Overview of Pierringer Agreements
Pierringer Agreements are attractive options to partially resolve complex multi-party claims. A Pierringer Agreement is a settlement agreement between the plaintiff and one or more, but not all, of the defendants in an action. Pierringer Agreements impose several liability on the parties, enabling the plaintiff to pursue the outstanding liability against the non-settling defendants remaining in the action.[1] Non-settling defendants will only be held liable for their own several liability, meaning they will not be held responsible for any share of the liability apportioned to any of the settling defendants.
It is important to distinguish Pierringer Agreements from Mary Carter Agreements. In a Mary Carter Agreement, a plaintiff agrees to a fixed total recovery in the action, and the settling defendants remain parties to the action and attempt to maximize the contribution from the non-settling defendants.[2] Pierringer Agreements are relatively more common than Mary Carter Agreements.
Unlike most settlements, Pierringer Agreements require the approval of the Court because the plaintiff’s Statement of Claim must be amended which typically requires a court order. This precludes some elements of settlement privilege as the existence of the Pierringer Agreement must be disclosed to the Court and the other parties in the action. However, the settlement amount remains confidential until the conclusion of trial.[3] Disclosure of the settlement amount after trial is ultimately necessary to prevent the plaintiff from realizing a windfall from overcompensation.
A key characteristic of Pierringer Agreements is ensuring the settling defendants are protected against any finding of liability to other defendants by way of third party claims or cross claims. A true Pierringer Agreement ought to eliminate this risk and ensure that a settling defendant ceases to be part of the action after the Pierringer Agreement is approved by the Court and all liability is extinguished.
Competing Policy Considerations
Proponents of Pierringer Agreements emphasize the value in resolving elements of contentious claims prior to trial. Plaintiffs benefit from Pierringer Agreements in obtaining the guarantee of at least partial recovery regardless of the outcome of trial and at an earlier stage than would otherwise occur. This may reduce the likelihood that a plaintiff will compromise or abandon provable outstanding claims for economic considerations. Settling defendants also benefit by resolving claims earlier and eliminating further litigation risk and expense.
Opponents of Pierringer Agreements reference the potential detriment to non-settling defendants. Partial settlement of a claim may reduce the likelihood of timely resolution of the outstanding claims. Further, Pierringer Agreements may reduce the likelihood of settlement of the entirety of claims without the need for trial.
Principle Against Overcompensation
A practical consideration concerning Pierringer Agreements is the issue of a settling defendant paying more than it would have been ordered to at trial. In such an event, the Court’s options are to permit overcompensation of the plaintiff, or alternatively permit the non-settling defendants to obtain the benefit of a deduction of damages otherwise payable after trial. The Courts have long held that a plaintiff’s overcompensation or “double recovery” is to be avoided except in rare circumstances.
The Court of Appeal of Alberta considered this issue in Bedard v Amin, in which a defendant who had settled by way of Pierringer Agreement before the trial was found not liable at trial and was accordingly apportioned 0% of the liability. This resulted in a situation where the Plaintiff had received settlement funds from the defendant and could also recover 100% of its damages from the remaining defendants.
The Court considered whether to allow the plaintiff to realize a windfall, or for the non-settling defendants to have the value of the settling defendants’ Pierringer settlement deducted from the damages to be paid after trial. The Court agreed that the plaintiff’s argument to permit the windfall recovery had merit. The plaintiff argued that it bore the risk of settling for too little in the Pierringer Agreement prior to trial, and ought to be entitled to earn the benefit of overpayment by a settling defendant. However, the Court ultimately held that the principle against overcompensation prevailed, preventing the plaintiff from earning a windfall, despite the fact it led to the non-settling defendants obtaining the benefit of the settling defendant’s overpayment[4]. Thus, the damages payable by the remaining defendants were reduced by the amount the Plaintiff had received from the settling defendant.
The Court of Appeal of Alberta recently reconsidered the findings of Bedard v Amin and the competing considerations of whether plaintiffs or non-settling defendants ought to obtain the windfall of overcompensation. The Court affirmed the holding in Bedard v Amin, which it noted was in line with the majority of decisions on the topic in other Canadian jurisdictions[5]. If a settling defendant overpaid, the plaintiff will not be entitled to a windfall after trial and the damages payable by the non-settling defendant will accordingly be reduced.
Additionally, the Court clarified that the notion of overpayment does not arise until a plaintiff has been fully compensated for its losses. If a plaintiff is contributorily negligent, deduction from a non-settling defendant’s damages for overpayment by a settling defendant will not arise unless the plaintiff has been fully indemnified for the total losses calculated by the trial judge.[6]
Conclusion
The Canadian courts have considered challenges to Pierringer Agreements on several occasions. Despite the arguments in favour of and against Pierringer Agreements, they remain useful tools for resolving contentious multi-party claims. When faced with a complex claim, it is worthwhile to consider whether a Pierringer Agreement could be pursued to achieve a cost-effective resolution and prevent further costly litigation.
Our lawyers at W-T are well-versed all the various options that are available for settlement and many of our lawyers regularly work on complex construction claims. Please reach out to a member of our team if you have any questions or need advice.
This article was written by Gordon Becher, Jonathan Nisar and articling student Lane Aman.
[1] Pierringer v Hoger, 124 NW 2d 106 (1963 SC Wisconsin).
[2] Booth v Mary Carter Paint Co., 202 So 2d 8 (1967 Fl Dist CA).
[3] Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37.
[4] Bedard v Amin, 2010 ABCA 3.
[5] Canadian Natural Resources Ltd. v Wood Mustang Group (Canada) Inc., 2018 ABCA 305.
[6] Canadian Natural Resources Ltd. v Wood Mustang Group (Canada) Inc., 2018 ABCA 305.