House bill targets ‘deep pockets’ in lawsuits

When tort defendants are held jointly and severally liable, the total of all damages is payable by each defendant without regard to each defendant’s individually assigned degree of fault. Because this rule allows plaintiffs to seek out defendants who may be minimally liable but have substantial assets, it is often referred to as the “deep pocket” rule.

In contrast, the rule of proportionate or several liability is a legal concept that limits each defendant’s liability to the amount of damages caused by the proportion of each defendant’s fault.

In 1989, as part of a tort reform movement that spread across the country, New Hampshire abolished pure joint and several liability. While many states have enacted statutes declaring that each defendant may only be held for his allocable share of the damages, New Hampshire adopted a system that allowed a plaintiff to hold a defendant shown to be 50 percent or more at fault responsible for the entire amount of damages. Those defendants shown to be less than 50 percent at fault are responsible for only their proportionate share of the damages.

A case called Nilsson v. Berman provides a good example of how the current law works. The plaintiff in Nilsson was a passenger traveling in a car driven by another. Defendant Knight, the driver of the plaintiff’s car, failed to stop at a stop sign and collided with another car driven by defendant Berman who apparently was traveling along the through road at approximately 35 to 40 mph in a 30 mph zone.

The plaintiff settled with Knight for payment of $25,000 (the limits of his insurance policy) before trial. The jury, however, was instructed to consider both Knight’s and Berman’s conduct when apportioning fault. After hearing the case, the jury found Knight to be 99 percent at fault for the accident and Berman 1 percent at fault. Thus, under the current law, the plaintiff could hold Knight responsible for all of the damages because he was more than 50 percent at fault. Berman, however, would be responsible for only 1 percent of the damages because he was less than 50 percent at fault.

On Feb. 21, 2007, the New Hampshire House passed House Bill 143. Under HB 143, a jury may only consider the conduct of the defendants who remain parties at the time of trial. Under the measure, the plaintiff could assess the financial resources of potentially liable parties and settle with primarily liable but financially limited defendants before trial and still hold a minimally liable defendant with substantial assets responsible for all of the damages.

In the Nilsson case because the plaintiff settled with Knight before trial, the jury would have been instructed to only consider Berman’s conduct in apportioning fault. It would not have been allowed to apportion any part of the fault to Knight. Upon determining that Berman was at fault to any extent, he would have been held liable for all of the damages.

Such a law encourages plaintiffs to seek out minimally liable defendants with substantial resources because the plaintiff can control the defendants who will proceed to trial by settling before trial with those defendants who would be likely found by the jury to be primarily at fault. Upon proceeding to trial against only those defendants with substantial financial resources, the plaintiff can hold such defendants responsible for all of the damages even those who otherwise would only be found 1 percent at fault.

The House in enacting the bill stated that it favors a policy that “encourages settlements which will help to ease court dockets and keep [New Hampshire] courts costs down,” and a policy that requires minimally liable defendants to bear more than their portion of the loss to insure plaintiffs are fully compensated. A law that so significantly raises the stakes of losing at trial for defendants whose liability is questionable may encourage those defendants to offer more than their fair share to settle a case. On the other hand, it may discourage settlements by creating a lottery for plaintiffs willing to take their chances that a questionably liable defendant with substantial assets will be held responsible.

By making responsible persons insurers for others’ conduct, such a policy may have the collateral effect of raising insurance rates in New Hampshire, including automobile insurance rates. It may also affect local property tax rates as counties, municipalities and school districts may become prime “deep pocket” targets especially in light of House Bill 882 which proposes to raise the liability cap for counties, municipalities and school districts to $275,000 per person and $925,000 per incident.

The Senate Judiciary Committee was scheduled to hold a May 22 hearing on HB 143.

Jeanne Herrick, a shareholder-director at the Concord law firm of Gallagher Callahan & Gartrell, represents clients in civil and employment litigation in state and federal court.

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