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LEXINGTON INS. CO. v. ABINGTON CO.

March 21, 1985

LEXINGTON INSURANCE COMPANY, Plaintiff
v.
THE ABINGTON CO., et al, Defendants



The opinion of the court was delivered by: DITTER

 DITTER, J.

 In 1974, the parties entered into a contract under which the defendants, insurance brokers, agreed to write insurance and obtain reinsurance as agents for plaintiff Lexington Insurance Company (Lexington). Lexington's complaint alleged that defendants failed to remit to Lexington certain premiums they received from persons for whom they had written Lexington insurance policies. Lexington also alleges that defendants failed to procure policies of reinsurance. Default was entered, and, after protracted litigation, *fn1" the parties eventually stipulated as to the principal amount of damages. *fn2" Presently before the court is plaintiff's motion for "prejudgment interest" at the market rate. For reasons that follow, this motion will be granted.

 The law of Pennsylvania *fn3" with respect to "prejudgment interest" is, as Judge Adams stated, "far from perspicuous." Peterson v. Crown Financial Corp., 661 F.2d 287, 293 (3d Cir. 1981). The confusion appears to stem from the fact that Pennsylvania limits an award of interest as such to specified cases involving breach of contract, but allows for an interest-type remedy for delay in certain other cases. See Hussey Metals Division v. Lectromelt Furnace Division, 417 F. Supp. 964, 968-69 (W.D. Pa. 1976), aff'd, 556 F.2d 566 (3d Cir. 1977); Comment, Allowance of "Interest" on Unliquidated Tort Damages in Pennsylvania, 75 Dick. L. Rev. 79 (1970).

 Interest, as such, must be awarded at the statutory rate *fn4" in cases of breach of contract, where the plaintiff has established that the defendant defaulted on a promise to pay a definite sum of money or render performance the value of which is ascertainable with exactitude. See Miller v. City of Reading, 369 Pa. 471, 87 A.2d 223 (1952); Nagle Engine & Boiler Works v. City of Erie, 350 Pa. 158, 38 A.2d 225 (1944). See also Black Gold Coal Corp. v. Shawville Coal Co., 730 F.2d 941 (3d Cir. 1984); Sun Shipbuilding & Dry Dock Co. v. United States Lines, Inc., 439 F. Supp. 671 (E.D. Pa. 1977), aff'd, 582 F.2d 1276 (3d Cir. 1978), cert. denied, 439 U.S. 1073, 59 L. Ed. 2d 40, 99 S. Ct. 846 (1979); Restatement (Second) Contracts ยง 354 (1982).

 While interest, as such, is not available in other actions, three "interest-type" remedies have developed to provide redress for delay or detention. See Hussey Metals Division, 417 F. Supp. at 968-69; Comment, supra. First, Pa. R. Civ. P. 238 provides a formula for calculating delay damages in cases in which the underlying claim was one for bodily injury, death, or property damage.

 Second, a judicially-created rule to compensate for delay has been developed for certain unintentional tort cases falling outside the ambit of Rule 238. See Citizens Natural Gas Co. v. Richards, 130 Pa. 37, 18 A. 600 (1889). See also American Enka Co. v. Wicaco Machine Corp., 686 F.2d 1050 (3d Cir. 1982). In Richards, the court noted that interest cannot be recovered in tort actions, but recognized,

 
There are cases sounding in tort, and cases of unliquidated damages where not only the principle on which the recovery is to be had is compensation, but where, also, the compensation can be measured by the market value or other definite standard. Such are cases of the unintentional conversion or destruction of property, etc. Into these cases the element of time may enter as an important factor, and the plaintiff will not be fully compensated unless he receive not only the value of his property, but receive it, as nearly as may be, as of the date of his loss . . . . It is never interest as such, nor as a matter of right, but compensation for delay, of which the rate of interest affords a fair legal measure.

 Id. at 600. The Third Circuit has held that these common law damages for delay are measured by reference to the statutory rate of interest. See American Enka, 686 F.2d at 1057.

 Finally, the Third Circuit has held that Pennsylvania law affords a plaintiff damages for delay for "wrongful detention" of money. See Peterson, 661 F.2d at 287. Based on a theory of precluding unjust enrichment, this approach provides a court with discretion to award damages at a rate in excess of the statutory rate. See id. at 297. See also American Enka, 686 F.2d at 1057 n.5.

 In determining which of the four approaches governs this case, I will refer first to the substantive nature of plaintiff's action. Plaintiff's complaint sets forth claims arising from breach of contract, negligence, and fraud. When defendants moved to set aside the default judgment, I ruled that they could establish no meritorious defense to plaintiff's claims, Lexington Insurance Co. v. Abington Co. No. 81-43, slip op. at 10-11 (E.D. Pa. Jan. 15, 1982), and the Third Circuit affirmed this aspect of my decision. See Lexington Insurance Co. v. Abington Co., 688 F.2d 822, slip op. at 3-4 (3d Cir. 1982). Thus, for purposes of this case, liability has been established on counts sounding in contract, negligence, and fraud. See generally 6 J. Moore, W. Taggart & J. Wicker, Moore's Federal Practice para. 55.03[2], at 32 n.2 (1983).

 Reference to the underlying causes of action demonstrates that each of the "prejudgment interest" approaches, except that provided in Rule 238, is implicated in this case. Plaintiff's first claim sets forth a cause of action for breach of a contract to pay a sum of money, and, standing alone, would call for an award at the statutory rate. Plaintiff's negligence claim would trigger the approach to damages outlined by the Richards court, and would also call for an award measured by the statutory rate. Plaintiff's fraud claim, however, would not call for the Richards approach because, as I read dicta in the Third Circuit's decision in American Enka, cases involving intentional conduct and in which a plaintiff seeks restoration of wrongfully withheld funds are governed by Peterson, and not Richards. See American Enka, 686 F.2d at 1057 n.5. Consequently, with regard to the fraud claim, I would not be limited in my award by the statutory rate.

 Having found that reference to the established causes of action yields a conflict in the approaches to "prejudgment interest," I will look beyond the characterizations of the substantive dispute and focus on the nature of the remedy that plaintiff seeks. This form of scrutiny appears consistent with Judge Adams' approach in Peterson, where he found it unnecessary to determine whether the defendant had committed a particular tort and instead stressed the equitable nature of the remedy which the plaintiff sought. "Our holding is based not on our characterization of the substantive dispute, but rather on the equitable nature of the remedy the plaintiff seeks -- restitution of money unjustly received." 661 F.2d at 295.

 In this case, plaintiff seeks from defendants those funds that were improperly and intentionally withheld. Plaintiff does not seek expectancy damages. It simply seeks to recover the funds which it had delivered to the defendants to procure reinsurance and which third parties had delivered to defendants as agents of plaintiff. As such, the damages appear to be restitory in nature. Consequently, ...


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