The California Supreme Court, in a unanimous ruling, repudiates the common law “release rule.” Under the rule, a plaintiff’s settlement and release of liability of one joint tortfeasor also releases from liability all other joint tortfeasors. The common law rule’s rationale is that there can be only one compensation for a single injury and because each joint tortfeasor is liable for all of the damage, any joint tortfeasor’s payment of compensation in any amount satisfies the plaintiff’s entire claim.
The rule can lead to harsh results so, in 1957, the legislature enacted Code of Civil Procedure section 877. The statute modified the common law release rule by providing that a “good faith” settlement and release of one joint tortfeasor, rather than completely releasing other joint tortfeasors, merely reduces, by the settlement amount, the damages that the plaintiff may recover from the nonsettling joint tortfeasors, and that such a good faith settlement and release discharges the settling tortfeasor from all liability to the others.
In Leung v. Verdugo Hills Hospital the trial court refused to make a finding of good faith when a physician sought a determination of good faith regarding his settlement with plaintiff. Nonetheless, plaintiff and the physician decided to proceed with the settlement and plaintiff released him from all claims. At trial, the jury returned a verdict greatly in excess of the $1 million settlement between plaintiff and the physician. The judgment stated that, subject to a setoff of $1 million, the hospital was jointly and severally liable for 95 percent of all economic damages awarded to plaintiff.
On appeal, the Court of Appeal held that plaintiff’s settlement and release of liability with defendant physician also released the nonsettling hospital from liability for plaintiff’s economic damages. The court did so reluctantly, observing that although the Supreme Court had criticized the common law release rule, it had not abandoned it.
In its review, the Supreme Court agreed that adherence to the common law release rule would relieve nonsettling defendant hospital from any liability for plaintiff’s economic damages, even though the jury apportioned to the hospital 40 percent of the fault for plaintiff’s severe post birth brain damage calculated at $15 million. Under the common law release rule, plaintiff, injured for life through no fault of his own, would be compensated for only a tiny fraction of his total economic damages. In light of this unjust and inequitable result, the Supreme Court held that the common law release rule is no longer to be followed in California.
Instead, in situations where a good faith settlement determination has not been made but a joint tortfeasor has entered into a settlement agreement and release with the plaintiff, the Court adopted a setoff-with-contribution approach. Under this approach, the money paid by the settling tortfeasor is credited against any damages assessed against the nonsettling tortfeasors, who are allowed to seek contribution from the settling tortfeasor for damages they have paid in excess of their equitable shares of liability.
The Count found this approach most compatible with California law because under it “the settlement has little or no practical effect on the defendants’ ultimate liabilities or the plaintiff’s ultimate recovery, nor is the resulting apportionment inconsistent with either the comparative fault principle or the rule of joint and several liability. Without the settlement, each tortfeasor is, under the principle of joint and several liability, fully liable for all of the plaintiff’s damages less only the amount of fault attributed to the plaintiff. If another joint tortfeasor is for any reason unable to satisfy its share of liability, the remaining tortfeasors are still liable for all the economic damages awarded to the plaintiff, even though the amount exceeds their proportionate shares of liability.”