Unless otherwise indicated, the facts in this section are derived from the 1

Preliminary Jury Instructions (docket no. 164) at 2-4 or the Jury Instructions (docket no.

197) at 7-9. The court developed these documents from the record. The parties

participated in the drafting of the instructions.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

UNITED NATIONAL INS. CO., et al.,

Plaintiffs,

v.

AON LTD., et al.,

Defendants.

Civ. No. 04-539

OPINION

July 24, 2009 Pollak, J.

The plaintiffs in this diversity action (hereafter “plaintiff” or “UNG”), a group of

American corporations, have submitted a post-trial Motion To Alter or Amend the

Judgment To Add Prejudgment Interest and/or Damages For Delay (docket no. 216) as

well as a memorandum supporting the motion (docket no. 226). Defendants (hereafter

“defendant” or “Aon”), a group of English corporations, have responded (docket no.

231), and UNG has submitted a reply (docket no. 239). The motion is ripe for

disposition.

I. Background1

In 1993, Aon (acting chiefly through its subsidiary Alexander Howden) served as

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2.

UNG’s broker in soliciting Riunione Adriatica di Sicurta, S.p.A. (hereafter “RAS,” an

Italian corporation) to become a reinsurer to UNG on a large program that furnished

insurance to building contractors in the United States. Broadly speaking, a reinsurer

provides insurance to the insurance company that has issued the underlying policies and is

directly accountable to the insured persons or entities. Insurance companies may decide

to purchase reinsurance in order to be reimbursed, in whole or in part, if they are required

to pay losses under the policies that they have issued. RAS entered into a reinsurance

agreement with UNG for the time period of September 2, 1993 to September 2, 1994 that

involved two major coverage provisions. The claims filed by insureds under the building

contractors program were considerable and exceeded the income generated from

premiums.

In 1999, RAS commenced an arbitration against UNG seeking to rescind the

reinsurance agreement on the ground that, as RAS alleged, it had been misled into the

agreement by UNG or Aon or both, a claim which UNG denied. Aon was not a party to

the arbitration, but Aon provided information and resources to UNG for its defense. Def.

Mem. at 16. UNG also approached Aon about Aon’s potential responsibility in the

conflict. Reply Decl. of Jerome C. Katz ¶ 15.

On October 1, 2002, the arbitration panel awarded RAS partial rescission of the

reinsurance agreement. RAS was instructed to return the applicable reinsurance

premiums to UNG, and RAS was understood to no longer bear any financial

Case 2:04-cv-00539-LP Document 246 Filed 07/24/09 Page 2 of 16
 Under its contribution claim, UNG sought damages for whatever portion of the 2

losses a fact-finder determined was Aon’s responsibility. Pennsylvania does not permit

an award of attorneys’ fees or costs from the predicate dispute to be included in an award

of damages under a contribution claim. See 42 Pa. Const. Stat. § 8324; Lavelle v. Koch,

617 A.2d 319, 323 (Pa. 1992) (“a litigant cannot recover counsel fees from an adverse

party unless there is express statutory authorization, a clear agreement of the parties, or

some other established exception.”). 

3.

responsibility for claims by insureds that arose under the rescinded portion of the

agreement.

Invoking this court’s diversity jurisdiction, UNG, on February 9, 2004, filed suit in

the Eastern District of Pennsylvania against Aon for either indemnity or contribution.

Under its indemnity claim, UNG sought “to recover 100% of its economic losses

resulting from the Arbitration[,]” including attorneys’ fees and expenses incurred in that

earlier action. UNG’s indemnification theory was that Aon, acting as UNG’s agent, 2

committed the tort of negligent misrepresentation against RAS and that UNG only bore

liability as a passive tortfeasor. Attempts at settlement were not fruitful. Reply Decl. ¶¶

15-19. 

Following more than four years of pretrial activity, a jury trial commenced in

October 2008. Order of Sept. 10, 2008 (docket no. 148). During the second week of the

trial, the court requested the parties to make a further attempt at settlement, but no

resolution developed, even after a follow-up conference in chambers. Reply Decl. ¶ 16-

17. Presentation of the evidence and arguments of both sides required the better part of

nine weeks. Order of Dec. 4, 2008 (docket no. 213). The jury, instructed on the

Case 2:04-cv-00539-LP Document 246 Filed 07/24/09 Page 3 of 16
 One of the few matters of consequence that the parties have agreed upon in the 3

course of this lengthy and sharply contested litigation is that the governing substantive

law is Pennsylvania law. But they have not agreed on the content of that law.

 Lexington is an opinion by my senior colleague Judge Ditter, a respected state 4

court judge before commencing his now almost four decades of distinguished service as a

federal judge.

4.

applicable Pennsylvania law, returned a verdict for UNG on its indemnification claim 3

and awarded the full amount of damages requested by UNG: $16,871,596 in losses

resulting from the arbitration decision and $7,000,530 in attorneys’ fees and costs

occasioned by the arbitration. Verdict Form (docket no. 212). 

Following the verdict, UNG filed the instant motion, seeking a discretionary grant

of interest on its awarded damages pursuant to Fed. R. Civ. P. 59(e) and Pennsylvania

law. 

II. Analysis

 There are three areas of contention regarding plaintiff’s motion: whether UNG has

legal recourse, and is entitled, to a prejudgment interest award; what rate of interest

should apply; and what portion of its damages is subject to such an award.

A. The availability of an interest award in this case

The initial question is whether Pennsylvania law permits UNG’s request for

interest on its damages. The most illuminating case-law discussion of the state’s

prejudgment interest doctrine of which I am aware is in Lexington Ins. Co. v. Abington

Co., 621 F. Supp. 18 (E.D. Pa. 1985), which concisely canvasses the various avenues of 4

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5.

this area of law with useful clarity: 

The law of Pennsylvania 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) ....

Interest, as such, must be awarded at the statutory rate 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. [citations omitted]

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 .... 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,

[T]here 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

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6.

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.

Id. at 19-20.

UNG contends that it deserves interest on its damages under either the Richards

theory or the unjust enrichment (what I will call the ‘restitution’) theory, but appears to

prefer that the court apply the restitution theory which would allow interest above the

statutory rate. Under Richards, UNG argues that (1) its indemnity action sounds in tort;

(2) its damages “were known and were calculated with great precision at trial”; (3) Aon

delayed UNG’s recovery; and (4) full compensation for UNG’s losses requires an award

of interest. Pl. Memo at 3, 7, 9; Pl. Reply at 27. Under its restitution argument, UNG

states that (1) indemnity is recognized as a restitutionary remedy in Pennsylvania; and (2)

Aon, from the time of the arbitration award, has enjoyed the use of money which, given

Aon’s negligence, Aon should have rightfully paid to UNG. Pl. Memo at 10-11; Pl.

Reply at 20-21. 

Aon contends that neither of the two theories can be applied to this case. Aon

argues that Richards is inapposite because UNG prevailed on “an equitable action” of

indemnity, not a tort claim, and the damages in the instant matter were heavily disputed

and not readily ascertainable. Def. Memo at 5-7. Pointing to the phrase “wrongful

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 Richards may well have application to this case, but it is unnecessary to examine 5

it given the court’s discretionary authority under the restitutionary framework for

prejudgment interest to award interest either at the statutory rate or a rate of the court’s

determination. See Part II(B) supra.

7.

detention of money” used in Lexington Ins., 621 F. Supp. at 20, Aon argues that a

restitution theory cannot apply because Aon never improperly possessed or used money

given to it by UNG and thus enjoyed no unjust enrichment. Def. Memo at 8-10, 12. Aon

also argues, concerning the broader equitable review, that (1) it committed no intentional

wrongdoing; (2) it acted in a fair manner during the UNG-RAS arbitration and the UNGAon litigation; (3) UNG prosecuted its claims in a dilatory manner; and (4) UNG is a

wealthy entity with “no pressing need” for additional damages. Id. at 13-16.

I will apply the restitutionary theory to this motion and will forego analysis of the

Richards theory. Pennsylvania courts, and federal courts applying Pennsylvania law, 5

have deemed the restitutionary theory appropriate in a variety of cases that fall under

different equitable doctrines. See, e.g., Kaiser v. Old Republic Ins. Co. , 741 A.2d 748,

755 (Pa. Super. Ct. 1999) (subrogation claim in primary insurance context); Gurenlian v.

Gurenlian, 595 A.2d 145 (Pa. Super. Ct. 1991) (equitable action seeking a constructive

trust); Pacific Indem. Co. v. Linn, 766 F.2d 754, 769 (3d Cir. 1985) (indemnity claims in

an insurance dispute). The parties agree that UNG’s indemnity claim was equitable in

nature, and Pennsylvania law supports such a conclusion. See City of Wilkes-Barre

Kaminski Bros, Inc., 804 A.2d 89, 92 (Pa. Commw. Ct. 2002) (“The right to indemnity

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 Compare Kaiser, 741 A.2d at 754 (“Subrogation is an equitable doctrine 6

involving the right of legal substitution and may take place with or without contractual

agreement between the parties. It is granted as a means of placing the ultimate burden of

a debt upon the one who in good conscience ought to pay it, and is generally applicable

when one pays out of his own funds a debt or obligation that is primarily payable from the

funds of another...”) (internal citations omitted), with Kaminski Bros., 804 A.2d at 92

(“[indemnity] shifts the entire responsibility for damages from a party who, without any

fault, has been required to pay because of a legal relationship to the party at fault.... It is a

fault-shifting mechanism that comes into play when a defendant held liable by operation

of law seeks to recover from a defendant whose conduct actually caused the loss.”). 

8.

arises by operation of law and will be allowed where necessary to prevent an unjust

result. It is a common law equitable remedy ...”). 

Aon cuts a fine line in (a) arguing that UNG cannot receive interest under

Richards because its claim is restitutionary (as opposed to solely grounded in tort) and, in

addition, (b) contending that the restitution theory (or ‘detention of money’ as Aon

prefers) does not apply because Aon never received funds directly from UNG that must

be disgorged. I disagree with this view. The instant matter has much in common with

Kaiser, 741 A.2d at 754-55, where the Pennsylvania Superior Court affirmed an award of

prejudgment interest. In that case, the restitutionary theory applied to a subrogation

claim, which, though certainly different in context, is a remedy that has much in common

with indemnification in tort.6

In terms of whether interest is merited, I conclude that an award of interest on the

damages found by the jury is necessary to effect full restitution for UNG. See Sack v.

Feinman, 413 A.2d 1059, 1065 (Pa. 1980) (“Whenever the defendant holds money or

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9.

property that belongs in good conscience to the plaintiff, and the objective of the court is

to force disgorgement of [defendant’s] unjust enrichment, interest upon the funds or

property so held may be necessary to force complete restitution.”). Further, I find that

Aon’s broader equitable arguments against interest and UNG’s responses, both of which

are addressed below, are not influential to this determination. 

Each side has charged the other with dilatory litigation. The charges are

unpersuasive. On the one hand, it would be improper to view Aon in a negative light for

defending itself to the utmost, so long as such vigorous defense was not substantially

motivated by a desire to delay or obstruct the administration of justice. The court finds no

such wrongful motive here. Despite the decisively favorable outcome for UNG, this suit

presented difficult questions of law and fact that opened considerable grounds for

argument. On the other hand, I see no merit in Aon’s assertions that UNG “dithered” in

its prosecution of this case. Def. Memo at 15. On balance, the time spent by both sides

on the litigation does not affect the consideration of whether interest is appropriate. 

UNG also argues that Aon’s unwillingness to engage in settlement negotiations

resulted in compensable delay. Pl. Reply at 25-25; Reply Decl. ¶¶ 14-19. Pennsylvania

cases suggest that the parties’ willingness to engage productively in the process of

settlement or other modes of alternative dispute resolution is a proper element in a court’s

consideration of a prejudgment interest request. See Robert Wooler Co. v. Fidelity Bank,

479 A.2d 1027, 1035-36 (Pa. Super. Ct. 1984) (collecting cases and concluding that “all

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 Aon has provided no doctrinal support for its three-sentence argument that 7

interest is unwarranted in light of UNG’s financial strength. Def. Mem. at 16.

10.

circumstances relevant to the delay must be developed and analyzed” (internal citation

omitted)); Marrazzo v. Scranton Nehi Bottl’g Co., 263 A.2d 336, 338 (Pa. 1970). I am

not convinced, however, that the circumstances surrounding efforts at settlement of this

case add weight in either direction on the issue of prejudgment interest.

The further equitable considerations raised by Aon are inapposite or unsupported

by the record. Intentional wrongdoing by a defendant does not appear to be required for

an award of interest. See Kaiser, 741 A.2d at 755 (affirming a restitutionary award of

interest on a subrogation claim that involved no underlying allegations of intentionality or

wrongful scienter). Further, UNG’s relative wealth is irrelevant. 

7

B. The Rate of Interest

Plaintiff requests interest on its judgment either at the six percent rate established

by 41 Pa. Const. Stat. § 202 or at a rate based on “UNG’s internal rate of return on

investments in bonds over the relevant period of time” as calculated and attested to by

plaintiff’s CFO. Pl. Mem. at 5, 14. Under UNG’s calculations of when interest applied

to the various components of its damages, the statutory rate would result in $8,299,984.59

in interest, and the bond rate would result in $9,052,109.18 in interest. 

Aon urges that if interest is to be awarded, the court should employ a rate “no

greater than 2.5% per annum, the average rate available in the money market at the

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11.

relevant times.” Def. Mem. at 17, 21. Aon contends that a rate of six percent (or higher)

“would have been a pipe dream in the money markets as they actually existed during the

period at issue. UNG should not receive an interest rate that is the fruit of fantasy; it

should only receive [a rate] dictated by the ‘economic realities.’” Id. at 18. Aon has not

offered a calculation of the maximum amount of interest available to UNG at Aon’s

proposed rate. Instead, Aon goes on to suggest an interest award ceiling of $1,687,159.60

which “consists of $16,871,596 (i.e. the amount awarded by the jury without regard to

attorneys fees), multiplied by 10% (i.e., four years of prejudgment simple interest at 2.5%

per annum).” Def. Mem. at 24, n. 10 (Aon’s arguments that UNG should not receive

interest on its full damages are explored infra). 

In response to Aon’s contentions regarding the interest rate, UNG submitted

another number that reflects the return it would have seen had it invested the money at

issue here “in its entire portfolio of assets ...”. Pl. Reply at 37. Under UNG’s

calculations, this rate would result in $7,351,932.19 in interest. 

For the reasons that follow, the court, in the exercise of its discretion, will employ

the Pennsylvania statutory rate of six percent. The circumstances of this suit and the

applicable case law suggest that reliance on the legislature’s statutory determination

would be just and prudent here. 

Under the restitutionary framework, Pennsylvania courts, and federal courts

applying Pennsylvania law, appear to award prejudgment interest at a rate above or below

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12.

the statutory rate when the facts of the specific case, or the public policies underpinning

the issues involved, clearly suggest that such a course is warranted. See Park v. Greater

Delaware Valley Sav. & Loan Ass’n., 523 A.2d 771, 776 (Pa. Super. Ct. 1987) (affirming

an interest award at five and one-half percent, “the rate of the mortgage agreement” at

issue in the restitution action); Rizzo v. Haines, 515 A.2d 321, 324-25 (Pa. Super. Ct.

1986) (ruling that, in a case of fraud by an attorney, the higher market rate of interest,

which “ranged as high as twenty percent during the relevant period of time[,]” should

apply rather than the statutory rate); Lexington Ins., 621 F. Supp. at 21 (awarding interest

at a market rate, higher than the statutory rate, in a case where defendants intentionally

retained and used premium payments belonging to plaintiff); In re Kenin’s Estate, 23

A.2d 837, 845 (Pa. 1942) (awarding interest at two and one-half percent in a case where a

trustee erroneously detained funds that should have been distributed to the executors of a

decedent’s estate).

In restitution-theory cases where the circumstances, or the broader policies

involved, do not militate for an adjusted rate, courts have elected to employ the statutory

rate. In Gurenlian, the plaintiff appealed a trial court’s discretionary award of

prejudgment interest at the statutory rate, contending that the award was too low to effect

full restitution. 595 A.2d at 148. The Superior Court declined to reverse the interest

decision, stating that:

The defendants in the instant case, unlike the defendants in Rizzo, Sack,

and Lexington, did not fraudulently, intentionally, and wrongfully procure

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13.

or withhold appellant’s money. Further, unlike the plaintiff in Peterson,

appellant has not demonstrated that an award of interest at the market rate

is necessary either to compensate him for losses sustained or to force the

defendants to disgorge profits realized.

Id. at 149. Kaiser, discussed supra, is also instructive. Kaiser involved an equitable

claim of subrogation in an insurance dispute. 741 A.2d at 750. As previously noted,

subrogation and indemnification have much in common as equitable remedies. In Kaiser,

the plaintiff requested an award of interest at six percent, and the Superior Court affirmed

the trial court’s grant of this request as a proper exercise of discretion. Id. at 751, 755. 

In the instant matter, both sides have made plausible arguments for their nonstatutory interest rate requests. UNG has offered viable evidence to support its proposed

“bond rate” or “total investment” rate (which, I note, the appellant in Gurenlian lacked

entirely, 595 A.2d at 149), but Aon likewise supports its rate with some evidence. 

Neither side, however, has offered argument and evidence that both (1) displaces the

other party’s position and (2) strongly suggests that its proposed rate is fairer than the

statutory rate.

Finally, this case evokes or directly involves legal doctrines that usually fall under

the six-percent rubric — even though the claim itself is restitutionary in nature. UNG’s

damages were dependent on its proving that Aon committed a tort. The largest measure

of damages here derives from the provisions of a contract that was, in part, rescinded as

the result of Aon’s tortious conduct. These facts support the appropriateness of the

court’s subscribing, in the exercise of its discretion, to the prejudgment interest rate that

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14.

prevails in contract and tort claims. That rate appears the most just, as it would represent

the most established, predictable, and appropriate rate for a case of this kind.

C. What Damages Are Subject to a Discretionary Award of Interest

UNG seeks interest on its entire damages award of $23,872,126, which includes

the jury’s award of attorneys’ fees and costs from the UNG-RAS arbitration. Aon

contends that UNG calculated interest from incorrect starting points for a portion of the

damages, Def. Mem. at 21-22, and that interest on the arbitration fees and costs is

inappropriate and unjust, id. at 22-23. Aon urges the court not to consider more than

$16,871,596 of the damages if the court decides to grant interest. Id. at 24.

The court has reviewed the Affidavit of Thomas M. McGeehan, UNG’s Chief

Financial Officer, as well as Exhibit 1 of that affidavit which provides considerable detail

on how UNG calculated its requested interest award at the statutory rate. The

methodology employed by UNG is sound in that UNG seeks interest only from the points

in time at which its various damages claims accrued. See McClure v. Deerland Corp.,

585 A.2d 19, 22 (Pa. Super. Ct. 1991) (“Claims for indemnification arise only when the

party seeking indemnity has made a payment on the underlying claim.”). The calculations

are painstaking and detailed. Aon appears to challenge these calculations, but then, in a

footnote, seems to acknowledge that the calculations were properly undertaken. Def.

Mem. at 22, 22 n. 8 (“To award interest on money before it was even paid would be

wrong. [footnote] UNG impliedly admits this point, by basing its prejudgment interest

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15.

calculation on the dates of actual payment rather than strictly on October 1, 2002 as the

start date.”).

The damages on which interest will be granted will include the attorneys’ fees and

costs incurred by UNG in connection with the arbitration. UNG’s successful claim in this

suit was for indemnification, which in Pennsylvania permits a plaintiff to recover

expenditures from an earlier defense against the claims of the harmed third party. See,

e.g., Boiler Eng’g & Supply Co. v. Gen. Controls, Inc., 277 A.2d 812, 814 (Pa. 1971). 

Here, the costs of the arbitration were an obvious and significant component of the

recovery that UNG sought from Aon. In terms of making the plaintiff whole, a

consideration common to both the Richards and restitution theories, interest on the large

sums expended by UNG in defending itself from RAS’s claims is warranted. Aon’s

arguments that such an award is “twice removed from the merits” and constitutes a form

of punitive damages are unpersuasive. Pennsylvania courts do not appear to consider fees

and expenses from earlier defenses to be some form of secondary recovery or an

unwarranted ‘add on’ in indemnity suits. Orth v. Consumers’ Gas Co., 124 A.2d 296,

297 (Pa. 1924) (“...where the wrongful acts of the defendant have involved the plaintiff in

litigation with others, or placed him in such relations with others as to make it necessary

to incur costs and expenses to protect his interests, such costs and expenditures should be

treated as legal consequences of the original wrongful act.”). Further, the review

undertaken here does not involve any of the elements that support punitive awards, nor

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16.

has UNG argued any such considerations.

III. Conclusion

For the reasons stated above, the court will grant plaintiff’s motion and add

prejudgment interest, calculated at the statutory rate of six percent, of $8,299,984.59 to

the jury’s award of $23,872,126.00 in damages. This will result in a total judgment for

UNG of $32,172,110.59.

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