A recent case could have somewhat of a “chilling effect” on the use of so-called Mary Carter agreements.
Mary Carter agreements are used to resolve complex lawsuits involving two or more defendants who hold a contract with a plaintiff that requires them to pay a specified settlement. The idea behind them comes from a 1967 Florida case called Booth v. Mary Carter Paint Co.
In a recent case that lawyers say could limit their use, a jury found the plaintiff involved should be awarded a lesser amount than the settling defendant paid out while leaving him without any losses to claim against the non-settling defendant.
The case, Laudon v. Roberts, went before the Ontario Court of Appeal last May. An application for leave to appeal to the Supreme Court of Canada was dismissed.
The case involved a boating accident in which the plaintiff, Rick Laudon, was injured and launched a lawsuit against both the driver of his boat and the driver of another boat involved in the crash.
Before the trial, the defendant Will Roberts reached a settlement agreement with Laudon based on a Mary Carter agreement for $365,000.
Laudon continued litigation against the other boat driver, which sent the matter to trial.
A jury assessed Laudon’s damages at $312,000 and apportioned liability at 50 per cent to Roberts, 39 per cent to the other driver, Keith Sullivan, and 11 per cent to the plaintiff himself.
The appeal court determined the agreement referenced in the case wasn’t necessarily true to the traditional wording of such settlements because, although Laudon had collected an award, the second driver wasn’t liable for anything.
In its decision, the appeal court stated: “The plaintiff’s total damages have been assessed by a jury at $312,000, which is less than the amount he received from Roberts, the contracting defendant.
“To permit the plaintiff to recover any amount from Sullivan would result in double recovery to the plaintiff. I am satisfied that the law in this country is well settled. Double recovery, save in a few narrow exceptions which have no application to the facts here, is not permitted.”
Noting that Mary Carter agreements are used relatively infrequently but are nevertheless powerful tools in insurance defence litigation, David Contant, a lawyer at Smith Contant McBride in northern Ontario, expects the decision will have an impact on their use.
“The court’s ruling on the issue of double recovery will have a somewhat chilling effect on the use of Mary Carter agreements because that aspect of the decision will likely be binding on future agreements of this nature,” says Contant, whose firm has a significant focus on insurance litigation.
“It will take the pressure off a non-settling defendant in that they may be allowed to escape from paying damages altogether. What you may see in the future are lawyers trying to distinguish the case on the basis that it didn’t have a provision dealing with recovery from the non-settling defendant.”
Contant, who recently wrote about the decision in his firm’s newsletter, acknowledges that Mary Carter agreements are powerful settlement tools.
He says companies could be reluctant to use them following this decision.
“By and large, this decision is going to limit the use of these agreements because there will be more uncertainty now as to whether they’ll be interpreted the way the parties had intended.”
James Howie, a partner at Howie Sacks & Henry LLP in Toronto, says the decision provides valuable guidance.
“In the Laudon case, we actually ended up with the court making a determination of damages, and the court looked behind it to see what recovery the plaintiff had already made and that there had to be a deduction from that recovery so there wasn’t a double recovery,” says Howie.
“I think the continued use of Mary Carter agreements will be advisable and usable in Ontario, but they will require careful drafting on the part of plaintiff and defence counsel so that you can deal with what the court did in Laudon,” he says.
Howie adds that his firm recently received a favourable judgment from the Ontario Superior Court involving a Pierringer agreement, which also has origins in the United States but is slightly different from a Mary Carter agreement.
Under a Pierringer agreement, a plaintiff agrees to accept an amount in a claim against one or more settling defendants and discontinues any actions against them.
Howie’s case involved a family’s litigation against Hamilton Health Sciences Corp., a number of doctors, and the Ontario Ministry of Health.
“We were able to arrive at partial settlement of the liability of the hospital and ministry,” says Howie. “Representatives for the doctors refused to agree to the Pierringer agreement to settle the case, but the court agreed” that the settlement stood.
“So that is a total buyout of their exposure or liability in the case, so there’s no way the non-settling defendants can come back against them in the case.”
William Scott, a lawyer at Brown & Korte in Toronto, agrees that while the case doesn’t break new ground, it provides valuable guidance.
“It’s basically the same principle that the plaintiff can’t use a Mary Carter agreement to obtain more than 100 per cent of the damages as an underlying principle of tort compensation,” Scott says.
“A Mary Carter agreement is a very effective tool for both the plaintiff or the defendant,” he notes, adding that the Laudon case affirms that “you have to be very careful in how you draft them.”
Sudevi Mukherjee-Gothi, a lawyer with the insurance defence group at Torkin Manes LLP, also says Mary Carter agreements can be very useful.
“They promote settlements, they shorten trials, and often non-settling defendants will feel pressure to settle,” says Mukherjee-Gothi.
Still, she agrees the Laudon case emphasizes the need for lawyers to ensure they know what they’re doing when drafting such settlements, especially when assessing prospective amounts in the event there is an incident invoking the Mary Carter agreement.
“I still think Mary Carter agreements are a useful tool, but what Laudon tells us is you need a much more accurate assessment,” she says.
“My question is, would the Court of Appeal have made the same decision had the plaintiffs been made to pay back the portion of the payment received from the non-settling defendants as that wasn’t an element of the agreement,” she asks.
“So I think this says that counsel have to do a much more accurate assessment of the case so any quantum being entered into is an actual reflection of the quantum of the case.”