Settlements: “Mary Carter” Agreements

Following case contains a summary of Kentucky Law on Mary Carter agreements. What is interestings is how the medical negligence case played out with the patient suing the physician for negligence who then sued the health insurer for indemnity for not appoving the diagnostic test.  The patient settled with the insurer, but did not dismiss them from the suit.

From Goodin v. White, COA, Published, 4/15/2011

The term “Mary Carter agreement” derives from a 1967 case from
Florida, Booth v. Mary Carter Paint Co., 202 So.2d 8 (Fla.Ct.App.1967), rejected by Ward v. Ochoa, 284 So.2d 385, 388 (Fla.1973), and abrogated by Dosdourian v. Carsten, 624 So.2d 241 (Fla. 1993), which upheld the validity and nondisclosure of an agreement that limited the liability of two out of three defendants. In a classic Mary Carter agreement: (1) the settling defendant’s liability is limited although that defendant remains a party at trial; (2) the agreement is not disclosed to the non-settling parties and/or judge and jury; and (3) it guarantees to the plaintiff a minimum recovery, even though the plaintiff may not recover a judgment against the agreeing defendant or that the verdict may be less than that specified in the agreement. Slusher v. Ospital by Ospital, 777 P.2d 437, 440 (Utah 1989).

Although courts generally agree about the basic elements of Mary Carter agreements, jurisdictions differ in their treatment of the agreements. The
Supreme Court of Utah upheld Mary Carter agreements, provided that the terms of the agreement are disclosed to the jury. Id. at 441- 442. In Slusher, id., the Court stated:

defendant tort-feasors enter into a settlement agreement, the parties must promptly inform the court and the other parties to the action of the existence of the agreement and of its terms. Where the action is tried by a jury, the court shall, upon motion of a party, disclose the existence and basic content of the agreement to the jury unless the court finds that, on facts particular to the case, such disclosure will create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.
Slusher v. Ospital by Ospital, 777 P.2d 437, 444 (Utah 1989). In 1993, the Florida Supreme Court banned Mary Carter agreements
all together. The Court reasoned:

In addition, Mary Carter agreements, by their very nature, promote unethical practices by Florida attorneys. If a case goes to trial, the judge and jury are clearly presuming that the plaintiff and the settling defendant are adversaries and that the plaintiff is truly seeking a judgment for money damages against both defendants. In order to skillfully and successfully carry out the objectives of the Mary Carter agreement, the lawyer for the settling parties must necessarily make misrepresentations to the court and to the jury in order to maintain the charade of an adversarial relationship.
… .
[w]e are convinced that the only effective way to eliminate the sinister influence of Mary Carter agreements is to outlaw their use. We include within our prohibition any agreement which requires the settling defendant to remain in the litigation, regardless of whether there is a specified financial incentive to do so. Dosdourian v. Carsten, 624 So. 2d 241, 244 & 246 (Fla. 1993). The Supreme Court of Texas described this rationale in Elbaor v. Smith, 845 S.W.2d 240 (Tex. 1992). “No persuasive public policy justifies them, and they are not legitimized simply because this practice may continue in the absence of these agreements. The Mary Carter agreement is simply an unwise and champertous device that has failed to achieve its intended purpose.” Id. at 249.

Although Mary Carter agreements have garnered national attention over the past forty years as a means of settlement, Kentucky Courts have yet to confront this issue. Certainly the agreement in this case shares many characteristics of a Mary Carter agreement. The agreement limited the liability of Bluegrass and required Bluegrass to participate in trial. The agreement guaranteed that White would recover a minimum amount from Bluegrass, even though the jury may render a judgment against Goodin. Further, the nature of the agreement was not disclosed to Goodin or the court until trial was underway and was never disclosed to the jury. The agreement, however, was disclosed to the court and to Goodin once its terms were reduced to writing.

However, what distinguishes this case from typical Mary Carter scenarios is that Bluegrass’s continued presence at trial was not only because of the settlement agreement but also because Goodin never moved to dismiss its third party action against Bluegrass.

NOTE:

The redacted agreement provided in part:
1.1. In consideration of the following agreements, White hereby releases and discharges Bluegrass from any and all claims, demands, obligations, actions, causes of action, rights, damages, costs, losses of services, expense and compensation of any nature whatsoever, whether based on a contract, tort, or other theory of recovery, which White may have on account of which may in any way arise out of the allegations as set forth in the pleadings filed by the parties in this matter.
… . 2.0 Bluegrass agrees to pay White up to a maximum of ____. As consideration for this agreement, White agrees that Bluegrass shall receive a lien against any damages that the jury awards against Dr. Goodin attributable to his actions or omissions up to a maximum of _____. As further consideration for this agreement, the parties agree
2 Goodin entered into a contractual relationship with Bluegrass, whereby the insurance company paid Goodin for services that he performed for patients covered under their insurance coverage and Goodin was listed by the company as a “preferred provider.”
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that Bluegrass retains a legal interest in this case and will participate at trial. As further consideration for this agreement, White agrees to indemnify and hold harmless Bluegrass for any claim of indemnity or contribution by Dr. Goodin which would result in payment by Bluegrass over and above ______. Accordingly, under this agreement Bluegrass will not pay more than _____ for any and all claims arising out of this litigation, and will not pay White less than ____ depending upon the application of the lien described above if any.
… . 6.0 As further consideration for this settlement, White and Bluegrass and her attorneys agree to keep this Release and Settlement Agreement strictly confidential and will not disclose the amount or terms of the settlement to any person, company or agency other than the parties’ immediate family, legal counsel, insurers, accountants or other financial advisors as necessary or if ordered to do so by a court of competent jurisdiction or as required by law. This is a material term of the Release and Settlement Agreement.

 

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