April 14, 2009

TO THE COMPANIES IN INTEREST:

Re: PENNSYLVANIA APPELLATE COURT CASE INVOLVING CLAIM FOR DELAY DAMAGES IN CASE WHERE HIGH-LOW AGREEMENT EXISTED PRIOR TO TRIAL.

The Superior Court of Pennsylvania recently issued a decision that is very important to all defendants, insurers, and self-insureds who enter into binding high/low agreements prior to or during trial, Douglas Thompson v. T.J. Whipple Construction Company, 2009 PA Super 57 (March 30, 2009).

In Thompson, plaintiff was injured while working as an employee of VA Tech America Corporation. Plaintiff ultimately brought a lawsuit against the defendant, alleging that the accident occurred as a result of negligence of one or more of the agents, officers, or employees of the defendant.

Prior to trial defendant’s insurer contacted the plaintiff’s attorney and proposed a high/low agreement. The parties ultimately agreed to a high/low agreement of $1,000,000 - $250,000. Pursuant to the agreement, if the jury awarded the plaintiff more than $1,000,000, plaintiff agreed to accept $1,000,000 in lieu of full payment of the verdict. If the jury awarded less than $250,000, or entered a defense verdict, plaintiff would still receive $250,000.

According to the opinion the agreement was confirmed via letters exchanged between counsel. The parties agreed that the confirmation letters did not discuss delay damages, nor was there any agreement with regard to the waiver or imposition of delay damages.

The jury ultimately returned a verdict in favor of the plaintiff, slightly in excess of the agreed upon $1,000,000 high parameter. Plaintiff then filed a petition for delay damages, which the trial court denied. Plaintiff then appealed to the Superior Court of Pennsylvania. The Superior Court ultimately upheld the denial of delay damages, but only because the verdict, along with any additional delay damages, would be in excess of the agreed upon high parameter.

In so holding, the Superior Court first noted that Pennsylvania courts have long recognized that high/low agreements are both a contractual agreement and a type of settlement. Such agreements would be interpreted by the general rules of contract interpretation. The Court could not, however, find any Pennsylvania appellate court cases addressing how Rule 238, which allows for delay damages, is to be applied in the context of a high/low agreement.

The Court then discussed Common Pleas opinions that stood for the proposition that a high/low agreement shielded a plaintiff from imposition of defense costs where a jury awarded less than the low parameters. Specifically, the case Cerino v. Kaduk 55 Pa. D&C 115 (Northampton County 2000), held an assessment of costs to a defendant would contradict the meaning of a high/low agreement in that the costs would necessarily be reduced from the plaintiff’s recovery, making that recovery less than the agreed upon low parameter.

Last, the Court reviewed appellate cases from New York and New Jersey which stood for the proposition that, where a jury returns a verdict less than the high parameter, but more than the low parameter, a court may, in the absence of contract language to the contrary, award pre-judgment interest as long as the gross amount is less than the high parameter. In other words, a plaintiff could still receive pre-judgment interest as long as the amount of interest, when added to the verdict, was still less than or equal to the high parameter.

In the Thompson case, however, the jury verdict was already in excess of the agreed upon high parameter. As such, the Superior Court held that the trial court was correct to deny pre-judgment interest.

The most important lesson learned from the Thompson decision is that defendants, insurers, and self-insureds should include a waiver of delay damages in any binding high-low agreement, to remove this issue from the courts’ review.

Should you have any questions about the above, please do not hesitate to contact me at (267) 654-1104 or blake@bbs-law.com.

Very truly yours,

Kevin M. Blake

If you wish to receive letters such as this one by e-mail, please notify our Director of Administration, Carmela M. Ginsberg, and she will be happy to add you to our e-mail distribution list. Thank you.