DeSantis v. Donegal Mutual Insurance Co.

• Court: Superior Court of Delaware
• Decided: July 22, 2015
• Docket: 15C-01-164
• Status: Published

Opinion

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

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