The term "Mary Carter" agreement is derived from the case of Booth v. Mary Carter Paint Co., 202 So.2d 8 (Fla. Dist. Ct. App. 1967). In Booth, the plaintiff brought an action against Mary Carter Paint Company (hereinafter "Mary Carter"), Wallace Tompkins, Crofford Hancock, B.C. Willoughby and Harry Lee Sutton for the negligent operation of their motor vehicles which resulted in the death of his wife. Prior to trial, plaintiff entered into a secret agreement with defendants Willoughby and Sutton which limited their maximum liability, regardless of the jury’s verdict, to $12,500. Willoughby and Sutton agreed to participate in the trial as "active defendants," and in the event of a verdict against all defendants, plaintiff would seek to collect any judgment from only Mary Carter. Pursuant to the agreement, plaintiff agreed to enforce any judgment against Mary Carter, with no additional contribution from the settling defendants. The terms of the agreement were upheld by the Florida appellate court.
Not all jurisdictions permit the use of Mary Carter agreements. In Pennsylvania, Mary Carter agreements allow a defendant to settle with plaintiff and maintain an interest in plaintiff’s recovery from the other defendants so that the settling defendant may recover some or all of its settlement payment to plaintiff. Although no two Mary Carter agreements are alike, they typically include the following elements:
- the settling defendant guarantees plaintiff a minimum payment;
- plaintiff agrees not to enforce any subsequent judgment against the settling defendant;
- the settling defendant remains in the lawsuit, and its payment to plaintiff is reduced if money is recovered by settlement or judgment from the other defendants; and
- the agreement is confidential and disclosed only as required by the rules of Court.
In Pennsylvania, the rule on disclosure of a Mary Carter agreement was established in Hatfield v. Continental Imports, Inc., 530 Pa. 551 (1992). The Pennsylvania Supreme Court ruled that the existence of a Mary Carter agreement is admissible at trial to show "a bias to the [settling] defendants’ interest in the case which is contrary to what would be perceived as their ‘normal’ interest." The Court explained its ruling as follows:
This is not to say that agreements such as these should be admitted into evidence in toto. The court, as with all proffered evidence, should review the agreement, balance the relevancy of it against the potential prejudice, and exercising judicial discretion, admit or exclude as much as it deems appropriate. However, where an agreement clearly allies two or more parties against another, such that a clear potential for bias exists which would not otherwise be apparent to the factfinder, that part of the agreement or at least the existence of the reason for the potential bias, must be conveyed to the factfinder.
We used a Mary Carter agreement in Yancy v. Marten Transport Ltd., et al., CCP Philadelphia, July Term, 2002 No. 3884, to limit the trucking company’s exposure at trial. We subsequently recovered the majority of the settlement proceeds paid to plaintiff by the co-defendants that we had joined in the litigation.
On January 24, 2002, twenty year-old plaintiff, Gladys Yancy, was a passenger in a car driven by defendant, Rovell Johnson, on I-95 in Bucks County, Pennsylvania. According to plaintiff, a tractor trailer owned by Marten Transport, Ltd. collided with the car driven by Johnson as the tractor trailer moved from the left lane into the center lane of I-95. As a result of the collision, the car spun in front of the tractor, and the car was pushed down the roadway for more than 1,000 feet. As the car was being pushed by the tractor trailer, portions of plaintiff’s body went out the passenger door, and her right leg was dragged along the highway. Plaintiff sustained severe injuries to the right leg, including a fracture of the right femur and abrasions, which resulted in significant loss of soft tissue and scarring. Plaintiff had several surgeries to save the right leg, but since she lost the majority of the tissue, muscle and bone from her right knee, the right leg became ankylosed, or stuck, in full extension. Plaintiff claimed that she was in constant pain, severely depressed and permanently disabled as a result of her injuries.
During the early stages of discovery, we learned that Johnson did not own the car and did not have permission from the car’s owner to drive it at the time of the accident. Thus, the owner’s insurance carrier denied coverage, and defendant Johnson had no other insurance. At the time of the accident, Pennsylvania applied the law of joint and several liability. Under joint and several liability, each defendant is responsible for its proportionate share of liability with respect to the payment of damages. However, a plaintiff may recover all damages from any tortfeasor found negligent, with a right of contribution among tortfeasors. Thus, if Marten Transport’s driver was only 1% at fault, plaintiff would be able to recover all of her damages from Marten Transport. Due to defendant Johnson’s financial status, a claim for contribution against him appeared pointless. Based on "the 1% rule" of joint and several liability, Marten Transport was faced with the possibility of sole responsibility for payment of plaintiff’s damages and was clearly the target, "deep pocket" defendant.
Marten Transport’s driver reported that she was driving in the center lane and Johnson was driving in the right lane. Johnson swerved in front of the tractor trailer when a box truck owned by Courier Systems Inc. merged from the right shoulder into the right travel lane in front of Johnson’s car at 25 to 35 m.p.h. Marten Transport retained Steven Rickard, an accident reconstructionist, who specializes in reconstructing accidents involving tractor trailers, to evaluate this accident for the defense. Rickard relied upon the police investigation and photographs of the accident scene, and he concluded that Johnson’s car moved from the right lane into the center lane and struck the Marten Transport tractor. The truck driver’s description of the accident was also supported by three separate statements from the Courier Systems driver wherein he admitted that he had merged from the right shoulder into the right travel lane at a slow speed.
Rickard concluded that the Courier Systems driver created a danger by stopping on the right shoulder for a non-emergency and then re-entered the right travel lane at a very slow speed in front of Johnson’s car. Since plaintiff had not named Courier Systems or its driver as defendants in the case, we moved the Court for permission to join them as additional defendants. After the motion was granted, we joined Courier Systems and its driver as additional defendants and demanded indemnity or contribution for plaintiff’s damages.
At the close of discovery, despite the application of "the 1% rule," Courier Systems maintained that it had no responsibility for the accident and it asserted its belief that it was not at risk for bearing the financial burden of any award of damages for Johnson’s negligence. At a court-mandated settlement conference, Courier Systems only offered to contribute $25,000 toward a settlement with plaintiff, and at a subsequent private mediation, Courier Systems only increased its offer to $100,000. Courier Systems had $1,000,000 in liability insurance coverage, but it was unwilling to make a meaningful contribution toward settlement with plaintiff.
Due to the risk of significant exposure to Marten Transport, we entered into a Mary Carter agreement with plaintiff to cap the maximum exposure of Marten Transport, provide for the possibility of recovering all or some of the settlement paid to plaintiff, prevent plaintiff from pursuing her theory of liability against Marten Transport at trial, and provide us with control over any settlement negotiations with Courier Systems.
After reaching an agreement with plaintiff seven days before trial, we disclosed the existence of the Mary Carter agreement to counsel for Courier Systems. Since we included a confidentiality clause in the agreement, Courier Systems was not informed of the settlement amount or the terms of Marten Transport’s potential reimbursement after a settlement with, or jury verdict against, Courier Systems.
The Mary Carter agreement had a dramatic effect on how the case was tried. At trial, plaintiff’s counsel had no interest in establishing the liability of Marten Transport and instead, focused on the liability of Johnson and Courier Systems. Marten Transport had no interest in disputing plaintiff’s alleged injuries and damages. Rather, Marten Transport’s entire defense focused on the liability of Johnson and Courier Systems.
After several days of testimony about plaintiff’s injuries and damages, Courier Systems renewed settlement discussions. At that time, we demanded $900,000 from Courier Systems to settle the case and left the demand open until the Courier Systems’ driver took the stand to testify the following morning.
The next morning, on the sixth day of trial, Courier Systems agreed to pay $900,000 to settle the case. Once the reimbursement provisions of the Mary Carter agreement were considered, Marten Transport paid only a small fraction of the total settlement with plaintiff.
In addition to limiting Marten Transport’s exposure prior to trial, our use of a Mary Carter agreement significantly reduced Marten Transport’s ultimate contribution to the settlement with plaintiff and dramatically increased Courier System’s contribution to the settlement.
The use of a Mary Carter agreement provides a settling defendant with a wide variety of options, from limiting its maximum liability to allowing for the recovery of part, or even all, of the agreed-upon settlement amount based upon the plaintiff’s ultimate success at trial. Thus, the effect of a Mary Carter agreement is to align the settling defendant with the plaintiff since the settling defendant stands to gain from the plaintiff’s success at trial. In some jurisdictions, the non-settling defendants are not even aware of the change in the alignment of interests until required by the Court, which may be on the first day of trial or not at all.
Mary Carter agreements should be considered whenever the circumstances of the case place you or your insured at a risk of significant exposure and a co-defendant has failed to recognize its own risk of exposure. However, since Mary Carter agreements are not accepted in all jurisdictions and the extent of admissibility of the agreements also varies from jurisdiction to jurisdiction, your counsel should research the issue before this option is considered.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
