May 02, 2013 BY Brian Moore
Georgia Court Of Appeals: Defendants' Maintain Their Right To Contribution For Pre-Trial Settlements
In Zurich American Ins. Co., et al. v. Heard, et al., the Court of Appeals provided clarity to the Georgia Tort Reform statutes and the interplay between O.C.G.A. §§ 51-12-32 and 51-12-33. In its decision, the Court affirmed the legislature’s decision to leave O.C.G.A. § 51-12-32 intact as part of the 2005 Tort Reform legislation. The Court’s decision was based on a straightforward application of O.C.G.A. §§ 51-12-32 and 51-12-33, and is beneficial to defendants in several regards.
First, the decision provides an avenue for defendants to allocate fault properly amongst joint tortfeasors without the inherent risks of having to try a case. Second, the decision maintains a defendant's right to exercise certain control over its fate in a case, particularly with regard to the allocation of fault and damages. In this sense, the decision maintains a defendant's right to address joint tortfeasors that are either unwilling to participate in global settlement talks or receive preferential treatment from the plaintiff as a result of some on-going relationship, as well as any responsible entities that were not joined to the litigation and were not a part of the settlement negotiations. The decision also preserves a defendant's ability to mitigate or cap the total damages at issue through settlement, without being forced to undertake the inherent risks associated with trial. Third, and finally, it is important to note that the decision does not affect or impact the statutory scheme set forth by the legislature, or the previous cases citing or interpreting O.C.G.A. § 51-12-33.
The dispute in Zurich v. Heard arose out of the construction of a hotel in Brunswick, Georgia. After completion of the construction project, the hotel suffered water intrusion and related water damage. The owners of the hotel initiated an arbitration action against the general contractor and the architect, among other entities, before the American Arbitration Association. The architect’s contract contained a clause that precluded the owner from suing him in the same forum and, as a result, the architect was dismissed from the arbitration. A separate proceeding was then initiated by the owner against the architect in the State Court of Gwinnett County.
Following preliminary litigation, the parties to the arbitration entered into a settlement agreement with the owner before the case proceeded to a hearing on the merits. Shortly after the arbitration settlement, the owner settled its lawsuit with the architect for a nominal sum and dismissed the suit with prejudice.
After funding the majority of the initial settlement, Zurich commenced a separate action for contribution, negligence, negligent misrepresentation, and breach of contract against the architect and the engineer. As part of its suit, Zurich sought damages for a portion of the amount it paid to settle the underlying arbitration (to which it was properly subrogated), as well as the uninsured damages paid by the general contractor.
The defendants in the subrogation action moved for summary judgment, arguing that O.C.G.A. § 51-12-33 (enacted as part of Georgia’s “Tort Reform”) abolished contribution in Georgia for all causes of action arising after February 16, 2005. In response, Zurich showed that O.C.G.A. § 51-12-32 was left entirely intact as part of the 2005 Tort Reform legislation, and that § 51-12-32 expressly provides for contribution following a pre-trial settlement. Citing McReynolds v. Krebs, the trial court disagreed and held that:
[b]ecause of the reference to O.C.G.A. § 51-12-33 contained within O.C.G.A. § 51-12-32(a), there is no longer a right of a ‘joint trespasser to contribution from another or others’ that can continue, regardless of whether liability is imposed by virtue of a settlement or a verdict.
The practical impact of the trial court’s ruling was the complete abolition of contribution in Georgia, despite the fact that O.C.G.A. § 51-12-32 reserved the right to contribution for pre-trial settlements, and the fact that McReynolds v. Krebs plainly acknowledged a continuing right of contribution in Georgia. An appeal followed, and the Georgia Court of Appeals unanimously reversed the grant of summary judgment against Zurich with regard to Zurich’s right to contribution following its pre-trial settlement.
On appeal, Zurich raised four enumerations of error: (1) that the trial court erred in ruling that contribution and indemnity no longer exist under Georgia law in cases involving pre-trial settlement; (2) that the trial court erred in ruling that the payment by Zurich to the owner was voluntary; (3) that the trial court erred in ruling that Zurich’s direct causes of action (negligence, negligent misrepresentation, and breach of contract) were merely “reframed contribution claims”; and (4) that the trial court incorrectly concluded that the parties were independent, rather than joint, tortfeasors. While the Court of Appeals found that the trial court erred as to the first three enumerations (and did not address the fourth by virtue of its ruling), this article focuses on the contribution and apportionment aspects of the Court's ruling, and how the statutory scheme is applied.
Specifically, the Court of Appeals held the right of contribution between joint tortfeasors has not been completely abolished by the legislature’s enactment of O.C.G.A. § 51-12-33, and that the trial court erred by holding otherwise. The Court of Appeals reasoned that the plain language of the statutory scheme did not preclude a suit for contribution where the prior proceeding did not advance on the merits to a trier of fact. While O.C.G.A. § 51-12-33 requires apportionment when either the plaintiff is partially at fault or there are multiple defendants, apportionment is only mandated where the case proceeds before a "trier of fact", and the trier of fact makes an ultimate determination as to the proper allocation of fault and the total amount of damages to be awarded. In other words, when apportionment occurs at trial, or should have been raised at trial, then there is simply no right to contribution.
In the unanimous decision, the Court of Appeals reasoned that the plain statutory language in O.C.G.A § 51-12-33 “cannot be interpreted to abolish the right of contribution between settling joint tortfeasors when there has been no apportionment of damages by a trier of fact”. In Heard, neither of the underlying cases proceeded to a hearing or trial on the merits and no trier of fact was ever called upon to make a determination as to the total amount of damages. Accordingly, the trial court’s ruling that Zurich was not entitled to seek contribution was reversed.
In addressing McReynolds, one of the seminal cases on apportionment in Georgia, the Court of Appeals correctly found that McReynolds “does not require a different result”. “In that case, the trier of fact determined the total amount of damages owed by the defendant, and the appellant conceded that she had no evidence of liability which would support apportionment against another co-defendant that settled before trial”. As set forth by the plain language of O.C.G.A. § 51-12-33, once McReynolds proceeded to trial, McReynolds's exclusive remedy with regard to allocating fault to other parties and "setting-off" damages was apportionment.
The Heard decision provides further clarification to the statutory scheme and the relationship between O.C.G.A. §§ 51-12-32 and 51-12-33. However, the impact and benefits go beyond mere clarification of the statutory scheme. From a defense perspective, the decision allows defendants to achieve and obtain a proper allocation of fault without the risk of having to proceed to trial in every case involving multiple defendants. Heard argued that the current statutory scheme required apportionment in all cases involving multiple defendants (regardless of whether they proceeded to trial), and that the failure to seek apportionment precludes a later contribution action. This interpretation of the statutory scheme ignores the plain language of § 51-12-32 and would require all cases involving multiple defendants to proceed to trial in order to achieve an "allocation of fault". In application, such an approach would unnecessarily force defendants into the inherent risk of dealing with unpredictable juries and awards at trial, and further erode the potential for settlements.
The unpredictable nature of jury trials and increased burden on the judicial system is also intertwined with the second tangible benefit of the decision. In the decision, the Court appears to acknowledge the difficulty or inability to control responsible joint tortfeasors who do not contribute toward a settlement, particularly at-fault non-parties. In recognizing the right to contribution flowing from pre-trial settlements, the Court affirmed a defendant's ability to exercise some level of control over joint tortfeasors by holding them accountable for their reasonable share of a plaintiff’s damages following a pre-trial settlement.
However, from a defense perspective, the greatest benefit is the ability to limit or cap the total amount of damages at issue. While fault can be allocated at trial through apportionment under O.C.G.A. § 51-12-33, thereby limiting a client’s percentage of liability exposure, the total award a jury may give is still unpredictable. Through O.C.G.A. § 51-12-32, a defendant (or group of defendants) can cap total exposure through settlement, and then proceed to work out an allocation of the settlement amongst non-contributing co-defendants or at-fault non-parties. Using Heard as an example, in the underlying arbitration and state court proceedings the hotel owners sought in excess of $15,000,000.00. Had the arbitration proceeded to a hearing on the merits, the trier of fact could have awarded the full amount of damages sought by the owners. In such event, even if the general contractor obtained a ruling that it was only 20% at fault in the proceeding, the end result would have yielded an amount well in excess of the total settlement. If, however, a case can be settled pre-trial for a fraction of the total damages sought, the at-fault parties have limited the total exposure and are left to fetter out liability for a substantially smaller sum.
Finally, the Heard decision involved a straightforward and rather simple application of the plain language of O.C.G.A. §§ 51-12-32 and 51-12-33. Under O.C.G.A. § 51-12-33 apportionment is required only where a case proceeds to the merits and the trier of fact is required to make a determination as to the total amount of damages. In contrast, contribution remains viable when a case does not proceed to the merits and no such determination is made or even possible. To that end, the decision leaves intact both the current statutory scheme and each of the prior decisions citing or interpreting O.C.G.A. § 51-12-33. As noted by the Court, its decision is neither impacted by the Supreme Court’s decision in McReynolds v. Krebs, nor does it impact that decision. Rather, it simply maintains the status quo and upholds the current statutory scheme.
The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved.
H. Michael Bagley