Defense Digest

Delay...Who Pays? Is The Pennsylvania Property And Casualty Insurance Guarantee Association Responsible For Delay Damages?

The Superior Court of Pennsylvania in the case of Alan and Jacqueline Feldman v. Pennsylvania Property and Casualty Insurance Guarantee Association was asked to review the lower court's decision granting the Pennsylvania Property and Casualty Insurance Guaranty Association's (PIGA) Motion for Summary Judgment in the underlying declaratory action. The appellants filed a declaratory judgment action to determine if PIGA is responsible for payment of delay damages and post-judgment interest on an award of damages made against a doctor in a medical malpractice action where PIGA had paid the limits of the doctor's applicable policy. In short, the Superior Court held that PIGA had satisfied its obligation by paying the amount of the policy limit and that the trial judge did not commit error or abuse her discretion in granting PIGA's summary judgment. Further, the court held that any obligation of PIGA to defend the doctor ceased upon PIGA's payment of the amount of the insurance policy, which was $200,000. The holding, however, seemed to be extremely narrow in that it only addressed the issue of delay damages following PIGA's payment of the entire claim obligation.

Alan Feldman and Jacqueline Feldman, in April 1992, commenced an action against Dr. Entine alleging medical negligence. Dr. Entine was insured through Physicians Insurance Company (PIC) at the time the care and treatment was rendered. On January 21, 1998, PIC was declared insolvent by an Order of Liquidation issued by the Commonwealth Court of Pennsylvania, and, thereafter, PIGA, through statutory mandate, assumed Dr. Entine's defense. Importantly, PIGA was not a party in the underlying action. Following a mistrial in May of 1997, a second trial was held in May of 1999, in which a jury found Dr. Entine liable and awarded the Feldmans $2.5 million. Delay damages were assessed at $1,251,863.20, resulting in a total judgment of $3,751,863.20. By December 28, 2000, PIGA had issued a check totaling $200,000, the amount of the underlying insurance policy.

In March of 2001, the Feldmans initiated a declaratory action in order to determine PIGA's responsibility for a proportionate share of the delay damages and post-judgment interest. On March 1, 2004, PIGA filed a Motion for Summary Judgment, which was granted on April 12, 2004, resulting in this appeal.

The Feldmans' appeal raised the issue as to whether the lower court erred in granting the Motion for Summary Judgment of PIGA. The Feldmans argued that PIGA had an obligation to pay the insolvent insurer's proportionate share of delay damages and post-judgment interest due to the fact that the insolvent insurer would have been required to pay such damages. They further argued that the PIGA Statute does not absolve PIGA of the obligation to pay such damages.

In their affirmation of the trial court's decision to grant PIGA's Motion for Summary Judgment, the appellate court reviewed and quoted to the Pennsylvania Property and Casualty Insurance Guaranty Association Act, Pa.R.C.P. 238, and the Medical Professional Liability Catastrophe Loss Fund (CAT Fund) Act.

Accordingly, the Pennsylvania Property and Casualty Insurance Guaranty Association Act states that PIGA has the duty to "pay covered claims" and "any obligation of the Association to defend an insured shall cease upon the Association's payment or tender of an amount equal to the lesser of the Association's covered claim obligation or the applicable policy limit." 40 P.S. §991.1803 (b) (1) (i). The Act also states specifically that in no event shall the Association be obligated to pay a claimant in excess of the obligation of the insolvent insurer under the policy or coverage from which the claim arises. 40 P.S. §991.1803 (b) (1) (ii).

In this case, the appellants also argued that, had PIC not become insolvent, it would have been obligated to pay the Feldmans the $200,000 policy limit and, additionally, a proportionate share of delay damages and post-judgment interest. In their argument, the Feldmans relied on the Medical Professional Liability Catastrophe Loss Fund, which basically states that the CAT Fund would be responsible to pay delay damages and post-judgment interest, with the basic insurance carrier responsible for its proportionate share. In addition, in the Feldmans' brief, they note that Pa.R.C.P. 238 provides that, "At the request of plaintiff in a civil action seeking monetary relief for bodily injury . . . damages for delay shall be awarded in the amount of compensatory damages against each defendant found to be liable to the plaintiff and the verdict of the jury . . . and shall become part of the verdict."

The court basically stated that the CAT Fund is not implicated and, therefore, the statute pertaining to the CAT Fund was not applicable to the present matter.

The final argument, and the one of most interest to us, is the Feldmans' argument that, had PIC not become insolvent, it would have been obligated to pay the Feldmans the $200,000 policy limit as well as the proportionate share of delay damages and post-judgment interest. However, the court opined that this was not necessarily true. The court, in interpreting Pa.R.C.P. 238, held that if delay damages are to be owed to the plaintiff, the plaintiff may collect them from the defendant only. The court held that, "Where the insurer has paid the limits of its policy, its liability may include delay damages or be 'enlarged' providing that in a subsequent action, it is shown that the insurer had breached its duty to acting in good faith."

In this case, there had been no allegations of bad faith on the part of the insurance carrier in the assessment of delay damages; therefore, the court held that it did not necessarily follow that, had PIC not become insolvent, it would have had to pay delay damages in excess of the insurance policy limits.

In conclusion, the court found that PIGA had satisfied its obligation by paying the amount of the policy limit and that the trial judge did not commit error or abuse her discretion in granting PIGA's summary judgment. Finally, any obligation of PIGA to defend Dr. Entine ceased upon PIGA's payment of the amount of the insurance policy, which was $200,000.

The holding is very specific as to the fact that PIGA had paid the full applicable policy limit of $200,000. The question now is, had the verdict been, for argument's sake, $150,000, would PIGA be responsible for delay damages up to the $200,000 policy limit? The court in the case of Feldman v. Pennsylvania Property and Casualty Insurance Guaranty Association made no such comment and gave no such guidance on this issue.

*Donna is an associate in our King of Prussia, PA office. She can be reached at (610) 354-8283 or dmodestine@mdwcg.com.