By: Jason A. Copley and Kathleen M. Morely
Contractors and subcontractors, and really any business associated with construction, should be pleased with a new law that just took effect in Pennsylvania. In cases where there is more than one defendant, a plaintiff can only recover from each defendant the proportionate value of each defendant’s liability. In other words, each company found liable for negligence can only be required to pay the portion of liability that is attributed to them by a judge or jury.
What is Pennsylvania’s New Fair Share Act and How Does It Change Prior Law?
On June 28, 2011, Pennsylvania joined the majority of other states in adopting an act known as the “Fair Share Act”. In negligence actions where multiple defendants are at fault, the Fair Share Act limits the liability of each defendant to their share of responsibility for the loss. Prior to the adoption of the Fair Share Act, if multiple defendants were found to be liable for negligence, each defendant could be forced to pay the plaintiff for the full amount of the judgment.
To illustrate the change in the law, consider the following example under both the “old law” (prior to June 28, 2011) and the new law (the Fair Share Act): suppose a plaintiff is awarded $10,000 in damages in a negligence action involving three different defendant contractors, which the jury found to be 70% at fault (Contractor A), 25% at fault (Contractor B) and 5% at fault (Contractor C). Under the old law, even though the extent of each contractor’s fault varied considerably, each contractor was liable to the plaintiff for the full amount of the $10,000 judgment in the event the other defendants were unable to pay. That means that in this example, even though Contractor C was only 5% at fault ($500), that contractor or its carrier might be forced to pay the full $10,000. This concept is also referred to as “joint and several liability.”
In contrast, under the Fair Share Act, liability is only “several,” and not “joint,” meaning that each defendant is liable only for its percentage of liability. Therefore, in our example, under the new law, Contractor C would only be liable to plaintiff for $500 of the $10,000 award even if Contractor A and Contractor B were bankrupt and unable to pay.
Under the old law, defendants shared the risk of each defendant being able to pay his or her share of the judgment; whereas, under the Fair Share Act, a plaintiff now bears the risk of being able to collect from each defendant their actual share of liability.
Are There Any Exceptions or Limitations to the Fair Share Act’s Application?
Like most laws, there are exceptions to the Fair Share Act and limitations on the scope of its application. First, under the Fair Share Act, any defendant found to be 60% or more at fault for a plaintiff’s injuries can still be forced to pay the entire judgment just like under the old law. Second, the Fair Share Act does not affect contractual indemnity provisions. For instance, if a contract requires a subcontractor to indemnify a general contractor for injuries to third parties irrespective of fault, the contractor may seek contribution from the subcontractor pursuant to the terms of the contract. Third, the Fair Share Act only applies to claims arising after it went into effect on June 28, 2011. Therefore, the Fair Share Act would not apply to currently pending or newly instituted negligence actions that involve injuries occurring prior to June 28, 2011. Finally, the Fair Share Act does not apply to intentional torts and misrepresentations, as well as environmental and liquor law violations.
How Will the Fair Share Act Impact Contractors, Subcontractors and Pennsylvania Businesses Generally?
As with any new law, the Fair Share Act is subject to judicial interpretation and it is too early to predict with certainty what effect it will have on contractors, subcontractors and Pennsylvania businesses in general. Critics of the Fair Share Act argue that the new law will negatively impact innocent plaintiffs by limiting their ability to fully recover for injuries caused by multiple parties. Despite this criticism, however, the passage of the Fair Share Act appears, at least initially, to be a victory for Pennsylvania businesses who have frequently found themselves, or their carriers, paying a disproportionate amount of a loss.
Pennsylvania business groups, including the Pennsylvania Chamber of Business and Industry, Insurance Agents & Brokers of Pennsylvania and the Pennsylvania Association of Mutual Insurance Companies, supported the passage of the Fair Share Act and view it as favorable and necessary tort reform that will improve the Pennsylvania business climate, foster job creation, and reduce the cost of goods and services for consumers in the state.
Supporters of the Fair Share Act believe that the old law (i.e., joint and several liability) wrongly promoted frivolous litigation and lawsuits aimed at “deep pockets.” In this regard, the Fair Share Act relieves previous unwarranted pressure on solvent businesses to settle frivolous lawsuits out of fear of having to pay damages disproportionate to fault. Accordingly, at least on its face, the Fair Share Act ensures that a party’s level of financial responsibility is based upon matters of fairness and equity, rather than the extent of its coverage or ability to pay.
Our Construction Group will continue to monitor and track developments in this area of the law. A more detailed discussion of the Fair Share Act will also appear in the upcoming fall issue of Cohen Seglias’s quarterly newsletter, Construction in Brief.
Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.
Kathleen M. Morley is an associate in the Construction Group.