Court Gives Detailed Opinion on Sanctions Applicable to Late Payment of Settlement Funds

In the case of Hill v. Riverside Healthcare and Rehabilitation Center, No. 2023-CV-3399 (C.P. Lacka. Co. May 22, 2026 Nealon, J.), the Lackawanna County Court of Common Pleas addressed a Petition filed by a Plaintiff seeking to impose sanctions against a Defendant under Pa. R.C.P. 229.1 for failing to deliver settlement funds in a timely fashion after an executed Release was produced by the Plaintiff.

According to the Opinion, this matter involved a professional liability action against a healthcare and rehab center.

In this matter, the Defendant facility owner at issue in this case eventually became insolvent and filed for bankruptcy.

During the course of this litigation, the parties agreed to participate in a settlement conference with a private mediator. Prior to the mediation, the Defendant’s attorney confirmed in writing that the parent and affiliate entities of the Defendant were insolvent and/or in bankruptcy proceedings and confirmed that the Defendant would not be able to satisfy the first $75,000.00 of any settlement but that any obligation thereafter would be covered by insurance.

After a mediation, the parties reached a settlement agreement for a net payment of $175,000.00. The total amount of the party’s settlement was actually $250,000.00 but the Plaintiff agreed to waive the Defendant’s payment of its $75,000.00 deductible with a net settlement payment of $175,000.00 to be funded entirely by the Defendant's insurance carrier.

The court’s Opinion in this matter emphasized that the insurance company’s adjuster agreed to the settlement without any indication of any coverage issue between the actual Defendant and its insurance company.

Thereafter, in this death case, the court granted the Plaintiff’s Petition for Court Approval of the Settlement. 

The Plaintiff then executed the settlement agreement and sent the signed Release, the court Order approving the settlement, and other closing documents to the Defendant’s counsel and requested payment.

The court point out that noticeably absent from the settlement agreement was any indication, or even a suggestion, that a coverage issue may exist between the Defendant and its insurance company or that any such coverage issue needed to be resolved before the Plaintiff would receive the settlement payment. 

After the closing documents were produced and the settlement check was not forthcoming, Plaintiff’s counsel wrote for the status of the settlement check.  Defense counsel indicated that there was some issue that the adjuster had to work out. There was no reference made to any insurance coverage issue during that interaction.

After several months then went by with no production of the settlement check, counsel for the Plaintiff filed the Motion at issue.

Judge Terrence R. Nealon of the Lackawanna County Court of Common Pleas reviewed Pennsylvania Rule of Civil Procedure 229.1 which governs the prompt delivery of settlement funds within twenty (20) days of the receipt of an executed Release by the Defendant. 

The Rule otherwise provides that, if court approval of the settlement is required, then the 20 day deadline under Rule 229.1 does not begin to run until the settlement is so approved.

Judge Nealon noted that, under Rule 229.1, if the Defendant fails to timely deliver settlement funds, the Plaintiff has the right to seek one of two possible remedies. First, a Plaintiff can seek to invalidate the settlement agreement and allow the matter to return to the trial list. Second, the Plaintiff can seek sanctions against the Defendant.

The court noted that, if a plaintiff opts to pursue sanctions against a defendant, Rule 229.1(e) directs the Plaintiff to (1) file an affidavit “attesting to non-payment,” to submit copies of “any document evidencing the terms of the settlement agreement,” and/or “the executed Release,” and “a receipt reflecting delivery of the executed Release,” (2) file certifications by counsel “of the applicable interest rate,” and “that the affidavit and accompanying documents have been served on the attorneys for all interested parties,” and (3) file “the form of order prescribed by subdivision (h)” for execution by the court.

The court also noted that under Rule 229.1(g), if the court determines that the Defendant has failed to deliver the settlement funds within twenty (20) days and there is no material dispute as to the terms of the settlement or the terms of the Release, the court “shall impose sanctions in the form of interests calculated at the rate equal to the prime rate as listed in the first edition of the Wall Street Journal published for each calendar year for which interest is awarded, plus one (1) percent, not compounded, running from the 21st day after the production of the executed Release to the date of delivery of the settlement funds, together with reasonable attorneys’ fees incurred in the preparation of the affidavit.

The court otherwise ruled that the fact that the insurance company’s noncompliance with the payment requirement may be attributable to a post-settlement assertion of a potential coverage issue did not warrant the denial of the Plaintiff’s request for sanctions.  Accordingly, the court granted the Plaintiff’s Motion and awarded sanctions pursuant to Rule 229.1.

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