In Leung v. Verdugo Hills Hospital, 282 P.3d 1250 (Cal. 2012), a unanimous California Supreme Court repudiated the common law “release rule,” which previously held that a plaintiff who settles with and releases one joint tortfeasor from liability also releases all other joint tortfeasors from liability.
Aidan Ming-Ho Leung suffered brain damage a week after his birth. Through his parents, Aidan sued his pediatrician and the hospital in which he was born. Before trial, Aidan’s pediatrician settled for $1 million—his malpractice insurance policy limit. At trial, the jury apportioned 55 percent of fault to the pediatrician, 40 percent to the hospital, and 5 percent to Aidan’s parents. On appeal, the hospital argued that under the common law release rule, Aidan’s settlement with his pediatrician also released the hospital from liability for Aidan’s economic damages. The Court of Appeal reluctantly agreed. The jury had calculated economic damages of approximately $15 million.
To avoid such harsh results, the California Legislature had modified the release rule by statute in 1957. Under California Code of Civil Procedure section 877, when one tortfeasor settles in good faith, the other defendants receive an offset rather than a release, and they are barred from bringing a contribution action against the settling tortfeasor. However, the statute did not apply here because the trial court had found the settlement with the pediatrician not to be good faith.
“In light of the unjust and inequitable results the common law release rule can bring about, as shown in this case,” the court abandoned the release rule. The court went on to hold that when settlement with one tortfeasor is not in good faith, the plaintiff may recover the full amount of any later judgment minus an offset from the nonsettling tortfeasors, who then, if stuck with a disproportionate share of liability, can bring a contribution action against the settling tortfeasor. The court found this “setoff-with-contribution” approach to be the most consistent with the basic principles of “comparative fault” and “joint and several liability.”