Legal Definitions - Gallagher agreement

A Gallagher agreement is a specific type of contract made between a plaintiff (the party bringing the lawsuit) and one of several codefendants (parties being sued together).

This agreement allows that particular codefendant to settle their part of the case for a predetermined, fixed amount of money at any point during the trial. The crucial aspect of a Gallagher agreement is that this agreed-upon payment is absolutely guaranteed to the plaintiff, regardless of the ultimate outcome of the trial. This means even if the jury later finds that specific codefendant not liable, or awards a total amount less than the agreed sum, the plaintiff still receives the full fixed payment from that codefendant.

Here are a few examples to illustrate how a Gallagher agreement might work:

• Scenario: Multi-Vehicle Accident Lawsuit

  Imagine a plaintiff, Ms. Chen, is severely injured in a complex car accident involving three vehicles. She sues Driver A, Driver B, and Driver C as codefendants. As the trial progresses, Driver B, whose involvement in the accident is less clear-cut but still carries some potential liability, wants to avoid the uncertainty and high legal costs of a lengthy trial. Driver B's insurance company approaches Ms. Chen's attorney with a proposal.

  They enter into a Gallagher agreement where Driver B agrees to pay Ms. Chen $100,000. This payment is guaranteed to Ms. Chen, regardless of what the jury decides about Driver B's fault or the total damages in the case. Driver B is now financially insulated from the rest of the trial's outcome, while Ms. Chen has secured a guaranteed payment. The trial then continues against Driver A and Driver C to determine their liability and the remaining damages.

• Scenario: Construction Defect Litigation

  A homeowner, Mr. Davies, sues his general contractor and two subcontractors (an electrician and a plumber) for various defects discovered after a major home renovation. During the trial, the plumbing subcontractor realizes that while they might have some minor liability, the bulk of the issues lie with the general contractor and the electrician. To cap their potential losses and exit the active litigation, the plumbing subcontractor offers Mr. Davies a settlement.

  They sign a Gallagher agreement where the plumbing subcontractor agrees to pay Mr. Davies $50,000. This payment is fixed and will be made to Mr. Davies even if the jury later finds the plumbing subcontractor completely blameless or awards total damages far exceeding or falling short of this amount. The trial then proceeds with Mr. Davies pursuing claims against the general contractor and the electrician.