, the Judgment for non-economic damages to each Plaintiff does reflect a 16% reduction for the comparative fault attributed to Verbil.
c) Sherman Family
Actual Economic Damages: $ 573,330
Settlement Award Figure: $ 1,250,000
Economic Damages represent 45.8% of Award.
Plaintiff Actually Recovered $ 276,120 from Verbil, 45.8% of $ 276,120 = $ 126,462.96.
The Judgment reflects a set off of $ 126,462.96 against the jury award of economic damages for the Sherman Family.
The Court finds that under Cal. Code Civ. Proc. § 877(a) and Cal. Civ. Code § 1431.2, AVCO was entitled to a set off for the portion of economic damages paid in a settlement agreement between Verbil and the three remaining Plaintiffs. The Court also concludes that basing the set off amounts on the percentage of the settlement award represented by economic damages renders the set off in harmony with the goals of assuring equitable distribution of loss and encouraging settlement. The Judgment entered by the Court reflected such a credit for economic damages. Therefore, Defendant's motion for an order compelling set off is DENIED.
The Defendant's motions for a new trial and for judgment notwithstanding the verdict are DENIED. The trial was fair and just.
Defendant's motion to strike prejudgment interest is GRANTED. Prejudgment interest is not warranted in the instant case.
Plaintiff Verbil's motion for judgment notwithstanding the verdict is DENIED. There was ample evidence upon which a jury could make a determination of Plaintiff's comparative fault.
IT IS SO ORDERED.
HONORABLE JAMES WARE
United States District Judge