Should Settlement Between Agent and Plaintiff Also Extinguish the Principal's Vicarious Liability ?
In American Nat'l Bank & Trust Co. v. Columbus-Cuneo-Cabrini Medical Center, 154 Ill. 2d 347, 355, 609 N.E.2d 285, 181 Ill. Dec. 917 (1993) our supreme court noted that in vicarious liability cases, there is no apportionment of damages between the principal and the agent; instead, the principal has an implied, quasi-contractual right to indemnification against the agent.
In light of a principal's right to identification, the supreme court held that "if implied indemnity against an agent is not barred by a plaintiff's settlement with the agent, there is little to encourage the agent's desire to settle." American National Bank & Trust Co., 154 Ill. 2d at 354.
Accordingly, the court held that where a plaintiff brings a respondeat superior claim against a principal, "any settlement between the agent and the plaintiff must also extinguish the principal's vicarious liability." American National Bank & Trust Co., 154 Ill. 2d at 355, citing Bristow v. Griffitts Construction Co., 140 Ill. App. 3d 191, 488 N.E.2d 332, 94 Ill. Dec. 506 (1986).
In Gilbert v. Sycamore Municipal Hospital, 156 Ill. 2d 511, 622 N.E.2d 788, 190 Ill. Dec. 758 (1993), our supreme court recognized that although its decision in American National Bank & Trust Co. held a plaintiff's settlement with an agent extinguishes the principal's vicarious liability, its prior holding in Edgar County Bank & Trust Co. v. Paris Hospital, Inc., 57 Ill. 2d 298, 312 N.E.2d 259 (1974), still renewed the principal's liability if the covenant not to sue the agent expressly reserved the plaintiff's right to seek recovery from the principal. the Gilbert court noted Edgar County Bank's result appeared to deny the employee the benefit of his covenant because he would still remain liable to the employer for indemnification. Gilbert, 156 Ill. 2d at 528, citing Bristow, 140 Ill. App. 3d at 193.
After determining an agent would gain nothing for settling with a plaintiff unless the covenant not to sue also extinguished the principal's vicarious liability, the court held it could not allow this "catch 22" to remain unreconciled. Gilbert, 156 Ill. 2d at 528.