Where Primary Insurer's Limits are Exhausted, It is Still Responsible to Pay Delay Damages

In Federal Insurance Company v. American Employer’s Insurance Company, No. 00-5026 (E.D. Pa. November 19, 2001), Senior U.S. District Judge Charles Weiner resolved a dispute between the primary insurer, American Employer’s Insurance Company (“American”) and the excess insurer, Federal Insurance Company (“Federal”) over the issue of the primary insurer’s responsibility to pay delay damages even after its policy limits have been extinguished. The insured, Wilgro Services, Inc. was sued by Lawrence and Susan Gatta for personal injuries they suffered at a construction site. Wilgro Services, Inc. was defended by American, its primary insurer, which provided $1,000,000 liability coverage. The Gattas’ initial settlement demand was $750,000. Later, they reduced their demand to $500,000. The case went to trial and the jury awarded the Gattas slightly more than $2,000,000 finding Wilgro Services, Inc. 60% liable and co-defendant Taylor Rental 40% liable. After the verdict, the Gattas filed a motion for more than $183,000 in delay damages.

Shortly after the verdict, American notified Federal, excess insurer (which had issued a $2,000,000 umbrella policy to Wilgro Services, Inc.) of the excess verdict. In its letter to Federal, American contended that Federal was responsible for any payments in excess of its $1,000,000 layer, including the $183,000 in delay damages. Federal responded that it believed that American was responsible for the delay damages regardless of whether the payment of the delay damages exceed American’s $1,000,000 policy limit.

Ultimately, the case settled for $1,500,000. American paid $1,000,000, Federal paid $300,000 and Taylor Rental’s insurer paid $200,000. Even though it made the payment of $300,000, Federal informed American that it was paying to protect Wilgro Services, Inc.’s interest (its insured) but reserved the right to demand that American honor its obligation to pay the delay damages.

The sole issue before Judge Weiner was whether American could be held liable for the delay damages even though it ultimately would have to pay an amount greater than its $1,000,000 in coverage. American contended that the policy’s provision to pay “all interest on the full amount of any judgment – even if that results in a payment of more than the policy limits” – was not triggered because the jury’s verdict was never reduced to judgment. Judge Weiner disagreed stating, “while American’s definition of judgment is one possible use of the word, the law of Pennsylvania also provides that, for the purpose of computing interest, judgment and verdict are synonymous, and the date from which the interest accrues is the date of the verdict, not the date the judgment is finally entered.” Consequently, Judge Weiner held that it was immaterial that the underlying lawsuit was settled before the verdict was reduced to judgment and that American was responsible to pay the delay damages.

Federal Insurance Company v. American
Employer’s Insurance Company
,
No. 00-5026 (E.D. Pa. November 19, 2001)