Opinion ID: 853129
Heading Depth: 2
Heading Rank: 1

Heading: Credits/Setoffs in Indiana

Text: Both parties agree that the condition for repayment to McCoy found in paragraph 7(a) of the settlement agreement was met by the jury's finding that McCoy was liable to the Jacks to the extent of $540,000, $960,000 less than the $1.5 million payment. The only issue is whether the additional condition found in paragraph 7(b) was also met. That issue turns on whether, in light of Indiana's Comparative Fault Act, that $960,000 would constitute a credit against Johnson's liability if McCoy had simply paid the amount to the Jacks in settlement, and had not entered into a loan receipt agreement. McCoy contends this issue was resolved in favor of credits in Mendenhall v. Skinner & Broadbent Co., Inc., 728 N.E.2d 140 (Ind.2000). However, no party in Mendenhall raised the issue of the availability of credits generally under comparative fault. Mendenhall rejected credit for amounts from parties who are not named as nonparty defendants but, in footnote 2 of that opinion, expressly reserved the question of whether the Act affects the traditional way in which our common law gives credits for settlement amounts when the settling defendant has been added as a nonparty. Id. at 141 n. 2. We have previously stated that credits, at common law, were a tool to avoid overcompensation of plaintiffs. Id. at 143-44. Equally important, credits were a tool to avoid a single defendant's bearing too much responsibility for the plaintiff's damages. These rules were developed in the pre-comparative fault era of joint and several liability. Under that common law regime, each defendant whose negligence contributed to the plaintiff's loss was liable for the entire amount of damages. Without credits for settlement payments by the other defendants, a defendant could be liable for an amount greatly in excess of its fair share, and the result was to overcompensate the plaintiff. There were no nonparty defenses, and the jury was not aware of an absent tortfeasor's settlement. Credits insured that the defendants at trial would not have to pay more than their collective share of liability, and overcompensate the plaintiff, simply because the jury was unable to consider the fault of others. In 1985, Indiana's comparative fault system addressed these problems in two respects. First, it replaced joint and several liability with several liability, leaving each defendant responsible only for its share of the total liability. Control Techniques, Inc. v. Johnson, 762 N.E.2d 104, 109 (Ind. 2002); Matthew Bender, 2 Comparative Negligence § 13.30[3][c] (2001) (The Indiana statute expressly incorporates several liability.). Second, it permitted the assertion of a nonparty defense, allowing a defendant to prove the negligence of an absent or settling tortfeasor. I.C. § 34-51-2-15. Thus the jury's apportionment of fault now provides a more complete picture of the relative responsibility for the plaintiff's injuries. All of this led us in Mendenhall to hold that credits were no longer warranted in cases where the remaining defendant at trial did not assert a nonparty defense against a settling tortfeasor. In Mendenhall we pointed out that the remaining defendant in that case already had a potent tool to limit its liabilitythe nonparty defense. Mendenhall, 728 N.E.2d at 144. Allowing that defendant to resort to a common law doctrine to further reduce its liability made little sense in light of the modernization of tort law represented by the adoption of comparative negligence. Bender, supra, at § 13.50[2][a] (discussing the common law rule of releases that the release of one amounted to the release of all defendants). That same logic applies in this case as well. As one treatise notes: If defendants are severally but not jointly liable, most of the difficult release problems are avoided. The release of a severally liable defendant, whether executed before trial or after judgment, should have no effect upon the liability of the other defendants. The liability of each defendant stands independently and is unaffected by that of other defendants. Id. at § 13.50[2][c] (emphasis added). That treatise notes that problems may remain in several liability jurisdictions where the fault of absent tortfeasors is not considered. Id. But the nonparty defense eliminates those problems in Indiana. Johnson raised a nonparty defense that permitted it to prove McCoy's negligence, and the jury assigned 15 percent of the fault to Johnson and 10 percent to McCoy. Thus the nonparty defense already accomplished the limitation of Johnson's liability that a credit would otherwise have achieved. Were credits still available under comparative fault, Johnson would lower its liability to an amount less than the jury's determination. Indeed, had Johnson succeeded in its attempt to have the amount it described as McCoy's $960,000 overpayment credited in its favor, Johnson's liability would have been eliminated despite its being found at greater fault than McCoy. Thus, elimination of credit requires the comparative fault defendant to pay for its own share, but no more. Nor is the plaintiff overcompensated. In a comparative fault regime, the notion that a plaintiff is overcompensated when he or she settles with a defendant for more than a jury later awards takes too narrow a view of what a settlement represents. There is no overpayment if the parties agree on the dollar value of a several liability claim against a given defendant, even if a jury reaches a different result. A settlement payment normally incorporates an assessment of the exposure to liability. But a settlement also reflects several other considerations, including the parties' desires to avoid the expense and effort of litigation and the tactical effect of eliminating a defendant and its counsel from trial. In McDermott, Inc. v. AmClyde & River Don Castings Ltd., 511 U.S. 202, 215, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994), the United States Supreme Court rejected a pro tanto rule in admiralty tort cases in favor of a proportionate share approach for this reason. It stated: The law contains no rigid rule against overcompensation.... [W]e must recognize that settlements frequently result in the plaintiff's getting more than he would have been entitled to at trial. Because settlement amounts are based on rough estimates of liability, anticipated savings in litigation costs, and a host of other factors, they will rarely match exactly the amounts a trier of fact would have set. It seems to us that a plaintiff's good fortune in striking a favorable bargain with one defendant gives other defendants no claim to pay less than their proportionate share of the total loss. Id. at 219-20, 114 S.Ct. 1461. Our comparative fault system contemplates similar results. See Bender, supra, at § 13.50[2][c] (in several liability systems, [t]he risks of settlement are borne solely by the settling parties). McCoy received the peace of mind of eliminating the litigation. And although the Jacks received more compensation for McCoy's liability than they would have at trial, they also bore the risk of receiving less. The point is that the settlement between McCoy and the Jacks had no bearing on Johnson's obligation to pay according to its liability, as determined by the jury. As Mendenhall put it, a defendant who wants to limit its liability at trial has the tool to do so: the nonparty defense. McCoy points to dicta in Mendenhall that suggests credits advanced the one satisfaction rule and prevent double recovery by plaintiffs who might settle for a larger amount with one defendant than a jury might later conclude that defendant was responsible. Mendenhall, 728 N.E.2d at 144. This was true in a joint and several liability regime. But where each defendant is severally liable, a settlement by one of them represents the bargained value of the claims against that defendant. Unlike a joint and several liability regime, no other defendant is liable for that claim, and none has a claim to benefit from its overvaluation by the settling defendant or undervaluation by the plaintiff as compared to the jury's assessment.