Saturday, December 11, 2010

Delay Damages Above Policy Limits Allowed in Post-Koken UM Case

In a case that is sure to grab headlines, the Pennsylvania Superior Court handed down a decision on Friday, December 10, 2010 holding that a Plaintiff may secure delay damages in a Post-Koken case against a UM carrier even though the amount of such damages goes above the UM limits available under the policy.

In the case of Marlette v. State Farm and Jordan, 2010 WL 5030894 (Pa.Super. Dec. 10, 2010, Musmanno, Bender, Bowes, J.J.)(Opinion by Musmanno, J.), the Plaintiff, a Florida resident, was injured in a car accident that occurred in Pittsburgh when his vehicle was hit by a vehicle being driven by Defendant Jordan, who was uninsured at the time.

The Plaintiff had $250,000.00 in uninsured (UM) motorist coverage with State Farm.

According to the Opinion, pursuant to the terms of State Farm's post-Koken policy requiring a lawsuit to resolve any disputes as opposed to arbitration, the Plaintiffs filed this action in Allegheny County, naming Jordan and State Farm as Defendants.

The Plaintiffs sought damages for Mr. Marlette’s bodily injuries and lost wages arising out of the accident and Mrs. Marlette’s loss of consortium. Liability was uncontested and the case proceeded to trial on the issue of damages.

After a two-day trial, the jury returned a verdict in favor of the Plaintiffs, awarding Mr. Marlette $550,000 and Mrs. Marlette $150,000.

The trial court then molded the verdict downward to reflect the Marlettes’ UM policy limits of $250,000 and also applied a credit of an earlier payment of $16,693.02 made by State Farm, resulting in a verdict of $233,306.98 for the Plaintiffs.

Thereafter, the Plaintiffs filed a Motion for Delay Damages pursuant to Pa.R.C.P. 238. The Plaintiffs requested that the delay damages be calculated based upon the $550,000.00 award by the jury. State Farm argued that its exposure was limited to its policy limits and that, therefore, no delay damages should be allowed.

The trial court awarded delay damages in the amount of $28,223.76, which was calculated by applying the appropriate interest rates to the molded verdict of $233,306.98. The Plaintiffs and State Farm both appealed.

On appeal, the Superior Court rejected State Farm's contention that its exposure was set by its policy limits. In so ruling, the Court pointed to analogous decisions, that did not involve the policy limits issue, supporting the awarding of delay damages beyond agreed upon caps.

The Marlette Court also noted that State Farm's current policy language arguably allowed for delay damages beyond the policy limits in the UM context. The Court wrote:

"Turning to the language of the Policy, we note that it imposes a limit on damages for bodily injury only. Pre-award interest or delay damages are not specifically mentioned in the UM context; however, the Policy provides that they are recoverable in the liability context. Under the policy provisions regarding UM coverage, State Farm agreed to pay “damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle.” The Policy at 18 (emphasis in original). This language places UM damages recoverable from State Farm on the same footing as damages for third party liability, which generally includes damages for delay and costs. Arguably, by placing State Farm on the same footing as the third party tortfeasor, vis a vis the insured, the Policy allows delay damages in excess of the policy limits. In any event, we discern no language in the Policy that can be construed as limiting liability for delay damages or pre-award interest in the UM context. State Farm’s failure to specifically mention interest or delay damages in the Policy it drafted renders it ambiguous on this point, and, therefore, it must be construed against the insurer. See Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). Since there is no language in the Policy that prohibits an award of delay damages in excess of the UM policy limits, nor is such an award precluded by law, State Farm’s cross-appeal fails."

Looking at the language of Rule 238 and noting the policy considerations behind the Rule, including the encouragement of settlements, the Superior Court also agreed with the Plaintiff's contention that the calculation of the delay damages award should be based upon the jury's original verdict and not the lower, molded verdict.

As such, the Superior Court remanded the case back to the trial court for a proper calculation of the delay damages based upon the jury's original verdict.

I will keep an eye on this case to see if it continues up the appellate ladder and I will report any updates I come across.

In the meantime, it remains to be seen whether the carriers will move to limit their exposure by revising their policy language to expressly provide that delay damages will not be paid in underinsured or uninsured litigation matters or, in the alternative, will only be paid up to the amount of the available policy limits.

The Marlette v. State Farm and Jordan case may be viewed online by clicking this link:

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