Legal Definitions - settlement credit

Settlement Credit

In legal proceedings, a settlement credit refers to a reduction in the amount of money a court orders a defendant to pay, or a reduction in the total amount of a jury's award. This reduction occurs when the person suing (the plaintiff) has already received money from another party who was also responsible for the harm but chose to settle the case out of court before a final judgment. The purpose of a settlement credit is to prevent the plaintiff from receiving "double recovery"—that is, being compensated more than once for the same injury or loss.

Here are some examples to illustrate how settlement credit works:

• Example 1: Multi-Vehicle Accident

  Imagine a person, Sarah, is severely injured in a three-car collision. She sues Driver A, Driver B, and the manufacturer of Driver B's car, alleging that a faulty brake system contributed to the accident. Before the trial begins, Driver A decides to settle with Sarah for $50,000. The case then proceeds to trial against Driver B and the car manufacturer. The jury ultimately finds Driver B and the manufacturer responsible for Sarah's injuries and awards her $300,000 in total damages. In this scenario, the court would apply a settlement credit of $50,000 (the amount Sarah received from Driver A). This means Driver B and the car manufacturer would collectively be ordered to pay Sarah $250,000, rather than the full $300,000 awarded by the jury, because Sarah has already been partially compensated for her injuries by Driver A's settlement.

• Example 2: Construction Defect Lawsuit

  A homeowner, Mr. Chen, discovers significant water damage and structural issues in his newly built house. He sues the general contractor, the plumbing subcontractor, and the roofing subcontractor, claiming their negligence led to the defects. The plumbing subcontractor offers to settle with Mr. Chen for $75,000, which Mr. Chen accepts. The case against the general contractor and the roofing subcontractor continues to trial. The jury determines that the total cost to repair all the defects is $250,000. The court would then apply a settlement credit of $75,000. As a result, the general contractor and the roofing subcontractor would be responsible for paying Mr. Chen $175,000, as the initial settlement from the plumber has already covered a portion of the total damages.

• Example 3: Medical Malpractice Claim

  A patient, David, suffers complications after a surgery and believes it was due to negligence. He files a lawsuit against the surgeon, the anesthesiologist, and the hospital where the surgery took place. The anesthesiologist's insurance company offers David a settlement of $150,000, which David accepts. The case against the surgeon and the hospital proceeds to trial. The jury finds the surgeon and hospital liable and awards David $1,000,000 for his medical expenses, lost wages, and pain and suffering. Before entering the final judgment, the court would apply a settlement credit of $150,000, reflecting the amount David already received from the anesthesiologist. Therefore, the surgeon and the hospital would be ordered to pay David $850,000, ensuring David is compensated for his full damages without receiving an excessive amount due to multiple recoveries.