Products Liability Law Daily Equitable apportionment of liability key issue in reversing good-faith finding on settlement agreement in wrongful death suit
Monday, December 7, 2020

Equitable apportionment of liability key issue in reversing good-faith finding on settlement agreement in wrongful death suit

By Leah S. Poniatowski, J.D.

Familial relationship of employer to worker who died from methylene chloride exposure, together with the low settlement amount, failed to meet "totality of the circumstances" test.

A manufacturer and a vendor of a chemical stripper, used on a job site in which a worker died after inhaling the product’s fumes, successfully challenged a trial court’s determination that a settlement agreement between the worker’s mother, as representative of his estate, and his uncle, who also was his employer, had been executed in good faith. In reversing the lower court, an Illinois appellate panel held that the familial relationship and low settlement amount failed to fulfill Illinois’ Joint Tortfeasor Contribution Act’s ambit of fairly apportioning liability among tortfeasors (Hartley v. North American Polymer Co., Ltd., December 3, 2020, Gordon, R.).

The mother of an individual who died after inhaling fumes from a paint stripper product manufactured by Samax Enterprises, Inc. and sold by North American Polymer Co., Ltd. (NAPCO) filed a products liability and negligence-based lawsuit as special administrator of her son’s estate against the companies. Her son had worked for his uncle’s company, Hartley’s Painting, and was refinishing a bathtub at an apartment complex. He wore a respirator and gloves when he used the “NAPCO White Lightning Low Odor Stripper," which contained a volatile chemical known as methylene chloride. However, the fumes overcame him, and he died the following day.

Procedural history. After the mother filed her lawsuit, NAPCO filed a third-party complaint against the uncle. NAPCO alleged that the uncle was negligent in failing to properly train or supervise his nephew with respect to working with products containing methylene chloride and failed to provide the decedent with proper protection equipment. Additionally, NAPCO asserted that it was entitled to contribution from the uncle for damages in excess of the vendor’s pro rata liability share.

Sometime thereafter, the uncle had made a settlement offer of $50,000 directly to the mother to extinguish potential liability. After accepting the settlement, she filed a motion for good-faith finding, asserting that the settlement was the result of arm’s-length negotiations and was made in good faith. A few weeks later, the uncle filed a motion to dismiss the third-party complaint, similarly asserting that he had settled the claim in good faith. The uncle also claimed that under his insurance policy, he would not be able to pay any judgment, as NAPCO alleged that the nephew was an employee and, thus, would be precluded from recovering due to the policy’s employer liability exclusion. The uncle also argued, alternatively, that Tennessee law would not permit third-party contribution in light of the complaint. Samax filed a similar third-party complaint against the uncle.

Following several discovery motions and rulings, NAPCO and Samax filed for leave to amend their third-party complaint, asserting that they had learned that the nephew was an independent contractor—not an employee—and had bought his own respirator and paid for his own training, and that the uncle did not have workers’ compensation coverage for him. Discovery also revealed that the uncle had settled with the Tennessee Occupational Safety and Health Administration (TOSHA) for violations, a dozen of which had been marked as "serious." Thus, the companies asserted that the settlement between the uncle and the mother was not made in good faith because: (1) there was a familial relationship; (2) the settlement amount was "grossly disproportionate" to the uncle’s fair share liability; (3) the mother never directly filed suit against the uncle; and (4) the uncle relied on the employee exclusion of the policy despite the nephew not being an employee.

Good-faith finding. The trial court initially denied the mother’s request for a good-faith finding. Although the court found that there was a valid settlement agreement, after considering the totality of the circumstances, namely, four factors, the court held that the appearance of collusion and the small amount of the offer as compared to the uncle’s potential liability could not support the finding.

The uncle filed a motion for reconsideration, asserting that the trial court had made several fact mistakes in its analysis, namely, that he had supplied the respirator to his nephew. After review, the trial court agreed that it had erred by overstating the uncle’s potential liability and having read too much into the familial relationship without other evidence to support the collusion conclusion. Thus, the trial court reversed its denial and held that the settlement was made in good faith. The companies filed the present motion to appeal.

Illinois Contribution Act. Under Illinois’ applicable Joint Tortfeasor Contribution Act (Contribution Act, or the Act), when two or more persons are subject to tort liability arising out of the same wrongful death, there is a right to contribution among them. However, when a release is given in good faith by the claimant to one of the joint tortfeasors, that tortfeasor is discharged from all liability for contribution, and the recovery against the remaining tortfeasors is reduced by the amount of the settlement. In interpreting this statute, the state supreme court recognized that it promotes the public policies of encouraging settlement and equitable apportionment of damages among tortfeasors. The only real limitation on the Act’s right to settle is that the settlement be done in "good faith."

Totality of the circumstances. Case law provides the only definition of the term "good faith," holding that it does not exist if the settling parties engaged in wrongful conduct, collusion, or fraud. Additionally, there is no good faith if a settlement conflicts with a term of the Act or is inconsistent with the Act’s underlying policies. Further, case law holds that the determination is "a matter left to the discretion of the trial court based upon the court’s consideration of the totality of the circumstances," and that this approach "allows trial courts to give effect to the strong public policy favoring the peaceful settling of claims, and at the same time allows trial courts to be on guard for any evidence of unfair dealing, collusion, or wrongful conduct by the settling parties."

In the case at bar, the appellate court concluded that the companies’ contention that the good-faith finding had been in error was correct. The appellate court first considered the relationship between the mother and the uncle—the "elephant in the room"-and the other relatives who had worked for or with the uncle. The evidence showed that there was both a familial and economic connection between the uncle and the mother’s family. The appellate court agreed that although the existence of a familial relationship was not dispositive, it was relevant, especially as the mother chose not to file suit against the uncle or bring a workers’ compensation case against him, either of which would normally occur under the circumstances.

Second, the appellate court considered the amount of the settlement, which “must be viewed in relation to the probability of recovery, the defenses raised, and the settling party’s potential legal liability." The companies argued that the $50,000 settlement amount was unreasonable in light of both the uncle’s degree of responsibility and the fact that he held a $1 million insurance policy. The trial court in both orders determined that this factor weighed against good faith, especially given the TOSHA report of the 13 violations that were almost entirely designated as "serious." Although the question of whether the nephew was an employee within the meaning of the policy’s exclusion was not clear cut, the possibility of the uncle having a duty to exercise reasonable care over his nephew was supported by the evidence.

The appellate court noted that the uncle had not provided proof that the insurer was representing him under a reservation of rights, and the mother did not list uncertainty about the availability of insurance proceeds as a reason for not filing a direct lawsuit against the uncle. As such, there was nothing to support the contention that the insurance policy might not apply to give meaning to the low settlement amount.

Accordingly, in considering the totality of the circumstances, the lower court abused its discretion when it found that the settlement had been made in good faith. Because the Contribution Act intends to promote the public policy of equitable apportionment of damages among tortfeasors, allowing the mother to settle with the uncle as they had would not meet that objective because the resulting apportionment of damages would not be equitable. Therefore, the trial court’s good-faith finding was reversed, and the matter was remanded. The appellate court also clarified that the companies should be allowed to conduct relevant discovery in order to properly address the good faith of any future settlement.

The case is No. 1-19-2619.

Attorneys: Michael D. Krause (Bollinger Connolly Krause LLC) for North American Polymer Company, Ltd. James P. McCarthy (Gunty & McCarthy, of Chicago) for Samax Enterprises, Inc. Mathew K. Hargrave (Best, Vanderlaan & Harrington) for Tony Hartley d/b/a Hartley’s Painting. Eric D. Jones (Tarpey, Jones & Schroeder, LLC) for Wendy Hartley.

Companies: North American Polymer Company, Ltd.; Samax Enterprises, Inc.; Tony Hartley d/b/a Hartley’s Painting

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