Always Consult Local Counsel Before Settling a Claim
Sarah A. Johnson, Esq.
Engineers are often brought into lawsuits by contractors and other design professionals who have been sued by the owner of the subject property or someone who has been injured on the subject property.
Likewise, contractors and other design professionals often file cross-claims against the engineers on a subject project, even after the engineers have been sued. These claims and cross-claims are typically for contribution or indemnity, either implied/equitable indemnity or express contractual indemnity.
Many states have joint tortfeasor contribution acts, which are statutes allowing two or more persons who are subject to liability in tort arising out of the same injury to file suit against each other for each person’s pro rata share of the common liability.2 In other words, a contractor or design professional can bring claims against other contractors or design professionals, alleging that, if they are liable, then so is the other party, who must pay his or her share of the liability. The allowance of claims among contractors and design professionals can make settlement very difficult in cases involving large construction projects, as engineers do not want to settle the claim with the injured party, typically the owner or injured person, only to face claims for the same liability from other parties, typically the contractors or other design professionals.
In order to address the difficulty of settlement in these cases, some jurisdictions employ a mechanism whereby the settling party’s settlement with the injured party bars other parties’ contribution claims, so long as the settlement was in “good faith.”3 Accordingly, such settlements are often contingent upon a finding of good faith by the court.
While a finding of good faith typically extinguishes other contribution claims, it can be uncertain whether such a finding extinguishes indemnity claims. The factual circumstance under which a party may obtain indemnity are narrower than those under which a party can obtain contribution, as indemnity usually requires a contract or some special relationship between the parties. Nevertheless, the existence of indemnity claims can be a concern when trying to settle claims outside the context of a global settlement concerning all parties.
However, it appears that there is a growing trend toward treating indemnity claims similar to or the same as contribution claims, at least in the context of construction litigation. More legislatures and courts are beginning to hold that so-called indemnity claims are really contribution claims or at least an attempt to do an end-run around statutory contribution and, therefore, find that settlements made in good faith also extinguish many types of indemnity claims.4
For example, in Sandlin v. Harrah’s Illinois Corp, the Appellate Court of Illinois found the so-called contractual indemnity claim of the hotel owner against the architect of its hotel was extinguished by a good faith settlement made between the injured hotel guest and the defendants.5 The hotel owner argued the applicable contribution act did not apply to contractual indemnity claims for defense costs.6 However, the court found that due to the applicable anti-indemnity statute, which barred one party from indemnifying another party for its own negligence, the contractual indemnity was really contractual contribution.7 The court found that the parties could not contract around the contribution act’s good faith settlement provision.8 Therefore, the court concluded the hotel owner’s contractual indemnity claims were extinguished by the good faith settlements.9
Given the intricacies of these statutory claims, engineers should consult experienced local counsel before attempting to settle claims involving large construction projects on anything less than a global basis, or when all of the interested parties fail to reach an agreement and are not included in the ultimate settlement. In failing to do so, engineers risk paying on a claim without obtaining a final resolution.
1However, please note that these clauses are usually only applicable to the parties to contract, which often will not be the association, but some other design professional or contractor. Nevertheless, they can be useful tools, particularly when the engineer is brought into the litigation as a third-party by the design professional or contractor with whom the engineer contracted.
2E.g., Cal. Civ. Proc. Code § 875 (Deering 2019); Haw. Rev. Stat. Ann. § 663-12 (LexisNexis 2019); Idaho Code Ann. § 6-803 (2019); 740 Ill. Comp. Stat. 100/2 (2019); Ky. Rev. Stat. Ann. § 412.030 (LexisNexis 2019); N.Y. C.P.LR. 1401 (Consol. 2019); Nev. Rev. State. Ann. § 17.225 (LexisNexis 2019) N.C. Gen. Stat.§ 1B-1 (2019); Ohio Rev. Code Ann. § 2307.25 (LexisNexis 2019).
3E.g., Cal. Civ. Proc. Code § 877.6; 740 Ill. Comp. Stat. 100/2(c)-(d); Nev. Rev. Stat. Ann. § 17.245; N.C. Gen. Stat.§ 1B-4; Ohio Rev. Code Ann. § 2307.28.
4Cal. Civ. Proc. Code § 877.6(c); Sandlin v. Harrah’s Ill. Corp., 62 N.E.3d 362, 366-67 (Ill. App. Ct. 2016); Otak Nev., LLC v. Eighth Judicial Dist. Ct. of Nev., 312 P.3d 491, 500 (Nev. 2013); Contra, Haw Rev. Stat. Ann. § 663-15.5(d).
5Sandlin, 62 N.E.3d at 366-67.
6Id. at 364-65.
7Id. at 367.
9Id. at 367-68.