Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital

• Decision Date: 28 July 1994
• Docket Number: No. S033710,S033710
• Court: California Supreme Court
• Parties: , 876 P.2d 1062, 1994 A.M.C. 2992 WESTERN STEAMSHIP LINES, INC., Plaintiff and Appellant, v. SAN PEDRO PENINSULA HOSPITAL, Defendant and Appellant.

Page 263

32 Cal.Rptr.2d 263

8 Cal.4th 100, 876 P.2d 1062, 1994 A.M.C. 2992

WESTERN STEAMSHIP LINES, INC., Plaintiff and Appellant, v. SAN PEDRO PENINSULA HOSPITAL, Defendant and Appellant.

No. S033710.

Supreme Court of California,

In Bank.

July 28, 1994.

As Modified on Denial of Rehearing Sept. 22, 1994.

Kussman & Whitehill, Michael H. Whitehill and Russell S. Kussman, Los Angeles, for plaintiff and appellant.

Rushfeldt, Shelley & Drake, Alan L. Rushfeldt, Linda C. Miller, Sherman Oaks, Horvitz & Levy, Daniel J. Gonzalez, S. Thomas Todd and Sandra J. Smith, Encino, for defendant and appellant.

Thelen, Marin, Johnson & Bridges and Curtis A. Cole, Los Angeles, as amici curiae on behalf of defendant and appellant.

ARABIAN, Justice.

The question presented is whether Civil Code section 3333.2, limiting recovery of noneconomic damages by an injured party against a health care provider, applies in an action for partial equitable indemnification by a concurrent tortfeasor. After careful consideration of the public policy underlying the Medical Injury Compensation Reform Act (MICRA), of which section 3333.2 is an integral part, we conclude that such limitation is necessary to effectuate the statutory scheme and that it is consistent with common law principles of implied indemnity requiring joint liability as a predicate to recovery. Accordingly, we reverse the decision of the Court of Appeal, which declined to extend the coverage of section 3333.2 to the facts of this case.

I. FACTS AND PROCEDURE

On October 28, 1983, Ann Lennon, an assistant purser for plaintiff, Western Steamship Lines, Inc. (Western), became seriously ill while working aboard one of its cruise ships. Lennon, who suffered from diabetes, was attended to for several days at sea by the ship's medical staff. When the vessel docked, she was rushed unconscious to defendant San Pedro Peninsula Hospital (the hospital) where she was treated by Dr. Samuel Wirtschafter and other members of the hospital staff. The following day, Lennon suffered cardiac arrest and oxygen deprivation when she was improperly intubated, resulting in irreversible brain damage. She never regained consciousness.

Lennon's legal guardian brought suit against Western in Florida for maintenance and cure and unearned wages based on negligence and unseaworthiness. Western admitted liability, ¹ and the matter went to trial on the issue of damages. The jury returned a general verdict awarding Lennon $7.75 million, including $775,000 for maintenance and cure. ² Pending Western's appeal, Lennon died; however, under pertinent law the appellate court could not take this fact into consideration in determining the validity or reasonableness of the judgment. Western subsequently settled with Lennon's guardian for a total of $6 million, including maintenance and cure. ³

After paying the settlement, Western instituted the present action seeking indemnification from the hospital and Dr. Wirtschafter based upon an allocation of their proportionate liability for Lennon's injuries. Shortly before trial, Dr. Wirtschafter settled with Western for $1 million. In a subsequent bifurcated proceeding, the jury found all parties had been negligent in treating Lennon and fixed the relative fault of the doctor at 50 percent, the hospital at 30 percent, and Western at 20 percent.

The court then addressed the question of damages. Ultimately, the court ruled that Western could seek an equitable apportionment of the $6 million based upon the reasonableness of its settlement with Lennon and did not have any additional burden of proof as to her damages. It further determined that MICRA did not apply to Western's indemnification claim because "[t]his is an action for contribution [sic ] from [the hospital and Dr. Wirtschafter], found to be tort-feasors, for damages in an amount already established and for monies already paid by [Western] by reason of a judgment rendered against it.... [p] This is not an action in subrogation. [p] [Western] is not an 'injured' party within the meaning of MICRA. [p] It is not an action for future damages or non-economic damages to recover a non-economic loss." The court also determined that "the Florida verdict [was] a fair and equitable assessment of damages awarded for Lennon's injuries" and that the settlement "was reasonable, fair and done in good faith." ⁴ Accordingly, the court entered judgment against the hospital for $1.8 million, 30 percent of the $6 million paid by Western to settle the underlying action.

The Court of Appeal affirmed. In analyzing the applicability of Civil Code section 3333.2, the court emphasized that Western's loss as a result of the settlement was entirely "economic" in nature and that the statute purports to place a $250,000 limit only on "noneconomic" damages. (See Fein v. Permanente Medical Group (1985) 38 Cal.3d 137, 159, 211 Cal.Rptr. 368, 695 P.2d 665.) It also found no other basis in the MICRA statutory scheme for invoking its limitations against an indemnitee seeking an allocation of liability involving the negligence of a health care provider. Citing instances in which a claim for indemnity has been considered distinct and independent from the underlying litigation, the court rejected the hospital's argument that an indemnitee "stands in the shoes" of and therefore is restricted to the same rights as the injured party. With respect to proof of damages, the court found substantial evidence to support the trial court's finding of a reasonable settlement, impliedly concluding that Western did not have an independent burden to establish the extent of Lennon's damages or the hospital's liability to her.

We granted the hospital's petition for review principally to determine a matter of statewide importance concerning the applicability of a key provision of MICRA to actions for partial equitable indemnification. ⁵

II. DISCUSSION

A. Partial Equitable Indemnification and MICRA

Civil Code section 3333.2 (section 3333.2) provides in part as follows:

"(a) In any action for injury against a health care provider based on professional negligence, the injured plaintiff shall be entitled to recover noneconomic losses to compensate for pain, suffering, inconvenience, physical impairment, disfigurement and other nonpecuniary damage.

"(b) In no action shall the amount of damages for noneconomic losses exceed two hundred fifty thousand dollars ($250,000)."

The Court of Appeal held that this limitation does not apply because Western's claim for indemnity is distinct from Lennon's medical malpractice suit and seeks only economic damages resulting from its settlement payment. Thus, it does not come within the express terms of section 3333.2. The court also concluded that a "dispassionate reading" of the MICRA statutory scheme does not reveal any intention to include indemnification actions within its restrictions on recovery of damages.

This analysis misperceives the proper scope of the court's inquiry in cases of equitable indemnification. The issue here is not a narrow question of statutory construction, but a broader examination of whether Western's recovery, in whole or in part, is appropriate under all relevant circumstances. In determining the availability of equitable indemnity, each case must be evaluated in its own unique context to determine whether and to what extent one concurrent tortfeasor is permitted to recover from another.

1. The doctrine of equitable indemnification

We begin our examination of the issue at hand with a brief overview of the governing principles: California's doctrine of equitable or implied indemnification is a development of the common law, first applied by this court in City & County of San Francisco v. Ho Sing (1958) 51 Cal.2d 127, 330 P.2d 802. There, we held that the city had a right to recover from a property owner the amount paid a third party injured due to the property owner's negligent alteration to the city's sidewalk. (Id., at p. 138, 330 P.2d 802.) Although the city had primary responsibility under the Public Liability Act of 1923 for maintaining the sidewalk in a safe condition, the adjoining property owner created the particular hazard for his own benefit. This disparity in the relative culpability justified allowing the city to recoup from the more actively negligent wrongdoer. (Id., at pp. 131-135, 330 P.2d 802.)

At the time it entered our common law, indemnity permitted one tortfeasor to shift the entire burden of loss incurred by judgment or settlement to another tortfeasor. ⁶ " 'It is a right which enures to a person who, without active fault on his part, has been compelled by reason of some legal obligation, to pay damages occasioned by the initial negligence of another, and for which he himself is only secondarily liable.' " (Alisal Sanitary Dist. v. Kennedy, supra, 180 Cal.App.2d at p. 75, 4 Cal.Rptr. 379.) Distinctions between "active" and "passive" fault, "primary" and "secondary" liability, and similar characterizations of the relationship between or among concurrent tortfeasors served as the theoretical underpinnings of equitable indemnification and guided its application. (See Ford Motor Co. v. Robert J. Poeschl, Inc. (1971) 21 Cal.App.3d 694, 696-697, 98 Cal.Rptr. 702.) At the same time, courts often frankly admitted that the standard was vague and imprecise: "No one explanation appears to cover all cases." (Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 74, 38 Cal.Rptr. 490; Atchison, T. & S.F. Ry. Co. v. Lan Franco (1968) 267 Cal.App.2d 881, 886, 73 Cal.Rptr. 660; see also American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 594, fn. 4, 146 Cal.Rptr. 182, 578 P.2d 899 [AMA ]; Prosser & Keeton, Torts (5th ed. 1984) § 51, pp. 343-344.)

Nevertheless, the restitutionary nature of indemnification clearly emerged as a common thread. "The basis for indemnity is restitution, and the concept that one person is unjustly enriched at the expense of another when the other...