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Delay Damages in a UM Case are Based on the Molded Verdict and Not the Jury Award

By: Steven M. Liero, Esquire

On December 28, 2012, the Pennsylvania Supreme Court, in Marlette, et al. v. State Farm Mutual Automobile Insurance Company, 57 A.3d 1224 (2012) a series of consolidated cases held that delay damages in an uninsured motorist action are calculated on the verdict as molded by the Court, not on the full amount originally awarded by the jury.

In a five to one ruling, the high court found that the plaintiffs could not collect delay damages on the jury award of $550,000.00 for Richard Marlette but only on the molded verdict of $233,000.00, which represents the UM policy limits of $250,000.00 minus an earlier payment by State Farm of $16,693.02.

At the trial of the plaintiffs against the uninsured driver and State Farm, the plaintiffs UM carrier, the jury awarded Richard Marlette $550,000.00 for injuries he suffered when the Marlettes’ car was side swiped by the uninsured motorist.  His wife, Marlee Marlette was awarded $150,000.00 for loss of consortium. On the motion of State Farm, the trial court reduced Richard Marlette’s award to $250,000.00, the limits of UM coverage (the Marlettes had five cars insured for $50,000.00 a piece but had elected stacking and thus had coverage up to $250,000.00). In line with prior precedent, the court awarded no delay damages on the loss of consortium claim.

On appeal the Superior Court reversed holding that delay damages should have been based on the jury verdict and not on the molded verdict. The Superior Court distinguished its case from the Supreme Court’s holding in Allen v. Mellinger, 784 A.2d 762 (Pa. 2001), where the Supreme Court overruled its own precedent and held that in an action against a Commonwealth agency, delay damages can be awarded only on the statutory cap and not on an actual jury verdict when that verdict exceeds the cap. The Superior Court stated:

Unlike Allen, here, there was no statutory cap on liability of State Farm, a private litigant. As this Court stated in Thompson v. T.J. Whipple Construction Co., 2009 Pa. Super. 57, 985 A.2d 221 (Pa. Super. 2009) “the interplay of the Sovereign Immunity Act with Pa.R.C.P. 238 in Allen created a unique scenario not applicable here, where the parties were not bound by statutory imposed limits on recovery.” The policy limit for UM cover in this case simply cannot be equated with a statutorily imposed cap on liability for Commonwealth parties.

The Superior Court also attempted to distinguish the present action from a slip and fall verdict where the Appellate Court held that delay damages should be calculated on a $15,000.00 damages cap to which the parties stipulated in exchange for entry of medical reports into evidence without authentication where the verdict was in excess of $600,000.00.  The Superior Court stated:

Unlike the plaintiff in LaRue v. McGuire, 885 A.2d 549 (Pa. Super. 2005) the Marlettes did not enter into an agreement with State Farm to limit the insureds potential liability in exchange for some form of benefit at trial.  The voluntary decision by the plaintiff in LaRue to proceed under Pa.R.C.P. 1311-1 is not akin to the inherent “limitation” of compensatory damages recoverable by the Marlettes in a UM action which is imposed not by pre-trial stipulation and the Rules of Civil Procedure but solely by the terms of the policy issued by State Farm.

The Supreme Court granted an Allowance of Appeal limited to the question of whether delay damages should be calculated upon the jury verdict or the limits of UM liability under the Marlettes’ policy. In discussing its holding in Allen, supra., the Court noted that its reasoning in the case Allen overruled was fundamentally flawed and the decision had to be overruled.

First, the analysis of the language of the Rule proceeded from a misleading paraphrase of the text. The actual language of the rule states "damages for delay shall be added to the amount of compensatory damages awarded against each defendant or additional defendant found liable to the plaintiff in the verdict of a jury, in the decision of the court . . . or in the award of arbitrators … and shall become part of the verdict, decision or award." (Emphasis added). The Woods opinion, however, ignored the emphasized language and declared that the Rule "provides that delay damages shall be added to the 'verdict of the jury . . . decision of the court . . . or award of arbitrators....'" 612 A.2d at 971. When the text is read in full, delay damages are added to the compensatory damages awarded against each defendant and then become part of the verdict. According to the Woods paraphrase, delay damages are simply added to the verdict. The difference in meaning is readily apparent [*13] and all the more critical because the next step of the Woods analysis characterized the "verdict or award" as representing the fact finder's assessment of the plaintiff's damage and contrasted it with the amount the plaintiff is legally entitled to recover.

The Woods opinion is similarly inadequate in its analysis of the purposes underlying Rule 238. With respect to the rule's purpose of compensating the plaintiff for delay in receiving his or her recovery, it defies reason to suggest that the basis for calculating such, compensation could be anything other than the amount the Commonwealth party could actually be responsible for paying to the plaintiff. Since a plaintiff's compensatory damages can never exceed the statutory cap, there can be no delay in receiving amounts in excess of that cap. And if there is no delay, the stated justification for compensating the plaintiff with delay damages is illusory.

Allen, 567 Pa. at 10-11, 784 A.2d at 767-768 (emphasis original).

Finally, this Court in Allen rejected the Woods Court's theory that, if delay damages were computed on the statutory cap, "there would be a distinct disincentive [to seek settlement] since the delay damages would be based [*14] upon a predictable constant and there would then be no unknown which would motivate the Commonwealth to discuss settlement." Woods, 531 Pa. at 300, 612 A.2d at 972. We held that the Court in Woods:

Failed to perceive that the absence of an "unknown" originates in and cannot be separated from the statutory cap. The Woods rationale allows the Court to create an uncertainty of outcome to motivate settlement where no uncertainty otherwise exists. This is far different from channeling the uncertainty of outcome that exists in the case of private litigants not subject to limitations on liability.

Allen, 567 Pa. at 12, 784 A.2d at 768 (emphasis original). Accordingly, the Allen Court expressly overruled Woods, and held, inter alia, that delay damages recoverable from Commonwealth parties are limited to those calculated based upon the statutory cap." Id. at 1213, 784 A.2d at 768-69.

The Supreme Court noted that the Superior Court attempted to distinguish this case from Allen on the basis that the Commonwealth was not a private party and that statutory cap Commonwealth liability could not be equated with the policy limit for UM coverage. It also noted that the Superior Court tried to distinguish the LaRue case on the basis that the Marlettes did not enter into an agreement with State Farm to limit the insured’s potential liability in exchange for some form of benefit at trial and that the voluntary decision by the plaintiff in LaRue is not akin to the inherent “limitation” of the compensatory damages recoverable by the Marlettes in a UM action pursuant to their policy with State Farm. The Court also noted that the Superior Court held that delay damages must be calculated on the jury’s award of damages and that limiting delay damages to the amount of a molded verdict would eliminate the “unknown” that motivates an insurer to make a reasonable settlement offer.

The Supreme Court indicated, however, that it clearly considered these opinions in the Allen case and rejected proposition that a plaintiff could recover delay damages based upon a fact finders assessment of damages. Therefore, it held that a plaintiff’s recovery of delay damages under Rule 238 is limited to the amount of the legally recoverable molded verdict as reflected by the insurance policy limits.