A Survey of the Law of Non-Contractual Indemnity and Contribution Compiled by the Products Liability Group of the Primerus Defense Institute International Society of Primerus Law Firms April 2015 A Survey of the Law of Non-Contractual Indemnity and Contribution Compiled by the Products Liability Group of the Primerus Defense Institute International Society of Primerus Law Firms Executive Committee Raymond Lyons, Jr., Chair Lipe Lyons Murphy Nahrstadt & Pontikis, Ltd. | Chicago, Illinois | www.lipelyons.com Brian A. Comer, Vice Chair Collins & Lacy, P.C. | Columbia, South Carolina | www.collinsandlacy.com Jeremy J. Cook, Industry Liaison Chair Downs u Stanford, P.C. | Dallas, Texas | www.downsstandford.com Michael J. Vetter Sr., Member Involvement and Outreach Spicer Rudstrom, PLLC | Nashville, Tennessee | www.spicerfirm.com Leo Daly, Member at Large Grogan Graffam, P.C. | Pittsburgh, Pennsylvania | www.grograngraffam.com James B. Carlson, Member at Large Christian & Small LLP | Birmingham, Alabama | www.csattorneys.com Dane J. Bitterlin, Member at Large Neil, Dymott, Frank, McFall & Trexler APLC | San Diego, California | www.neildymott.com April 2015 © April 2015 International Society of Primerus Law Firms, Grand Rapids, Michigan A Survey of the Law of Non-Contractual Indemnity and Contribution By Raymond Lyons, Jr. Lipe Lyons Murphy Nahrstadt & Pontikis, Ltd. Chicago, Illinois Tel: 312.448.6230 Fax: 312.726.2273 Email: [email protected] www.lipelyons.com Introduction an invitation to defend itself in court in a products liability This survey of law has been prepared by the Products lawsuit. The expenses incurred in the defense of lawsuits Liability Group of the Primerus International Society of seeking compensation for personal injury or property Law Firms, Defense Institute and replaces the earlier April damage are often staggering - even when the defense is 2012 survey. Although our focus is the defense of products ultimately successful. liability litigation, this survey of law applies generally Some products, by their very nature, are the subject of to any company that finds itself the target of litigation in an enormous amount of litigation throughout the country. jurisdictions throughout the United States. Oftentimes, manufacturers, distributors, and retailers The purpose of this compendium is to provide a general find themselves named in lawsuits with the same group reference source regarding the applicable law in each of defendants. Sometimes these parties have defined state on issues related to the allocation of fault as between their respective liabilities through contractual indemnity defendants and non-parties in a products liability case in provisions. However, it is not unusual in a profit driven circumstances where there is no contract dealing with the economy for a company to enter into transactions without issue. It is not intended to be a comprehensive discussion addressing potential liability issues up front. Even when the of the law in each jurisdiction, but simply to provide easy legal department tries to have indemnity matters handled reference to the basic rules within each state. An awareness contractually, problems arise in reaching agreement as to of the issues and applicable law may promote greater how liability will be allocated between the parties. In such cooperation and cost saving arrangements that also increase cases, the parties more often than not will move forward the potential for a successful defense of all involved. with the transaction, expecting to work things out later - if Whether a company is the designer, manufacturer, and when litigation rears its ugly head. Unfortunately, it is distributor, wholesaler, or retailer of a completed product or generally too late at that point as no one is willing to take on a component part, it will inevitably find itself the recipient of the prospect of a large adverse judgment alone. © April 2015 International Society of Primerus Law Firms, Grand Rapids, Michigan A Survey of the Law of Non-Contractual Indemnity and Contribution When there is no contract defining the respective rights The indemnity issues are different in cases where there and obligations between the various parties involved in a are additional defendants who are not involved with the products liability lawsuit, the lawyers must look to the law product aspect of the case. While there will generally be of the jurisdiction in which the case is pending to determine no potential for tendering one’s defense to such a party, what the possibilities are for liability shifting under that there may still be the potential for equitable indemnity or state’s statutory scheme and/or judicial decisions. It is contribution based on allocation of fault. This prospect important that an understanding of the applicable law be can work to the benefit or detriment of a company under developed early in the litigation. The law must be analyzed the circumstances of a particular case. Strategic decisions to ascertain: relating to trial and/or settlement can be affected by the • Is there a statutory basis for indemnity or for the potential for liability to a co-defendant or vice versa. The recovery of costs and fees? If so, does the company manner in which the law of offset applies to a settlement also have a basis for asserting a claim under the statute? complicates the analysis. Is the company subject to a statutory claim by another Even a cursory review of the variations in the laws of party? different states affecting a party’s potential liability exposure • Where there is no applicable statute addressing and related rights to indemnity or contribution should indemnity between parties, what is the case law that lead to the consideration of eliminating the undesirable defines the respective rights and obligations of the results through contractual arrangements. While it is not parties? the purpose of this survey of the law to provide a guide to negotiating and drafting agreements that allocate risk and • What are the risks/benefits of not accepting a tender responsibility, we believe a few general thoughts on the of defense? When does it make sense for the company subject are appropriate. to assume the defense of another party? A written agreement dealing with the obligations of • Should the defense of the company be tendered parties to a transaction in the event of litigation can go a to another party or a non-party? How can another long way toward eliminating the undesirable and inequitable party be convinced to take over the defense of the results if left to the statutory or case law in the jurisdiction company? where suit is filed. If a written agreement addresses the respective obligations between parties, that agreement will • How can the indemnity issues be best handled generally control the handling of issues related to the duty between the defendants without assisting the plaintiff of one party to provide a defense and/or indemnify the other. in establishing liability? However, standard terms and conditions in quotes, purchase The answers to these questions are often not clear. orders and similar documents are often conflicting and However, by giving these issues attention early in the the determination of which, if either, will control is rarely litigation, it is possible that parties can reach agreement as certain. An arms length negotiated agreement will to the handling of the defense of multiple parties in a more eliminate the problems posed by conflicting standard terms cost effective and cooperative manner. and provide more predictability. Of course, negotiating such an agreement can be a challenge in itself. © April 2015 International Society of Primerus Law Firms, Grand Rapids, Michigan A Survey of the Law of Non-Contractual Indemnity and Contribution There are a number of factors that will affect the Sometimes the party with the stronger bargaining position negotiations, not the least of which is the relative bargaining will overreach and find itself regretting its insistence on strengths of the parties. Other factors affecting negotiations provisions that seemed advantageous when negotiating the include the likelihood of claims and litigation involving agreement. These problems are magnified when there are the product(s), the potential severity of the injuries or claims directed against a specific component of a product damages related to the use of the product(s), the availability as well as claims directed at the product as a whole, such of alternative sources for the product(s), etc. There are a as a failure to warn. An agreement that requires the other number of issues to be addressed that can be stumbling party to provide a defense can result in loss of control over blocks to successfully negotiating an agreement. Such issues the defense strategy, positions taken inconsistent with the include, but are not limited to: defense of other cases involving the company, inability to • Conditions under which one party must indemnify control the settlement process, and an overall poor defense the other. of the product. • Circumstances under which one party must provide The members of the Primerus International Society a defense for the other. of Law Firms, Defense Institute, are not only uniquely qualified to defend products liability lawsuits, but are also • How recalls will be handled and who will pay the able to assist in the negotiation and drafting of agreements costs. addressing duties to defend and indemnify and related • Type of insurance coverage and limits. issues. Such agreements