Chapter 20 Contribution Indemnification and Settlement Issues in Products Liability Actions

• Jurisdiction: New York

CHAPTER TWENTY CONTRIBUTION, INDEMNIFICATION AND SETTLEMENT ISSUES IN PRODUCTS LIABILITY ACTIONS Susan T. Dwyer, Esq.
Aviva Wein, Esq.

I. INTRODUCTION

Contribution and indemnification issues arise in virtually every products liability action. Contribution and indemnification are different methods for allocating fault among tortfeasors. This can significantly affect the number of parties involved in a products liability lawsuit; the strategies employed by both plaintiff and defense counsel; the issues to be determined by the trier of fact; and the structure, timing and implications of settlement. Whether the lawsuit involves the manufacturer of a single product, or multiple defendants and a web of interrelated products, counsel must consider contribution and indemnification at each stage of the litigation, from the time the case first comes into counsel’s office through final disposition by settlement or jury verdict

Tort reform legislation, codifying the basic concepts of fault allocation and the ever-evolving (and sometimes conflicting) judicial interpretation of this legislation (which has been described by both plaintiff’s and defense counsel as vague and counterintuitive), offers the tools to shape effective litigation strategy and contains significant pitfalls for the unwary

This chapter discusses contribution and indemnification and the legislation ³⁴¹⁸ concerning these concepts of fault allocation—from the pleadings stage through verdict. This chapter also examines the issues surrounding settlement of a products liability action, particularly the interplay among settlement ³⁴¹⁹ contribution ³⁴²⁰ and the limited liability of persons jointly liable ³⁴²¹

II. CONTRIBUTION AND INDEMNIFICATION DISTINGUISHED

While the words “contribution” and “indemnification” are often spoken in the same breath, there are fundamental differences between the two concepts. “Contribution enables a joint tortfeasor that has paid more than its equitable share of damages to recover the excess from the other tortfeasors” responsible for causing the plaintiff’s damages. ³⁴²² The need for contribution arises from the common law rule that holds tortfeasors jointly and severally liable for the full amount of the injured party’s judgment, notwithstanding their relative degrees of culpability. In other words, at common law, a tortfeasor whose conduct was only slightly responsible for the plaintiff’s injuries would nonetheless be liable for 100% of the judgment. As discussed below, contribution, for the most part, is a legislative creation designed to address the harsh inequities at common law of joint and several liability among tortfeasors.

The right to indemnification, as distinguished from contribution, is grounded in contract, both express and implied. ³⁴²³ Further, unlike contribution, indemnification provides for full (versus partial) reimbursement as between parties liable to an injured party. Express contracts of indemnification are common in many industries between manufacturers and others in the distribution chain. The scope of an express indemnification contract will be strictly construed by a reviewing court.

Implied indemnification finds its roots in the concepts of equity and quasicontract. Simply stated, the right to indemnification will be implied by law where one tortfeasor, by virtue of its relationship with another tortfeasor who is solely responsible for causing the plaintiff’s injuries, is compelled to compensate an injured party for the wrongful conduct of the other tortfeasor. ³⁴²⁴ In essence, implied indemnification prevents the unjust enrichment of a tortfeasor whose conduct alone caused the plaintiff’s injuries. It goes without saying that a party who was itself actively at fault is not entitled to implied indemnification. ³⁴²⁵ The classic example where a contract to indemnify will be implied at law is in a situation involving respondeat superior, or vicarious liability.

Defendants in the chain of distribution of a defective product are typically jointly and severally liable. As a matter of law, a seller or distributor of a defective product has an implied right of indemnification against the manufacturer of the product. ³⁴²⁶ In Godoy v. Abamaster of Miami, Inc., ³⁴²⁷ the plaintiff lost four fingers on her right hand while operating a commercial meat grinder. The plaintiff brought suit against the retailer who sold the meat grinder, the wholesale distributor that sold the meat grinder to the retailer, and the importer/distributor that sold the meat grinder to the wholesaler. The jury returned a verdict apportioning fault as follows: 40% to the plaintiff; 50% to the wholesaler and 10% to the importer/distributor. The apportionment of liability to the wholesaler and importer/distributor was not awarded because they were actively negligent, but rather was awarded “only by imputation of law.”

The wholesaler sought a determination on its common law indemnification cross-claim against the importer/distributor. The trial court found that the wholesaler was not entitled to indemnification because the jury found the wholesaler and the importer/distributor to be joint tortfeasors. The Second Department, Appellate Division, reversed, finding that both the wholesaler and the importer/distributor have a right of indemnification against the foreign manufacturer. However, because the court could not obtain jurisdiction over the foreign manufacturer of the meat grinder, the wholesaler was entitled to indemnification from the importer/distributor as the party closest in the chain to the negligent manufacturer.

The court reasoned that the importer/distributor, as the party closest to the manufacturer, was in the best position to further the public policy considerations underlying the doctrine of strict product liability—encouraging improved product safety. The importer/distributor was also in the best position to exert pressure on the manufacturer to make a safer product and eliminate the danger caused by the product. The importer/distributor was in the better position to seek indemnification from the manufacturer.

The following hypothetical illustrates the equitable rationale underlying the rule of implied indemnification: A bartender pummels patron P for no apparent reason. P sues the bartender for personal injuries and names the bartender’s employer solely upon a vicarious liability theory. The jury returns a $1 million verdict against the bartender for his tortious conduct and the owner of the bar, based upon the employer-employee relationship. Notwithstanding that the employer never laid a finger on P, it is compelled to pay the entire judgment. In the absence of a written contract between the bartender and his employer, a contract of indemnity will be implied at law to enable the employer to recover against its employee.

Another tactic to consider is that a party may obtain a judgment for conditional indemnification fixing the potential liability without the need for payment until it is shown that the judgment in the principal action has been satisfied in whole or part. ³⁴²⁸

III. CONTRIBUTION—CPLR ARTICLE 14

A. Contribution Among Persons Jointly Liable

Any discussion of contribution under New York law must begin with the Court of Appeals’ landmark decision in Dole v. Dow Chemical Co ³⁴²⁹ As noted earlier, there was no right to contribution at common law. A plaintiff could recover the entire judgment from any one tortfeasor, regardless of that particular tortfeasor’s percentage of fault. Moreover, because an injured plaintiff could recover 100% of its judgment against any one tortfeasor, regardless of the relative percentages of fault, a plaintiff had neither the incentive nor the obligation to sue all the tortfeasors responsible for its injury.

In Dole, the Court of Appeals set forth the rule for contribution among joint tortfeasors: “[W]here a third party is found to have been responsible for a part, but not all, of the negligence for which a defendant is cast in damages, the responsibility for that part is recoverable by the prime defendant against the third party.” ³⁴³⁰ Dole v. Dow, and its subsequent codification in CPLR article 14, not only created a right of contribution among tortfeasors, but also provided a mechanism by which a tortfeasor named in an action could implead other tortfeasors responsible for causing the plaintiff’s injuries.

Article 14 of the CPLR, which became effective in 1974, was intended to codify and clarify the Dole v. Dow rule of contribution. Article 14 permits defendants to seek contribution where two or more tortfeasors are subject to liability in damages for the same personal injury. ³⁴³¹ Provided that the tortfeasor from whom another party claims contribution was responsible for causing the same injury to the plaintiff, a CPLR article 14 claim is available, notwithstanding that the plaintiff has asserted different theories of liability against each tortfeasor. ³⁴³² Thus, for example, where a plaintiff sues an automobile manufacturer, based upon a design defect theory, for injuries suffered as a result of an air bag failing to deploy, and sues the driver of the automobile that caused the accident for negligence, the automobile manufacturer and the driver may assert cross-claims for contribution against one another, notwithstanding the fact that the plaintiff has asserted different theories of liability against them, because their conduct allegedly caused the plaintiff to suffer the same injuries.

Furthermore, CPLR article 14 does not require a party seeking contribution to assert the existence of a legal relationship or privity between tortfeasors. However, “[a] party seeking contribution must show that the party from whom contribution is sought owes a duty to him or to the injured party and that a breach of this duty has contributed to the alleged injuries.” ³⁴³³ Contribution claims

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