Pretrial Settlements and Their Impact on Your Verdict”

Math is hard. That’s why many of us decided to become lawyers. But when partially resolving a case involving more than one defendant, it is critical to understand the impact of that settlement toward any potential verdict.

It is also important when dealing with insurance claims representatives and defense attorneys. It is shocking how many defense attorneys just blindly believe that there is a dollar-for-dollar setoff when it comes to prior settlements. Under Code of Civil Procedure section 877, subdivision (a), a settlement with one defendant prior to trial “shall reduce against the others in the amount stipulated by the release…” However, because each defendant is only severally liable for their proportionate share of noneconomic damages according to fault under Civil Code section 1431.2, subdivision (a), there is not a dollar-for-dollar setoff reduction.

When negotiating with such attorneys and claims representatives, the plaintiff’s attorney must be able to articulate that only a portion of a prior settlement is offset. Perhaps most importantly, you must understand the law to craft that settlement agreement as to reduce the potential offset of any such settlement.

Here is a public calculator that we drafted to help you calculate the impact of any pretrial settlement towards a potential judgment: Google Sheets Calculator.

Let’s Do the Math: Calculating the Pretrial Settlement with One of the Defendants

The vast majority of settlements in cases involving more than one defendant occur before trial. Fortunately, calculating the offsets of such settlements is relatively easy.

Under the holding of Espinoza v. Machonga (1992) 9 Cal.App.4th 268, a court simply calculates the percentage of the overall damages award that consists of economic damages, multiplies the settlement proceeds by that percentage, and reduces the economic-damages award by the resulting amount. Since the basis for this formula is Espinoza v. Machonga, calculating such an offset is now widely known as applying the “Espinoza method.”

Example Scenario

Let’s say that there are two defendants at fault for a plaintiff’s injuries:

Pretrial Settlement: Defendant A settles the case for $1,000,000 before trial.
Jury Verdict at Trial: Against Defendant B, the jury finds for the plaintiff in the amount of $5,000,000, comprising:
- $2,000,000 in economic damages (40% of total verdict)
- $3,000,000 in noneconomic damages (60% of total verdict)
Fault Allocation: Defendant B (60%), Defendant A (30%),Aquí tienes el texto adaptado con la estructura y el diseño estándar de una publicación amplia de WordPress (de ancho completo, sin el formato de columnas de revista de donde provenía), respetando todo el contenido, fórmulas y referencias legales en su inglés original:

Pretrial Settlements and Their Impact on Your Verdict: Calculating and Reducing Setoffs in Personal-Injury and Medical-Malpractice Cases

By Benjamin Ikuta & Michael Jeandron

Published in the Journal of Consumer Attorneys Associations for Southern California (October 2025)

Here is a public calculator that we drafted to help you calculate the impact of any pretrial settlement towards a potential judgment:

Pretrial Settlement Calculator Spreadsheet

Let’s Do the Math: Calculating the Pretrial Settlement with One of the Defendants

The vast majority of settlements in cases involving more than one defendant occur before trial. Fortunately, calculating the offsets of such settlements is relatively easy.

In other words, the offset is simply calculated based on the ratio of economic damages to total damages awarded.

Practical Example

Let’s say that there are two defendants at fault for a plaintiff’s injuries:

Defendant A settles the case for $1,000,000 before trial.
At trial against Defendant B, the jury finds for the plaintiff in the amount of $5,000,000 ($2,000,000 in economic damages and $3,000,000 in noneconomic damages).
The jury finds fault allocation as follows:
- Defendant B: 60%
- Defendant A: 30%
- Plaintiff: 10%

What is the offset?

Since 40% of the jury’s verdict comprised economic damages ($2,000,000 ÷ $5,000,000), only 40% of the $1,000,000 pretrial settlement is offset. Thus, $400,000 is reduced from the jury’s verdict based on the $1,000,000 pretrial settlement.

Breakdown of Calculations

Step 1: Calculate the Settlement Offset

Economic Damages Ratio: $2,000,000 / $5,000,000 = 40%
Settlement Offset: $1,000,000 × 40% = $400,000

Step 2: Calculate Noneconomic Damages (Prop 51)

Proposition 51 (Civil Code section 1431.2) states that a defendant is only liable for their proportionate share of fault as to noneconomic damages.

Total Noneconomic Damages × Defendant B’s Fault Percentage:

$\$3,000,000 \times 60\% = \$1,800,000$
Noneconomic Damages Liability for Defendant B: $1,800,000

Step 3: Calculate Economic Damages (with Comparative Fault and Settlement Offset)

Unlike noneconomic damages, economic damages are subject to joint-and-several liability. However, such damages must be reduced by the plaintiff’s comparative fault and any applicable settlement offset.

Total Economic Damages: $2,000,000
Less Plaintiff’s Comparative Fault (10% of $2,000,000): -$200,000
Less Pretrial Settlement Offset: -$400,000
Economic Damages Liability for Defendant B: $1,400,000

Step 4: Calculate Total Judgment Against Defendant B

Finally, simply add the numbers together to get the final adjusted judgment:

\$1,800,000 \text{ (Noneconomic)} + \$1,400,000 \text{ (Economic)} = \mathbf{\$3,200,000}

The Origin of the “Espinoza Method”

Since the basis for this formula is Espinoza v. Machonga, calculating such an offset is now widely known as applying the “Espinoza method.”

In Espinoza, a door shattered and glass fragments struck the plaintiff’s eye. The housing authority defendant settled for $5,000, which was approved in a good-faith finding. Against the remaining individual defendant, the matter went to arbitration.

The arbitrator awarded $6,242.94 in economic damages and $15,000 for general damages, allocating fault as follows:

Plaintiff: 10%
Individual Defendant: 45%
Settling Housing Authority: 45%

Both the trial court and the appellate court applied the Espinoza method:

Economic Ratio: 29% of the award was for economic damages.
Offset: $1,467.77 (29% of the $5,000 settlement) was offset.
Comparative Fault: $624.29 (10% of $6,242.94) was reduced for plaintiff’s comparative fault.
Final Economic Damages: $\$6,242.94 - \$1,467.77 - \$624.29 = \$4,150.88$
Final General Damages: $45\% \text{ of } \$15,000 = \$6,750$
Total Judgment: $10,900.88

Espinoza addressed the interplay between Code of Civil Procedure section 877 and Prop 51 at length. Section 877 was already in place when Prop 51 was passed in 1986. Since Prop 51 already decreased a plaintiff’s noneconomic damages due to several liability only, to reduce the entire amount of a prior settlement would be double-penalizing a plaintiff.

Notably, even if a jury ultimately finds that a settling defendant was not at fault at trial, that does not impact the amount of the setoff. In Poire v. C.L. Peck/Jones Brothers Construction Corp. (1995) 39 Cal.App.4th 1832, 1839, the Court of Appeal reasoned that section 877 requires a setoff for pre-verdict settlement amounts paid by any “tortfeasors claimed to be liable for the same tort without regard to their actual liability.” As a result, the Espinoza method was still applicable.

Bypassing the Espinoza Method by Allocating Funds

Allocating Between Economic and Noneconomic Damages in Agreements

Settling parties typically cannot bypass the Espinoza method simply by allocating between economic and noneconomic damages in a settlement agreement. Absent unusual facts, such an allocation does not impact the setoff amount.

As explained in Greathouse v. Amcord, Inc. (1995) 35 Cal.App.4th 831, 841, allowing the parties to allocate between economic and noneconomic damages “would necessarily infringe on the factfinding power of the jury.” Because a settling defendant has no incentive to oppose a plaintiff’s allocation once they are released, “the allocation of the settlement proceeds according to the proportions recited in a pretrial settlement agreement is inherently suspect.”

(See also Erreca’s v. Superior Court (1993) 19 Cal.App.4th 1475, 1481).

Note on Good-Faith Hearings: It remains unresolved whether a trial court’s allocation at a Code of Civil Procedure section 877.6 hearing could supersede the jury’s allocation. Trial courts almost always approve settlements without specific allocations (Dole Food Co., Inc. v. Superior Court (2015) 242 Cal.App.4th 894, 918), and dicta in Espinoza and Greathouse suggest such approvals would not override the Espinoza method.

Allocating Amounts to Different Claims

Critically, a plaintiff may be able to significantly reduce the offset amount by allocating settlement funds to different, independent claims. As long as it passes “the smell test” and there is an evidentiary basis, such allocations can be valid.

The strongest claim to allocate funds to, if facts warrant, is a future wrongful-death claim. However:

The injuries must be severe enough that death is a realistic possibility.
The plaintiff must produce evidence of a close relationship with their heirs.

Other allocations (such as attorney fees in an elder-abuse action) may also help avoid setoff amounts. As stated in Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270, 1321, “Courts have wide discretion in allocating prior settlement recoveries to claims not adjudicated at trial,” and the burden is on the plaintiff to demonstrate reasonableness.

Case Comparisons on Claim Allocation:

Wilson v. John Crane, Inc. (2000) 81 Cal.App.4th 847:

The Court of Appeal affirmed excluding settlement funds allocated to future wrongful-death claims and loss-of-consortium claims from the Espinoza calculus, as those are independent claims not awarded by the personal injury jury verdict.
Hackett v. John Crane, Inc. (2002) 98 Cal.App.4th 1233:

Affirmed excluding 34% of a pretrial settlement allocated to future wrongful death claims where evidence showed a close family relationship and clear expectations that no future claims would be filed against the settling defendants.
Jones v. John Crane, Inc. (2005) 132 Cal.App.4th 990:

The court rejected a 20% allocation to a wrongful death claim because the plaintiff failed to present any evidentiary basis regarding the family structure or relationships. (See also Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 1270).

Medical Malpractice Actions (MICRA Rules)

There are no special rules for medical malpractice actions regarding setoffs.

Previously, cases like Mayes v. Bryan (2006) 139 Cal.App.4th 1075 held that a jury’s verdict was first reduced by MICRA’s Civil Code section 3333.2 noneconomic cap before applying the Espinoza formula—a devastating result for plaintiffs.

However, in Collins v. County of San Diego (2021) 60 Cal.App.5th 1035, the Court of Appeal confirmed that following Rashidi v. Moser (2014) 60 Cal.4th 718, the MICRA cap applies only to judgments awarding noneconomic damages, not settlements.

Therefore, in medical malpractice cases, the offset calculation is based on the unadjusted jury verdict ratio of economic damages to total damages, just like any other civil case.

Post-Verdict Settlements: The “Ceiling Approach”

When a settling defendant resolves the case after the jury returns its verdict, courts do not use the Espinoza method. Instead, they must apply the “Ceiling Approach” established in Torres v. Xomox Corp. (1996) 49 Cal.App.4th 1.

Why the Ceiling Approach?

Unlike pretrial settlements, a post-verdict settlement occurs when the settling defendant’s actual liability is already known via the verdict. Applying Espinoza could improperly allocate more of the settlement to noneconomic damages than the defendant’s actual post-verdict liability.

How it Works:

The settlement is first allocated to noneconomic damages up to the cap of the settling defendant’s actual liability for those damages under the verdict.
Any remaining balance of the settlement is apportioned to economic damages and used as a setoff.

Important Warning on Timing: The ceiling approach will always leave a plaintiff equal to or worse off than the Espinoza method. If you are negotiating a settlement during jury deliberations, ensure the settlement is finalized and reported to the court before the jury returns with the verdict (Hellam v. Crane Co. (2015) 239 Cal.App.4th 851).

About the Authors

Benjamin Ikuta is a partner at Ikuta Hemesath LLP in Santa Ana, where he concentrates his practice entirely on medical malpractice.
Michael Jeandron is a partner and trial attorney at Roberts | Jeandron Law in Newport Beach. He is a member of ABOTA and currently serves as the 1st Vice President of the Orange County Trial Lawyers Association (OCTLA). He was named OCTLA’s Top Gun Trial Lawyer of the Year (Young 2023)