High/Low Agreements
Even to an expert, jury verdicts can be unpredictable. For this reason high/low agreements can be a wise alternative in reducing risk to both the plaintiff and defendant when facing a jury. A high/low agreement is a form of settlement between the plaintiff and one or more defendants placing a floor and ceiling on the amount of damages awarded at trial. For example, a $50,000/$250,000 high/low agreement guarantees the plaintiff $50,000 while the defendant may only be liable up to $250,000, regardless of the verdict. In the case of a verdict between the high and the low, the actual verdict is typically paid.
Although Illinois courts have approved high/low agreements, they should not include any aspects of the forbidden “loan-receipt” or “Mary Carter” agreements. A loan-receipt agreement is a settlement in the form of an interest-free loan, paid by the settling defendant to the plaintiff. In return, the settling defendant is dismissed from the action. Then, if the plaintiff receives a judgment against a non-settling defendant, the plaintiff is obligated to repay the loan to the settling defendant. The Illinois Supreme Court found these agreements unenforceable because they violate the non-settling defendant’s statutory right to a setoff under the Joint Tortfeasor Contribution Act.1
A Mary Carter agreement limits the liability of the settling defendant while providing the plaintiff a guaranteed minimum recovery. However, unlike a loan-receipt agreement, the settling defendant remains a party to the litigation. If another defendant is found liable for damages above the settlement amount, the settling defendant is entitled to reimbursement of some or all of his settlement. Illinois courts have discouraged Mary Carter agreements because they give the settling defendant incentive to bolster the plaintiff’s case against the non-settling defendant.2 When considering a high/low agreement, it is important not to include the features of loan-receipt or Mary Carter agreements disapproved by the courts.
High/low agreements achieve the same purpose of loan-receipt and Mary Carter agreements by reducing risk before receiving a verdict, while eliminating the public policy concerns the courts have disfavored. Unlike loan-receipt agreements, the settling defendant remains a party to the litigation and is apportioned liability by the jury. Thus, if the jury finds the settling defendant not liable for the plaintiff’s injury, contribution does not become an issue. Unlike Mary Carter agreements, high/low settlements require no repayment of the settlement if the non-settling defendant is found liable. Essentially, because there is no re-payment of the settlement, the settling defendant still has an incentive to fully defend his case. Due to these differences, high/low agreements are routinely allowed by the courts.
High/low agreements are attractive and useful to both plaintiffs and defendants. Upon entering into a high/low agreement, the defendant is protected from an excessive verdict, and the plaintiff is guaranteed some compensation. Before the verdict is entered, it is important for both sides to evaluate their case and consider the possibility of entering into a high/low agreement. High/low agreements can also be used when entering arbitration to keep litigation costs low. Regardless of the forum, high/low agreements should be considered when the damages are high and the liability is uncertain.
1. In re Guardianship of Babb, 162 Ill.2d 153, 168, 642 N.E.2d 1195 (1994), 740 Ill.Comp.Stat.Ann. 100/2 (West 2006). Allowing the enforcement of a loan-receipt agreement would violate Illinois’ public policy of protecting the financial interests of the non-settling defendant.
2. Banovz v. Rantanen, 271 Ill.App.3d 910, 913, 649 N.E.2d 977 (5th Dist. 1995).
Originally published in the Summer 2009 edition of Quinn Quarterly.