Offsetting damages in a nonallocated settlement

A patient undergoes a seemingly routine procedure to address persistent nosebleeds. He wakes up with a dry nose but permanent blindness in one eye. The patient sues the operating physician, the hospital and the manufacturer of the product employed in the surgery.

Before trial, the medical manufacturer and the hospital settle with the patient. Neither settlement agreement apportions the total between economic and noneconomic damages. At trial, the patient prevails. The jury awards him economic damages and millions in noneconomic damages, which the court reduces to the limit of $250,000 mandated by the Medical Injury Compensation Reform Act (MICRA).

Dismayed at his loss of sight and the court's reduction of his damages award, he appeals. The physician also appeals, but for a different reason: He argues that he should have been awarded an offset based on the amounts of the pretrial settlements.

In Rashidi v. Moser, 2013 DJDAR 13612 (Oct. 9, 2013), the 2nd District Court of Appeal, Division Four held that the physician was entitled to offsets against the economic and noneconomic damages awarded against him based on the amounts of the pre-trial settlements, even though those settlements did not identify and allocation between economic and noneconomic damages.

Under California Civil Code Section 3333.2, noneconomic damages are capped at $250,000. Code of Civil Procedure Section 877 provides that the value of good faith settlements offset the damages awards against nonsettling defendants. Under Civil Code Section 1431.2, which codified the Fair Responsibility Act, liability for noneconomic damages is several only in accordance with a percentage of fault. But how was fault determined here, where two parties settled with no fault determination?

In Rashidi, the plaintiff obtained a settlement of $2 million from Biosphere Medical, which manufactured the embospheres that were inserted to irreversibly occlude his blood vessels. These embospheres allegedly successfully occluded his nasal blood vessels but seeped into his eye and caused blindness. Rashidi settled with the treating hospital, Cedars-Sinai, for $350,000. Biosphere and Cedars successfully moved for judicial determinations of good faith settlement.

After trial against the physician, the jury found for Rashidi and awarded him total damages of $1,450,000: $125,000 in economic damages and $1,325,000 in noneconomic damages. Pursuant to MICRA's cap on noneconomic damages, the trial judge reduced the noneconomic damages award to $250,000. The physician argued that his damages should be offset by the good faith settlements of Biosphere and Cedars. The trial court rejected this assertion because it found no basis for allocating the settlement amounts between economic and noneconomic damages.

On appeal, the court wrestled with the three determinative statutes. Settling defendants, like Biosphere and Cedars, rely on Section 877 to immunize themselves from further damages claims. Nonsettling defendants, such as the physician, rely on Section 877 to reduce their damages awards after trial. Medical provider defendants find protection under the provisions of Section 3333.2. And defendants enjoy the protections of Section 1431.2, which provides, "Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant's percentage of fault."

Two questions were before the appellate court: how to determine the amount of noneconomic damages allocated to a defendant when there is no determination of the defendant's percentage of fault; and whether MICRA or Civil Code Section 1431.2 controls when the defendant is a medical provider.

On the first question, the court relied on an allocation method whereby settlements are apportioned according to a jury's apportionment of economic and noneconomic damages. This is done by dividing the economic damages portion of the award by the total amount of the award, and then applying that same percentage to the settlement figure. Espinoza v. Machonga, 9 Cal. App. 4th 268, 276-77 (1992).

Concerning Biosphere, the court divided $125,000 (economic damages) by the total damages amount, $1,450,000, giving a percentage of 8.62 percent. This is the economic damages portion of the total award. The court multiplied $2 million by that percentage to arrive at $172,400, the amount of economic damages. Given the jury had awarded Rashidi only $125,000 in total economic damages, the physician argued that he was entitled to an offset of $172,400.

Concerning Cedars' settlement, which was subject to MICRA, the court divided $125,000 (economic damages) by $375,000, the total amount of the reduced jury award. This gave an economic damages figure of 33 percent. Multiplying the Cedars settlement figure ($350,000) by that percentage resulted in $116,655 of economic damages attributable to Cedars. The remaining $233,345 was noneconomic damages.

As to the interplay of Section 1431.2 with MICRA, Rashidi argued that because there was no apportionment of fault between defendants, the physician was entirely liable for the noneconomic damages of $250,000, and further entitled to no offset. However, the Court of Appeal noted that MICRA applies an absolute limit on the noneconomic damages a plaintiff can recover from all healthcare providers named in a lawsuit. The physician argued that the noneconomic damages portion of Cedar's settlement, $233,345 should be applied to reduce his damages award to $16,655.

Rashidi opposed this theory and relied on case law external to the MICRA context that did not include a damages cap. The court found that MICRA was the more specific statute for the facts before it, and read MICRA as an exception to the more general limitation on liability within Section 1431.2.

As a result, the court modified the trial court judgment to provide the physician an offset against economic damages in the amount of $125,000, and reduced his noneconomic damage exposure to $16,655. Now, what does this mean for future litigants and settlement agreements?

First, attorneys need not make an effort to apportion settlement awards into economic and noneconomic damages. Doing so would be cumbersome, likely inaccurate, and a possible exercise in futility.

Second, nonsettling defendants should rely on Rashidi for the proposition that nonapportioned settlement amounts can offset jury verdicts by relying on the formula employed in Rashidi. The figure that results from the basic math, which all lawyers should be able to compute, should be applied to offset jury awards.

Third and finally, medical malpractice plaintiffs should beware of attempts to circumvent MICRA's absolute cap on damages, even in the context of pretrial nonapportioned settlements. Creative legal arguments may read well in briefs, but the Legislature has spoken firmly, with courts declining to indulge in efforts to undermine MICRA.