United States: Damages For Delay

Pennsylvania Rule of Civil Procedure 238 is titled "Damages for Delay in Actions for Bodily Injury, Death or Property Damage", and is commonly referred to as providing for "delay damages". A more appropriate title might be "Sanctions for Failure to Settle Promptly", because the "delay" need not be the fault of the party who must pay those damages. The Supreme Court of Pennsylvania has ruled that the purpose of Rule 238 is not to punish defendants, but to alleviate court congestion by promoting settlement. Therefore, the fact that a defendant may have done nothing to contribute to delay is no basis for relieving that party from liability under the Rule. Schrock v. Albert Einstein Medical Center, 589 A.2d 1103 (Pa. 1991).

The predecessor to the present Rule 238 provided for damages at the rate of 10% per annum, without any regard to responsibility for delay. This was held to be a constitutional exercise of the Supreme Court’s rule making authority, and not a violation of due process or equal protection. Laudenberger v. Port Authority of Allegheny County, 436 A.2d 147 (Pa. 1981) appeal dism’d., 456 US 940, 102 S.Ct. 2002, 72 L.Ed.2d 462 (1982). Five years later, in Craig v. Magee Memorial Rehabilitation Center, 515 A.2d 1350 (Pa. 1986), the Supreme Court ruled the prior version unconstitutional (without explaining what constitutional provision was violated) because it created an incontestable presumption that all fault lies with the defendant.

The Court in Craig established interim procedures which required the lower court to weigh the fault of the respective parties, but when the Court promulgated a replacement rule the defendant’s fault again became irrelevant. The delay time which was the plaintiff’s fault was not to be counted. Rule 238(b)(2). The Supreme Court held the present version constitutional in Costa v. Lauderdale Beach Hotel, 626 A.2d 566 (Pa. 1993), on the authority of Laudenberger, supra.

The district court in applying what it believed would be Pennsylvania law, has held that plaintiff’s failure to make a settlement demand would not relieve defendant from an award of delay damages. Bywaters v. Bywaters, (E.D. Pa. Apr. 11, 1991, No. 86-6973, Gawthorp J). In Schrock, supra the Court reasoned that defendants are protected by being able to toll payment by making a fair offer, and by showing that the plaintiff caused delay. The Supreme Court stated that the Rule is justified because during the course of proceedings the defendant has the use of money which really belongs to the plaintiff.

"Delay damages do not penalize a defendant that chooses to go to court, they simply do not permit a defendant to profit from holding money that belongs to the plaintiff. . ." Costa, supra.

Pennsylvania Rule of Civil Procedure 238 provides in subsection (a)(1):

"At the request of the plaintiff in a civil action seeking monetary relief for bodily injury, death or property damage, damages for delay shall be added to the amount of compensatory damages awarded against each defendant or additional defendant found to be liable to the plaintiff in the verdict of a jury, in the decision of the Court in a nonjury trial or in the award of arbitrators appointed under section 7361 of the Judicial Code, 42 Pa. C.S. §7361, and shall become part of the verdict, decision or award."

By its express terms, the Rule applies only to civil actions seeking monetary relief for bodily injury, death or property damage. The Rule also contains, in subsection (e), two express exceptions:

"This rule shall not apply to (1) eminent domain proceedings; (2) actions in which damages for delay are allowable in absence of this rule."

Claims which might be thought to involve bodily injury or property damage, but have not been held not to do so, include:

1. Malicious prosecution: Wainauskis v. Howard Johnson Co., 488 A.2d 1117 (Pa. Super. 1985).
2. Tortious interference with contract: Temporaries Inc. v. Krane, 472 A.2d (Pa. Super. 1984).
3. Emotional distress, anguish, humiliation, damage to reputation and inability to obtain future employment: Butler v. Flo-Ron Vending Co., 557 A.2d 730 (Pa. 1989) allocatur denied, 567 A.2d 650 (Pa. S. 1989).
4. Defamation: Oweida v. Tribune-Review Publishing Co., 599 A.2d 230 (Pa. S. 1991) allocatur denied, 605 A.2d 334 (Pa. 1992). Sprague v. Walter, 656 A.2d 890 (Pa. S. 1995).
5. Legal malpractice, even if liability occurred during representation of a bodily injury claim: Rizzo v. Haines, 515 A.2d 321 (Pa. S. 1986) aff’d. on other grounds, 555 A.2d 58 (Pa. 1989); Wagner v. Orie & Zivic, 636 A.2d 679 (Pa. S. 1994).
6. Federal Employers Liability Act claims: Monessen Southwestern Railway Co. v. Morgan, 486 US 330, 108 S.Ct. 1837, 100 L.Ed.2d 349 (1988).
7. Contractual Bodily Injury Claim – Uninsured – Underinsured Claims: Erie Insurance v. McGee, 474 A.2d 1171 (Pa. S. 1984); Greenspan v. United States Automobile Association, 471 A.2d 856 (Pa. S. 1984) (Common Law arbitration).
8. Claims for Loss of Consortium: Anchorstar v. Mack Trucks, Inc., 620 A.2d 1120 (Pa. 1993).
9. Punitive Damage: Colodonato v. Consolidated Rail Corp., 470 A.2d 475 (Pa. S. 1983).
10. Contract Action: Reliance Universal v. Ernest Renda Contracting Co., 454 A.2d 39 (Pa. S. 1982).
11. Actions where a party is seeking relief for mental illness: Althous v. Cohen, 710 A.2d 1147 (Pa. S. 1997). See also Hodges v. Rodriguez, 645 A.2d 1340 (Pa. S. 1994).

An interesting common pleas case to be analyzed by practitioners is Davis v. Erie Insurance, No. 86 Equity 38 (C.P. Lackawanna Cty. October 24, 1991), Munley J., which held that delay damages were available where an arbitration award had been vacated and reversed to grant underinsurance coverage. That Order was affirmed by the Superior Court, and the Supreme Court denied allocatur. The Court held this was a claim under the Uniform Arbitration Act, 42 Pa. C.S.A. §7301 et seq. Not common law, and because the award arose from a decision of the Court, Rule 238 damages were available.

3. Parties Against Whom Rule 238 Damages Are Available.

The Rule provides no restrictions on the type of defendant who may be held responsible under it. Rule 238 damages are available both against the Commonwealth and its agencies, Lyles v. city of Philadelphia, 490 A.2d 936 (Pa. Cmwlth 1985) aff’d. on other grounds, 516 A.2d 701 (Pa. 1986), and political subdivisions. Pivorotto v. City of Pittsburgh, 528 A.2d 125 (Pa. 1987), and even SEPTA. Tuleqicz v. SEPTA, 606 A.2d 427 (Pa. 1992). They may be awarded against the full verdict even if the verdict is above the statutory limits of liability. Robinson v. Jackson, 602 A.2d 917 (Pa. Cmwlth 1992), allocatur denied, 612 A.2d 985 (Pa. 1992), Woods v. Dept. of Transportation, 612 A.2d 970 (Pa. 1992). The CAT Fund is responsible for delay damages accruing while the Fund had exclusive control of settlement negotiations, using the equitable theory of indemnification. Willet v. Pennsylvania Medical Catastrophe Loss Fund, 702 A.2d 850 (Pa. 1997); King v. Boettcher, 745 A.2d 219 (Pa. 1994); 40 P.S. §§1301.101-1301.1006 providing:

"Delay damages and post-judgment interest applicable to the Fund’s liability in a case shall be charged to the Fund and shall not be charged against the insured’s aggregate limits. The basic insurance carrier or self-insurer shall be responsible for its proportionate share of the delay damages and post-judgment interest." (Amendment effective 11/26/96).

4. The Period Of Time For Which Rule 238 Damages Are Awarded.

The Rule provides, in subdivision (a)(2):

"Damages for delay shall be awarded for the period of time

1. in an action commenced before August 1, 1989, from the date the plaintiff first filed a complaint or from a date one year after the accrual of the cause of action, whichever is later, up to the date of the award, verdict or decision; or
2. in an action commenced on or after August 1, 1989, from a date one year after the date original process was served in the action up to the date of the award, verdict or decision."

The effect of these two subdivisions is similar. A defendant has time to investigate the claim and conduct discovery to formulate and make the offer of settlement.

Rule 238 damages stop at the time of verdict and would continue beyond only if there is a new trial and a new verdict. See, Jistarri v. Fentress and Arthur v. Kuchar, in §6 below. Sanctions for a frivolous or dilatory appeal are governed by Pa. R.A.P. 2744.

5. The Rate Of Interest At Which Delay Damages Are Calculated.

Subsection (a)(3) provides:

"Damages for delay shall be 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 the damages are awarded, plus one percent, not compounded."

That rate is published for past years in an addendum to the Rule’s explanatory comment. The rates are:

Subsection (b) provides for tolling of Rule 238 damages when its conditions are met:

"The period of time for which damages for delay shall be calculated under subdivision (a)(2) shall exclude the period of time, if any,

1. after which the defendant has made a written offer of

2. during which the plaintiff caused delay of the trial."

Delay damages stop, or do not accrue, once the defendant has made a written offer of settlement which remains in effect for the lesser of ninety (90) days, or the commencement of trial, in an amount, or valued (in the case of a structured settlement) that is at least 80% of the ultimate verdict, decision or award. The offer must be in "writing" – a verbal offer is not sufficient. Zawadski v. Trivellini, 40 D&C, 3d 246 (1986).

The only other stated basis to toll Rule 238 is during the period of time which the plaintiff caused delay of the trial. In Schrock, supra, the Supreme Court held that an alleged excessive demand by a plaintiff is not a cause of delay within the meaning of this Rule, because it has nothing to do with the time of trial or the amount of the verdict. In Bruder v. Carlin, 586 A.2d 441 (Pa. S. 1991), the Court held that the Soldiers’ and Sailors’ Relief Act of 1940, 50 U.S.C. App. §§501-591, does not toll the accrual of delay damages during defendant’s military service. It will do so only where it is shown that the military service was actually responsible for delay.

If a case is appealed and remanded for a new trial, the appeal period is not excluded from the time to calculate damages. Arthur v. Kuchar, 682 A.2d 1250 (Pa. 1996). An unsuccessful petition for allowance of appeal to the Supreme Court by the plaintiff has been excluded from the time for which damages are assessed. Jistarri v. Fentress, 568 A.2d 618 (Pa.S. 1989) allocatur denied, 578 A.2d 929 (Pa. 1990).

Although nowhere stated in the Rule, an offer of insurance policy limits, where the defendant has no other assets, has also been held to stop the accrual of delay damages as of the date of that offer. Shellhamer v. Grey, 568 A.2d 224 (Pa. S. 1989). In Miller v. Hellman, 641 A.2d 592 (Pa. S. 1994), the Superior Court held that an insurer’s tender of policy limits will relieve the insurer from payment of Rule 238 damages, but not necessarily the insured. If the defendant had more than insurance that could be offered to an injured plaintiff, a reasonable offer must include additional assets to avoid the imposition of delay damages. The Superior Court remanded for an evidentiary hearing to determine if assets were available. No guidance was as to what extent the insured must participate in the settlement process to avoid the imposition of delay damages.

Although the CAT Fund is not an insurance company, where it has paid its liability limits it could not be held liable for delay damages. Lahav v. Main Line Ob/Gyn Associates, PC, 1999 WL 172651 (Pa. 1999).

7. Procedure For Requesting Damages – Court Cases.

Subsection (c) sets forth the procedure for requesting and obtaining delay damages in cases tried to a judge or jury. It provides:

"Not later than ten days after the verdict or notice of the decision, the plaintiff may file a written motion requesting damages for delay and setting forth the computation.

1. Within ten days after the motion is filed, the defendant may answer specifying the grounds for opposing the plaintiff’s motion. The averments of the answer shall be deemed denied. It an issue of fact is raised, the court may, in its discretion, hold a hearing before entering an appropriate order.
2. If the defendant does not oppose the motion, the court shall add the damages for delay to the verdict or decision.

Attached as Appendix "A" is a form for a petition for delay damages.

The ten day limit on filing a motion is mandatory. Brocklehurst v. Watson, 597 A.2d 631 (Pa.S. 1991) allocatur denied, 612 A.2d 983 (Pa. 1992). In a reverse bifurcated trial, the damage verdict does not start the ten day period, which only begins to run with the liability verdict. Gross v. Johns-Manville, 600 A.2d 558 (Pa. S. 1991) allocatur denied, 613 A.2d 559 (Pa. 1992).

By the express terms of the Rule, the motion need do no more than request the damage and set forth the computation. The dates pertinent to the computation should be included. If there is no answer, the damages are added by the Court. If an answer is filed, its averments are deemed denied, and the Court may hold a hearing if issues of fat are raised.

The effect of subsection (c)(3) is to have only a single appeal in a case in which delay damages are awarded. The note to subsection (c)(1) states:

"An order of the court on the motion for delay damages shall not be subject to a motion for post-trial relief."

If a motion for post-trial relief has been filed and delay damages are opposed, judgment cannot be entered until both motions have been resolved. This results in a single judgment from which to appeal. If no motion for post-trial relief is filed, but the defendant opposes the delay damages, judgment may still be entered on the verdict, which is no longer subject to appeal because post-verdict motions were not filed. The assessment of delay damages nevertheless remains appealable when the separate judgment is entered. See Starr v. Veneziano, 705 A.2d 950 (Cmwlth 1998).

Where the case is tried before court arbitrators, subsection (d) provides the method for assessment of damages, while protecting the privacy of any settlement offers:

"(1) In an action heard by a board of arbitrators in which damages for delay are requested, at least twenty days prior to the hearing the plaintiff shall notify the defendant of the intention to request delay damages and the date from which they are to be calculated. A defendant who objects to the request shall submit to the plaintiff within ten days prior to the hearing a statement setting forth the objections and whether

1. the defendant made an offer in writing and, if so, the amount and the date of the offer; and
2. there was a period of time during which delay of the arbitration hearing was attributable to the plaintiff. Each party shall submit to the board at the hearing a sealed envelope containing the plaintiff’s request and the defendant’s statement. Immediately upon making an award, the board of arbitrators shall review the contents of the envelopes and add damages for delay, if any, to the award. If the defendant opposes the request, the board may hold a hearing on the issue of damages for delay and shall immediately thereafter determine the amount of damages for delay, if any. Damages for delay shall be separately stated in the report and award of the arbitrators.

(2) The damages for delay shall not be included in determining whether the amount in controversy is within the jurisdiction of the arbitrators."

This procedure avoids having the board of arbitrators convene a second time to assess delay damages unless it deems a hearing necessary, but avoids the prejudice which could occur if the existence and amount of the settlement offer is made before the arbitrators decide the principal suit. The plaintiff gives defendant notice at least ten (10) days before the hearing of intention to request damages, and the date from which they are to be calculated. The defendant must communicate an objection in writing, and along with that, a statement of whether an offer was made and, if so, the amount and date, and whether the defendant asserts there was delay caused by the plaintiff. These documents are submitted in sealed envelopes which are not to be opened by the arbitrators until after they make the award. They then assess and separately state the delay damages, if any.

9. Apportionment Of Rule 238 Damages.

The Rule itself does not address how delay damages are apportioned among the parties, nor the effect of settlement. Generally, the prevailing party may collect all damages from any defendant found liable, including delay damages. Tindal v. Southeastern Pennsylvania Transportation Authority, 560 A.2d 183 (Pa. S. 1989). These issues are still being developed, although both the Superior and Commonwealth Courts have determined that Rule 238 damages are assessed against each defendant in the proportion to which each has been found liable to the plaintiff. Walton v. Avco Corporation, 557 A.2d 372 (Pa. S. 1989) aff’d. in part and rev’d. in part on other grounds, 610 A.2d 454 (Pa. 1992). United States Fidelity & Guaranty Company v. Royer Garden Center & Greenhouse, Inc., 598 A.2d 583 (Cmwlth 1991).

The Court in Walton also held that the non-settling defendant is entitled to the benefit of any payment made by a settling defendant in excess of that party’s share, because the non-settling defendant can only be expected to negotiate with respect to the actual amount which may still be recovered. If the settlement has the effect of wiping out the award against the non-settling defendant, that party gets the benefit of it, even though it may have made no offer at all. In Wirth v. Miller, 580 A.2d 1154 (Pa. S. 1990) appeal dismissed 632 A.2d 309 (Pa. 1993), the settling party had executed a release which provided for a dollar-for-dollar reduction of any award, that reduction which exceeded the amount of the verdict was made before calculation of delay damages. In Jazbinsek v. Chang, 611 A.2d 227 (Pa. S. 1992), the Court addressed a situation in which one jointly and severally liable defendant made an adequate settlement offer, and another did not. The Court held the party making the offer not jointly and severally liable for delay damages accruing after the date of the offer.

A trial court’s apportionment of delay damages in products liability suit, between manufacturer’s successor and company that rewired machine prior to injury, did not violate equal protection, even though successor was required to pay entire share attributable to contributorily negligent plaintiff, since successor was strictly liable while electrical repair company was negligent. Putt v. Yates-American Machine Co., 722 A.2d 217 (Pa. Super 1998).

Damages subject to apportioned delay assessment was only that percentage assessed by the jury against the strictly liable defendant. Putt, supra, at 227.

Delay damages must be assessed against the actual (molded) verdict. Liberty v. Geneva College, 690 A.2d 1243 (Pa. Super. 1997).

In Gallo v. Yamaha Motor Corporation, 527 A.2d 359 (Pa. S.1987) allocatur denied, 539 A.2d 876 (Pa. 1988), the Court held that upon request, in a case in which Rule 238 is applicable, the jury must be instructed that it should not award damages for delay, because that is a matter for the Court.

Insurance policies normally provide for the insurer’s responsibility for interest, which includes Rule 238 damages. The frequent statements in decisions that the purpose of the Rule is to compel "insurers" to settle, is a strong argument for insurance company liability even without such a policy provision. In spite of this, failure by the insurer to take the action which would toll the assessment of Rule 238 damages, which then results in an excess verdict, does not require the insurer to pay Rule 238 damages in excess of the limits of liability. Hall v. Brown, 526 A.2d 413 (Pa. S. 1987) allocatur denied, 564 A.2d 916 (Pa. 1989). The Court in Hall explained that the limits may be exceeded only when the insured proves, by clear and convincing evidence, that the insurer acted in bad faith when discharging its obligations under the policy. Since Rule 238 does not depend on anyone’s fault, an assessment under that Rule is not a per se determination of bad faith.

Under Miller v. Hellman, 641 A.2d 592 (Pa. S. 1994), if an insured is solvent, the insurer’s tender of policy limits will relieve the insurer of Rule 238 damages, yet leave the insured open to delay damages as if assets of the insured were not tendered. To what extent participation is required is an open question.

12. Taxability.

Delay damages are taxable income under federal law, even when they are awarded to a personal injury plaintiff because their function and purpose indicate that they are not paid "on account of personal injury". Francisco v. United State of America, Internal Revenue Service, No. 98-2245 (E.D. Pa. June 23, 1999).

13. Caveat.

The Supreme Court has accepted for review the question as to whether delay damages under Pa. R.C.P. 238 are limited to tort actions. Coatesville Scrap Iron & Metal Co., Inc. v. E.B. Auto Wrecking, Inc., 725 A.2d 1197 (Pa. Feb. 25, 1999).