DeSantis v. Donegal Mutual Insurance Co.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
MARK DESANTIS, )
)
Plaintiff, )
)
v. ) C.A. No: N15C-01-164 ALR
)
)
DONEGAL MUTUAL INSURANCE )
COMPANY, )
)
Defendant. )
Submitted: June 15, 2015
Decided: July 22, 2015
Upon Plaintiff’s Motion in Limine – GRANTED
MEMORANDUM OPINION
Kenneth M. Roseman, Esquire, KENNETH ROSEMAN, P.A., Attorney for
Plaintiff.
Colin M. Shalk, Esquire, CASARINO CHRISTMAN SHALK RANSOM &
DOSS, P.A., Attorney for Defendant.
Rocanelli, J.
This matter is before the Court on Plaintiff’s motion in limine to determine
the net loss of earnings of a sole proprietor under 21 Del. C. § 2118 (“Section
2118”). Plaintiff, Mark DeSantis, was in a motor vehicle collision on October 17,
2014. At the time of the collision, Plaintiff was insured under an insurance policy
issued by Defendant, Donegal Mutual Insurance Company (“Policy”) which
provided PIP coverage to Plaintiff in compliance with Section 2118. Also at the
time of the collision, Plaintiff was self-employed as the sole proprietor of a
construction business, Quartz Mill Contracting. Plaintiff was unable to work
following his accident and sought to recover his earnings. Plaintiff filed the
underlying Complaint on January 21, 2015 alleging that Defendant failed to
reimburse Plaintiff for net loss of earnings and that Plaintiff was entitled to these
PIP damages pursuant to Section 2118.
In support of his claim for earnings, during discovery, Plaintiff produced
nine checks drawn on the account of Quartz Mill Contracting and made out to
“cash” for the period from January 8, 2014 to November 13, 2014. Thereafter, the
parties stipulated that Defendant would pay Plaintiff $370.72 per week but Plaintiff
reserved the right to challenge that $370.72 per week was the correct calculation
for Plaintiff’s net loss of earnings. Accordingly, Plaintiff filed the pending Motion
in Limine requesting a Court ruling on the correct calculation for Plaintiff’s net
loss of earnings.
1
Plaintiff contends that his net loss of earnings should be calculated by
deducting the business expenses necessary for the production of gross income from
the gross income of his sole-proprietorship. Under Plaintiff’s method of
calculation, Plaintiff is entitled to net weekly earnings of $955.39. In contrast,
Defendant maintains that the correct method of calculation for Plaintiff’s net loss
of earnings is the net amount of the nine draws which represent regular and
predictable income. Under Defendant’s method of calculation, Plaintiff is entitled
to net weekly earnings of $370.72.
DECISIONAL AND STATUTORY LAW
Prior to a statutory amendment in 1982, Section 2118 provided that an
insured could recover “net amount of lost earnings.” 1 Courts interpreting this
language denied recovery to self-employed plaintiffs due to the “complex and
controversial” problems connected to “proof of damages by a self-employed
person.” 2 In particular, courts denying or limiting recovery to self-employed
plaintiffs expressed concern about confusing business profits with net loss of
earnings, considered to be wages or salary. 3 In 1980, the Delaware Supreme Court
1
21 Del. C. §2118 (pre-1982 amendment).
2
U.S. Fidelity and Guaranty Insurance Co. v. Neighbors, 421 A.2d 888, 889–890 (Del. 1980)
(quoting Downs v. Lumbermens Mutual Casualty Co., C.A. No. 442 (Del. Super. May 25,
1976)).
3
Id. (discussing Downs, C.A. No. 442 (Del. Super. May 25, 1976) which denied recovery to a
self-employed plaintiff over concerns that recovery would be awarding business profits and
Klaus v. Nationwide, C.A. No. 287 (Del. Super. 1976) which denied recovery to a self-employed
plaintiff based on his lost income from his farming business).
2
held in U.S. Fidelity and Guaranty Insurance Co. v. Neighbors that a self-
employed plaintiff could recover net loss of earnings only when he or she had
made periodic draws sufficient to represent ascertainable and predictable income. 4
Specifically, the Neighbors Court ruled that net loss of earnings based on periodic
draws was more similar to salary than to profits and, as such, was recoverable
under Section 2118. 5
The Delaware legislature clearly disagreed with the Court’s reading of
Section 2118 as to self-employed persons in Neighbors and expressed this
disagreement by amending Section 2118 in 1982 to provide: “Lost earnings shall
include net lost earnings of a self-employed person.”6
In the meantime, the Court addressed the issue again in Graham v.
Nationwide holding that “in order for a self-employed person to recover [net] lost
earnings under § 2118(a)(2)a.2 a basic draw must be ascertainable so as to
represent a predictable income.” 7 However, acknowledging the statutory change,
the Graham Court limited the precedential effect of its decision to the date of the
1982 statutory amendment. 8
The Superior Court interpreted the 1982 statutory amendment in Jopson v.
Commercial Union Ins. Co., holding that “the [statutory] amendment to [Section]
4
421 A.2d at 890.
5
Id.6
21 Del. C. § 2118.
7
451 A.2d 832, 835 (Del. 1982).
8
Graham, 451 A.2d at 834 n.2.
3
2118 eliminates the requirement that self-employed persons prove an ascertainable
basic draw in order to recover lost earnings under the no fault statute.” 9
Nevertheless, as the Superior Court noted in another case, “the Court is still
‘guided by the principle that the claim for lost net earnings must be supported by
evidence of predictable income.’” 10 In yet another case, the Superior Court held
that the “phrase ‘net amount of lost earnings’ in Section 2118 . . . is broader than
the term ‘wages’ and . . . is not synonymous with it.” 11 Thus, the decisional law
subsequent to the 1982 statutory amendment to Section 2118 establishes that, to
recover net loss of earnings, a self-employed plaintiff need only establish
predictable income, not necessarily specific wages or salary. 12
9
1985 Del. Super. LEXIS 1388, at *4 (Del. Super. Nov. 6, 1985).
10
Stevens v. Pennsylvania Mfrs. Ass'n Ins. Co., 1987 WL 16735 (Del. Super. Aug. 10, 1987)
(quoting Hall v. Mason & Dixon Lines, Inc., C.A. No. 81C-JL-75, (Del. Super. November 22,
1983)).
11
Crum & Forster Ins. Grp. v. Wright, 634 A.2d 373, 377 (Del. 1993).
12
The Court notes that the most recent opinion on the issue of predictability in calculating net
amount of lost earnings is State Farm Mut. Auto. Ins. Co. v. Girgis, 2010 WL 1077846 (Del.
Super. March 9, 2010). In Girgis, relying on the higher Court’s decision in Neighbors, the
Superior Court denied recovery to the self-employed plaintiff because she had not taken periodic
draws from her day-care center sufficient to represent predictable income. Moreover, Girgis is
distinguishable on its facts from the present case. The plaintiff in Girgis sought a $20,000
monthly earning based on the net income of her day-care business as she claimed was
established by her tax returns. However, the plaintiff’s requested amount was not consistent with
any figures provided in her tax return which indicated, for example, that she had only earned
$2,638.00 in profits for an entire year. Thus, unlike the Plaintiff in the case before this Court, the
plaintiff in Girgis did not request an amount which was consistent with her tax returns and,
therefore, did not establish predictable earnings. More importantly, Girgis relied on Neighbors,
which was explicitly overruled by the 1982 amendment to 21 Del. C. § 2118.
4
DISCUSSION
A self-employed plaintiff must meet the standard of predictability in the
calculation of his or her net loss of earnings in order to receive PIP damages under
Section 2118. The 1982 amendment serves to “put self-employed persons on equal
footing with those who work for others.”13 Therefore, as long as the calculation is
predictable, a self-employed plaintiff is entitled to that predictable amount as net
loss of earnings.
In In re Kapsalis v. State Farm Mut. Ins. Co., the Superior Court provided
an alternative method of calculation for net lost earnings other than that based on
periodic draws. The Court stated that the net loss of earnings of a self-employed
person “is generally computed by looking at the gross income and deducting only
such business expenses that would be necessary to the production of that
income.” 14 This method of calculation satisfies the predictability standard required
by Delaware statutory and decisional law. Indeed, net loss of earnings can be
readily ascertained through the tax returns of a self-employed plaintiff and may
more accurately represent the true measure of lost earnings. This is because self-
employed plaintiffs may not take regular draws that can be compared to a wage or
salary. Alternatively, self-employed plaintiffs may take occasional partial draws
13
In re Kapsalis v. State Farm Mut. Ins. Co., No. 95C-05-079-WTQ, 1997 WL 529590, at *1
(Del. Super. Apr. 30, 1997).
14
Id.5
which are not reflective of the true sum of lost earnings. Thus, allowing a self-
employed plaintiff to recover net loss of earnings based on his or her gross income
less necessary business expenses is consistent with the 1982 amendment’s goal of
placing self-employed persons on equal footing with those employed by others. 15
Here, Plaintiff was self-employed at the time of his accident. In order to
recover, he must establish a calculation of net loss of earnings which is predictable.
While the nine draws Plaintiff made from January 2014 to November 2014 could
represent predictable income and provide a basis for recovery, Plaintiff is not
required to prove periodic draws in order to recover net loss of earnings. 16 Plaintiff
contends that the nine draws he made were only partial draws which do not reflect
the actual amount of his lost earnings. Plaintiff argues that his net loss of earnings
should instead be calculated by subtracting the necessary business expenses from
his gross income as provided in his 2014 tax return. As discussed, the Court finds
that this method of calculation satisfies the predictability standard and better
reflects Plaintiff’s true measure of lost earnings. Therefore, Plaintiff is entitled to
net weekly earnings of $955.39 as PIP benefits.
15
Id.16
See Jopson, 1985 Del. Super. LEXIS 1388, at *4.
6
CONCLUSION
Plaintiff is entitled to PIP damages calculated according to his gross income
less necessary business expenses. Accordingly, Defendant is required to pay
Plaintiff net weekly earnings of $955.39 which reflects Plaintiff’s predictable net
loss of earnings as required by Delaware law.
NOW, THEREFORE, on this 22nd day of July, 2015, Defendant’s
Motion in Limine is hereby GRANTED. Plaintiff is entitled to PIP benefits
calculating his gross income less all itemized expenses, except depreciation.
IT IS SO ORDERED.
Andrea L. Rocanelli
___________________________________________
The Honorable Andrea L. Rocanelli
7