On August 23, 2012, the California Supreme Court overturned a common law rule that has been followed by California courts for more than 100 years. Under the common law release rule, which has its origins in English common law, a plaintiff’s settlement with, and release from liability of, one joint tortfeasor also releases from liability all other tortfeasors.

The facts in Leung v. Verdugo Hills Hospital involve a post-birth brain injury. A lawsuit, brought on behalf of the infant, alleged negligence by the infant’s pediatrician and the hospital in which the infant was born. 

Prior to trial, the infant’s representative settled with the pediatrician for $1 million. At trial, the jury found both the pediatrician and the hospital negligent. The jury awarded $15 million in economic damages and apportioned negligence as follows: 55 percent to the pediatrician, 40 percent to the hospital, and 5 percent to the infant’s parents. The judgment stated that, subject to a $1 million setoff, representing the amount of the pediatrician’s settlement, the hospital was jointly and severally liable for 95 percent of all economic damages awarded to the infant.

The hospital appealed the judgment. The hospital argued that under the common law release rule, the infant’s settlement with, and release of liability claims against, the pediatrician also released the hospital from liability for the infant’s economic damages. The Court of Appeal reluctantly agreed with the hospital. The Court of Appeal observed that even though the California Supreme Court has criticized the common law release rule, the Court has not abandoned it.   

Looking at the facts in this case, the Supreme Court noted that application of the common law release rule would mean that the infant “would be compensated for only a tiny fraction of his total economic damages, a harsh result.” The Court considered the rationale for the rule and concluded that the rationale is no longer justified. The court’s unanimous opinion announces,

In light of the unjust and inequitable results the common law release rule can bring about, as shown in this case, we hold that the rule is no longer to be followed in California."

The court then addressed the question of how, in the absence of the common law release rule, liability should be apportioned. The court took note of section 877 of the Code of Civil Procedure, which modifies the common law rule when there is a good faith settlement and release of one joint tortfeasor. However, in this case, the trial court determined that the pediatrician’s settlement was not made in good faith. After considering alternatives, the court adopted the “setoff-with-contribution” alternative. The court concluded,

Accordingly, we hold that when a settlement with a tortfeasor has judicially been determined not to have been made in good faith, nonsettling joint tortfeasors remain jointly and severally liable, the amount paid in settlement is credited against any damages awarded against the nonsettling tortfeasors, and the nonsettling tortfeasors are entitled to contribution from the settling tortfeasor for amounts paid in excess of their equitable shares of liability."

While the impact of the Court’s decision is unclear, the opinion was warmly welcomed by plaintiffs’ attorneys and provides difficult choices for defendants.

The result points up the need for any settling defendant to attempt to obtain a good faith settlement under section 877, and if such a motion is unsuccessful, rethink the advisability of proceeding with the settlement (since the non-settling defendant could still bring a claim against the settling defendant for contribution).  

The decision also places non-settling defendants in a hazardous position, as the settling defendant may not be available or able to reimburse the non-settling defendant the allocated share of its responsibility.