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  • July 22, 2009

    Back to Contract Law Basics – If You Want Delay Damages, Reserve Your Right to Seek Them in Your High/Low Agreement

    In a case of first impression, the Pennsylvania Superior Court recently held in Thompson v. T.J. Whipple Construction Company that a plaintiff will be precluded from seeking delay damages where the parties entered into a high/low agreement prior to trial which did not expressly reserve plaintiff’s right to seek such damages. Although the Thompson Court initially employed principles of statutory construction and considered the underlying purpose of the rule of civil procedure which permits a plaintiff to seek delay damages in cases involving bodily injury, death, or property damage, ultimately, the Court affirmed the trial court’s decision to deny plaintiff delay damages based upon fundamental, well-settled, contract law principles.

    Pennsylvania Rule of Civil Procedure 238 provides that in a civil action seeking monetary relief for bodily injury, death, or property damage, a plaintiff may petition the trial court for damages for delay of the litigation which damages shall be added to the amount of any damages awarded against each defendant found to be liable to the plaintiff. Pa. R. Civ. P. 238. Importantly, Rule 238 also provides that these delay damages shall become part of the verdict, decision or award.

    In this case, plaintiff Douglas Thompson sued T.J. Whipple Construction Company for injuries suffered by him while he was carrying out his duties as an employee of Va. Tech America Corp. d/b/a Related Steel Technology. These injuries were caused by the negligence of one or more agents or employees of Whipple Construction. Just days before trial, the parties entered into a high/low agreement, a tool which often is used by parties to reduce their respective risk at trial. Pursuant to the high/low agreement, Mr. Thompson and Whipple Construction agreed that no matter the verdict at trial, Mr. Thompson would receive not less than $250,000, and not more than $1,000,000. The parties memorialized this agreement through an exchange of letters drafted by their respective attorneys. Nowhere in these letters, however, did either party mention the issue delay damages. At trial, the jury awarded Mr. Thompson damages in the amount of $1,071,041.67, which was reduced to $1,000,000 in accordance with the parties’ high/low agreement. Thereafter, Mr. Thompson filed a petition for delay damages in the amount of $84,847.04 pursuant to Rule 238. The trial court denied the petition and Mr. Thompson appealed.

    On appeal, the Superior Court began its analysis of this case of first impression by carefully reviewing Rule 238, the purpose underlying it, and Pennsylvania jurisprudence interpreting it. The Court also spent a great deal of time reviewing the case law of sister jurisdictions which have ruled on the particular issue of whether a party may seek ancillary damages where a high/low agreement between the parties makes no reference thereto. Ultimately, however, the Superior Court relied upon hornbook contract law and contract interpretation principles in affirming the trial court’s decision to deny plaintiff delay damages based upon the parties’ high/low agreement. Specifically, the Court noted that the parties had entered into a legally binding settlement agreement which made no reference whatsoever to the topic of delay damages. Additionally, the Court reasoned that permitting plaintiff to obtain delay damages in the face of this plain and unambiguous contract would compromise “the dignity of the high/low agreement.” Finally, and in what appears to be nothing short of a “word to the wise” directed to the plaintiff’s bar, the Court explained that the parties could have crafted the high/low agreement to permit plaintiff to seek delay damages above and beyond the stipulated limit, but chose not to do so. In light of this less than subtle warning, practitioners should keep Thompson in mind in drafting any settlement agreement, especially where a plaintiff has a basis to seek ancillary damages, such as pre-judgment interest, post-judgment interest, costs, attorney’s fees, and the like.

    Denise M. Bowman is an associate of Hill Wallack LLP in the Yardley office where she is a member of the Business & Commercial Practice Group and the Litigation Division. Ms. Bowman concentrates her practice in the representation of corporate entities and partnerships, buying and selling businesses and real estate and also the representation of individuals and businesses in insurance, commercial litigation, bankruptcy and general business matters.