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Coverage Pointers - Volume VIII, No. 26b

New Page 4

The Death of High/Low Agreements in Multi-Party Tort Litigation

 

V. Christopher Potenza

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

716-849-8900

[email protected]

With a tip of the hat to Charles Dickens, it was the best of times, it was the worst of times … for high/low agreements.

Although high/low agreements have generally been increasing in popularity as a safe an efficient means of resolving a matter while not depriving either party of their day in Court, the Court of Appeals recent decision in Reynolds v. Amechem Products, et al., 2007 NY Slip Op 5579 (June 27, 2007), combined with the recent amendment to General Obligations Law 15-108, the high/low agreement may get the guillotine, at least in multi-party litigation. The combined impact of these recent changes in the law in regards to high/low agreements in multi-party litigation is that such agreements must be disclosed (potentially opening the door to cross-examination at trial concerning the agreement), and that high/low agreements are not considered settlements for purposes of GOL 15-108 and thus the defendant, despite entering into the agreement with the plaintiff, is still potentially liable for contribution to co-defendants.

Surreptitious high/low agreements, as was the case in Reynolds, can turn litigation into a game of “Survivor”, laden with false pretenses and competing alliances to win the favor of the tribal council. Now that such agreements must be disclosed, the Reynolds decision alone should deter unilateral high/low agreements between plaintiffs and individual defendants without all defendants participating in the agreement. Since Reynolds mandates that such agreements must be disclosed, a co-defendant can have quite a feast on cross-examination with this information.

If disclosure of these high/low agreements is not a sufficient deterrent, the New York legislature’s amendment to General Obligations Law 15-108 should sound the death knell to high/low agreements in multi-party litigation. GOL 15-108 was initially intended to foster settlements, in that a plaintiff could give a release and covenant not to sue such in exchange for just consideration ($$$). The settling defendant in turn was statutorily protected from a claim for contribution by the co-defendant. The benefit to the non-settling defendant was an offset, after verdict, of either the monetary amount of the co-defendant’s settlement, or the apportionment of liability (whichever is greater).

Subdivision (2) of the amendment appears to state that a high/low agreement is not a settlement (or covenant) for purposes of 15-108, because the agreement does not “completely or substantially terminates the dispute between the plaintiff or claimant and the person who was claimed to be liable.” As such, none of the incentives and safeguards afforded to settlements apply to high/low agreements. Not only do the offset provisions no longer apply to the defendants not part of the agreement, but the defendant that is a party to the agreement does not benefit from the statutory protection from a contribution claim. It would appear unlikely then that a defendant would be willing to go to trial with a damages cap from the plaintiff, while still facing limitless exposure on a contribution claim.

Now for those who love the minutia of these rules, here’s an example. We recommend that you get out a blackboard and abacus to fully follow this example.

Let’s assume an auto accident lawsuit, where joint and several liability would apply. There’s a two car accident. The plaintiff is a passenger in a car with Defendant Smith as the owner and operator. Smith is insured with the Altruistic Insurance Company and has a $50,000 / $100,000 policy. It is an intersection accident in which Smith’s car collides with a car driven by Jones. Jones is insured with Stonewall Insurance Company and has $500,000 limits. The drivers each claim the other driver ran the red light. Smith is more believable, by all accounts

Because of the seriousness of the injuries, Altruistic is concerned that there could be an excess verdict against its insured Smith, and offers the plaintiff a high-low agreement – no matter what the jury does with respect to Smith, Altruistic guarantees the plaintiff $25,000 on the low side and $75,000 on the high side (so if a jury finds Smith not responsible, the carrier still pays $25,000 and if there is a verdict against Smith in excess of $75,000, Altruistic pays only $75,000). The plaintiff accepts the offer.

This agreement is disclosed (per Reynolds mandate). Jones’ lawyer, who does not have a high/low agreement in place, aggressively cross-examines the parties about the agreement. A verdict of $200,000 is awarded to the plaintiff, and liability is apportioned 75% to Smith, and 25% to Jones. [That would amount to $150,000 to Smith, $50,000 to Jones].

Although Smith is only on the hook to plaintiff for $75,000 (per the high/low agreement) rather than $150,000, under these statutory changes, the high/low arrangement, even if releases were exchanged, is not considered a “release” under Section 15-108 of the General Obligations Law. Since joint and several liability applies, the plaintiff can recover the entire judgment against any defendant, less the amount the plaintiff has received. So, the plaintiff recovers $125,000 from Stonewall, on behalf of Jones.

Since these amendments remove high/low agreements from the protection of the statute, Stonewall can seek to recover any amount is excess of its percentage share of responsibility from Smith. Stonewall can still seek contribution against Smith for the amount it has paid in excess of its equitable share. Since Jones’ equitable share is $50,000 and he’s paid $125,000, Jones (and its insurer Stonewall) can maintain his claim against Smith (and to the extent there is remaining coverage, Altruistic) for $75,000 (the amount is excess of the equitable share). That means that Altruistic will have to reimburse Stonewall the remaining $25,000 on its policy and Smith is personally on the hook for the remaining $50,000.

Based on this simple example, there is no benefit for a single defendant to enter into a high/low agreement in a multi-party action. By entering into such an agreement, a defendant would in effect be guaranteeing a low to the plaintiff, but not actually securing the intended cap on damages. Combined with the pitfalls at trial of the now mandated disclosure of the agreement, and the fate of high/low agreements in multi-party litigation is, well… off with their heads!

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