Mary Carter Agreements (“MCAs”) have long been important tools in resolving complex, multi-party litigation. One or more co-defendants contracts with the plaintiff to pay a settlement fee and agrees to assist in prosecuting the claim against the remaining co-defendants. The arrangement guarantees minimum recovery for plaintiffs, limits risk for contracting defendants, and puts pressure on non-contracting defendants to settle their remaining portion of the claim.
But in its recent decision in Laudon v. Roberts,1 the Ontario Court of Appeal ruled that a plaintiff receiving a MCA payment will not be entitled to recover from other defendants if the MCA payment exceeds the jury’s ultimate damages award. The Court’s ruling may avoid plaintiff over-recovery, but it also erodes the settlement incentives MCAs exert on litigants.
The plaintiff was a passenger on a boat operated by one defendant, when it was struck by another boat operated by a second defendant. The plaintiff commenced an action against both parties, alleging joint and several liability for his injuries.
In advance of trial, the plaintiff entered into a MCA with one defendant (the “settling defendant”), whereby the settling defendant paid the plaintiff $438,000 for full indemnity from the claim. In return, the settling defendant co-operated with the plaintiff in advancing his claim against the remaining defendant (the “nonsettling defendant”).
The non-settling defendant proceeded to trial, where a jury assessed the plaintiff’s total damages at $312,021. The settling defendant was deemed 50% liable for the plaintiff’s injuries, the non-settling defendant 39% liable, and the plaintiff 11% contributorily negligent. The trial judge awarded judgment against the nonsettling defendant in the amount of $121,688.19, representing 39% of the total damage award. The judge refused to deduct from the non-settling defendant’s obligations any money already paid to the plaintiff under the MCA, despite the fact that the MCA more than satisfied the entire judgment. The non-settling defendant appealed.
The Court of Appeal set aside the trial judge’s decision and instead held that the MCA payment ought to be deducted from the amount found owing by the non-settling defendant. This effectively let the non-settling defendant off the hook, despite it being found liable for a portion of the plaintiff’s damages. To make matters worse for the plaintiff, the Court ruled that the plaintiff was liable for the non-settling defendant’s legal fees for both the trial and the appeal.
The Court based its decision on the basic principle that “an injured plaintiff should be neither over nor under, but fully compensated by way of damages for injury sustained by the negligence of others.” It ruled that allowing the plaintiff to recover from the non-settling defendant would result in overcompensation, given that the settling defendant had already paid the plaintiff more than the total amount of his damages.
The plaintiff has been denied leave to appeal to the Supreme Court of Canada.
This decision may have a significant chilling effect on MCAs. Defendants considering them as means of capping their exposure and resolving a dispute early may be wary of paying more than is provably owing and giving co-defendants a free ride. They may instead stay in a lawsuit until the plaintiff can concretely establish its damages, adding to the length and cost of proceedings. Plaintiffs will face similar considerations, together with the added danger of having to pay the non-contracting party’s costs if they overestimate their damages. Meanwhile, non-settling defendants may be tempted to fight the litigation to trial in the hopes of proving the plaintiff’s damages are less than the MCA payment.
Finally, the decision seems unsatisfactory from a fairness standpoint. Its concern with double recovery may be just vis a vis the plaintiff. But this is outweighed by the decision’s heavyhanded treatment of the settling parties and its overall erosion of the MCA as a useful settlement tool. A more just outcome may have been to have the non-settling defendant pay its share of damages to the settling defendant. Such a system would preserve the MCA’s settlement incentives while simultaneously diminishing the prospect of double recovery.