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Civil Litigation, Commercial Litigation

Pierringer agreements a double-edged sword

A recent decision highlights practical concerns relating to Pierringer agreements, says Toronto commercial litigation lawyer William Pepall.

Pepall, partner with Lerners LLP, tells AdvocateDaily.com that the agreements are used in negligence cases with multiple defendants to allow one or more of the defendants to settle while the others continue with the litigation.

The mechanism insulates the settling defendants from post-settlement claims by their non-settling co-defendants for contribution and indemnity, allowing them to put a cap on their damage exposure.

For plaintiffs, the agreements guarantee a recovery but deny them the benefit of any joint and several liability between defendants, which can require at-fault defendants who are capable of paying to cover the entire judgment regardless of the size of their individual share of the liability.

“Entering into Pierringer agreements is a good technique for plaintiffs, but there’s also an element of risk to it, so you have to be a bit careful,” Pepall warns.

At trial, the court will apportion liability among settling and non-settling defendants, so the assumed liability built into the Pierringer agreement can be critical to an assessment of the deal’s success, explains Pepall.

Plaintiffs benefit if the judge pegs the liability of a settling defendant lower than the Pierringer level. They lose if the level is much higher.

“Let’s say the plaintiff settles with a defendant on the basis that it was 10 per cent at fault for the damages claimed and the plaintiff agrees to claim from the non-settling defendants only their several or proportionate share of the liability. If the case goes on to trial, and the non-settling defendants persuade the judge that the settling defendant was really responsible for 50 per cent of the damages, then the plaintiff loses that 40 per cent difference,” Pepall says.

In a recent Ontario Superior Court case, the plaintiff was on the right side of the bet, since it received money from a settling defendant who was later found zero per cent at fault.

The case involved a home furnace oil tank leak that caused $2-million worth of damage to the plaintiff’s home and a nearby lake.

After reaching a Pierringer agreement to settle with the oil tank manufacturer, the plaintiff continued its case against the fuel supplier.

Following a trial, the case was further complicated by the fact that the homeowner was found contributorily negligent and assigned 60 per cent of the blame for the damages, with the fuel company responsible for 40 per cent.

The oil supplier then asked for its damages to be offset by any amount already paid by the tank manufacturer, claiming that anything the homeowner received over 40 per cent would result in double recovery.    

Pepall says it’s understandable that the fuel supplier would want any amount already paid credited against its debt. He notes that the court had “very little previous judicial guidance” to go on in making its decision.  

However, Justice Robert Charney ultimately sided with the plaintiff, agreeing that double recovery only occurs in this situation if a plaintiff receives more than 100 per cent of damages.  

“Provided a plaintiff does not recover more than the total loss caused by the defendant(s) (without reference to the plaintiff’s contributory negligence) there is no double recovery,” Charney wrote.

“Accordingly, provided the settlement proceeds are less than 60% of the assessed loss ($1,259,823 by the parties’ calculations) they are not credited to the non-settling defendant. Any settlement proceeds above that amount are set off against the damages to be paid by the non-settling defendant," wrote the judge. 

“Pierringer settlements are reasonably common. It is, however, unusual and important to see how they are implemented after trial when there has been a finding of contributory negligence," Pepall says.

 

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