Dividing it up: insurers can benefit from legislation amending the practice of joint and several liability, but in some cases they need to ask about plaintiffs' previous settlements.

Supported by the Bush administration, tort reform is on the move. Efforts already under way have resulted in a trend away from insurers facing joint and several liability and toward several liability, in which financial responsibility is apportioned according to the blame assigned to each party by judge or jury. While this is clearly good news for insurance companies, insurers and their lawyers must be as vigilant and strategic as ever if they are to benefit fully from the most recent rounds of lawsuit reform. Nowhere is vigilance more crucial than in cases where at least one of the liable parties has entered into bankruptcy either before or after settling with a plaintiff for damages.

Historically, juries have returned massive toxic tort judgments in favor of plaintiffs. Under joint and several liability, even if a company was deemed only 1% at fault for a plaintiff's injuries, that company could be held fully responsible for massive awards that may have had very little to do with their own wrongdoing. In case after case, these "jackpot" awards exhausted companies' insurance policies, plunging some into bankruptcy. The inability of a defendant, such as one who has declared bankruptcy to pay its proportionate share of the judgment historically tell on the shoulders of the other defendants that still had insurance coverage.

Insurance companies have long protested such awards, arguing that companies should pay their fair share of an award and nothing more. Their protests are finally being heard: lawsuit reform legislation such as Pennsylvania's Fair Share Act of 2002 has begun to change the legal landscape, amending prior practices of using joint and several liability. For example, that act provides that defendants determined to be less than 60% at fault are liable solely for damages proportionate to their percentage of fault, and not for any portion of harm done by any other entity. Pennsylvania law also allows for defendants to ask for dismissal of frivolous lawsuits, and gives judges discretion to fine those who file such suits or even require those who file a frivolous lawsuit to pay all of the defendant's legal fees.

States Follow Suit

Pennsylvania is not alone in its move away from joint and several liability. Other states have enacted similar legislation to either limit or eliminate joint and several liability entirely. Currently, 39 states have some form of modified joint and several liability.

Application of joint and several liability varies by state. Some have a complete bar of joint and several liability, some prevent the application of joint and several liability to noneconomic damages, and others preclude its application to a defendant that does not satisfy the threshold of responsibility needed to trigger its application.

For instance, New York provides for several liability only for noneconomic loss such as pain and suffering it the defendant is less than 50% at fault. California provides for apportioned noneconomic damages on a percentage share, and any company may be apportioned a percentage of fault, whether it settled with the plaintiffs, was never sued before by the plaintiff or has since declared bankruptcy.

Some states, such as Ohio and Wisconsin, require the defendant to be found at least 50% responsible in order for joint and several liability to apply. Ohio also allows defendants to reduce their share of liability by assigning liability to companies not party to the lawsuit, including those that have since declared bankruptcy. Similarly, Florida provides for several liability only among defendants deemed to have less responsibility for injuries than the plaintiff, and noneconomic damages are awarded only on a several basis.

Texas permits the court to mold the plaintiff's award proportionally by the amount of fault that the jury assigns to settled parties and the plaintiff, and defendants may designate and make claims against other responsible third parties, including bankrupt companies. Kentucky and Indiana provide for apportioned liability among defendants based on a percentage of fault basis; they also allow for juries to consider the fault of companies that had previously settled with the plaintiff.

Still other states, including Utah, North Dakota, Mississippi and Michigan provide for several liability only, where each party is only responsible for his or her portion of the blame.

Previous Settlements

The recent Larry Slayton vs. Gould Pumps Inc., which was argued by the law firm Willman and Arnold before the Allegheny County Court of Common Pleas and allows the percentage of fault of even bankrupted companies to be taken into account when pro portion of blame is being assigned, may have implications for other states. Until recently, plaintiffs successfully argued that they did not have to disclose previous settlements with bankrupted parties because the bankruptcy code protects them from being pursued for damages. Attorneys are now successfully arguing that, without knowledge of previous settlements, it is impossible for juries and judges to fairly apportion liability to defendants. The purpose of the Fair Share Act, defense attorneys argued, is to ensure that a jury receives a complete presentation of the fault of all entities relevant to the cause of action so that the jury may make a determination as to the responsibility of each. To preclude a jury from considering evidence of an entity's fault would frustrate the purpose of the Act.

In October 2004, Judge Gene Strassburger agreed with defense counsel and ruled that the Fair Share Act does not prevent juries and judges from taking into consideration a plaintiffs earlier settlements reached with now-bankrupt entities. As a result of Slayton, defendants' lawyers may present the identity of the previously settled parties to a judge or jury so that responsibility may be fairly apportioned to those companies. Judges and juries may then review the facts surrounding the bankrupt companies' liability, list the bankrupt companies on the verdict slip, and then apportion blame to them. Defendants may not pursue a bankrupt entity for its share of the judgment, but instead, they may use the information to lessen their own percentage of fault accordingly.

In addition, Congress is considering an Asbestos Trust Fund as a way to limit liability, but even with a pro-business Republican majority in place, it will not be initiated without a significant and possibly protracted legal fight. Insurers, particularly those that find initiatives such as the Asbestos Trust Fund too costly, may wish to encourage their state legislatures to follow Pennsylvania's lead as a way to limit liability, particularly given Judge Strassburger's ruling to apportion blame even to bankrupt parties.

Whatever the political climate, tort reform is unlikely to be a cut and dried affair. Cases such as Slayton put defense attorneys in the unusual position of "making the case" against other defendants, even bankrupted defendants, to show that those defendants own a significant portion of blame. While juries are still unpredictable, the door is now open to achieving settlements that more fairly apportion blame, and thereby lessen the financial burden on companies and their insurers.

Key Points

* Many states have enacted legislation to either limit or eliminate joint and several liability.

* Under Pennsylvania's Fair Share Act, defendants determined to be less than 60% at fault are liable solely for damages proportionate to their percentage of fault, and not for any portion of harm done by any other entity.

* Larry Slayton vs. Gould Pumps Inc. allows the percentage of fault of even bankrupted companies to be taken into account when proportion of blame is being assigned.