West Virginia Supreme Court: Advance Payments Must Be Credited

February 3, 2016

Ms. Pak was injured in a hit-and-run accident. Her uninsured motorist insurance carrier, State Farm, offered Ms. Pak $30,628.15 to settle her claim. She refused and instituted a "John Doe" suit against the unknown driver. Prior to trial, State Farm advanced $30,628.15 to Ms. Pak with an accompanying letter that stated the funds would be credited against any final award of damages. Ms. Pak kept that money. When Ms. Pak prevailed at trial, the Circuit Court did not credit the State Farm payment, and required State Farm to pay prejudgment interest on that amount. The circuit court said that the payment was likely a "gift." The Court also calculated prejudgment interest on Ms. Pak's award for "loss of household services," even though she did not pay anyone to perform her housework.

The Supreme Court of Appeals of West Virginia disagreed with the Circuit Court and held:


"when an insurer makes an advance payment to a tort-claimant upon condition that the advance payment will be credited against a future judgment or determination of damages, the damages recovered by the claimant on a subsequent judgment shall be reduced by the amount of the advance payment."


There is a strong public policy against double recovery of damages for the plaintiff, which weighs in favor of crediting advance payments. In addition, credits for advance payments also benefit insureds by encouraging a faster payment on their claims without resort to trial. The Supreme Court took specific issue with the circuit court's finding that the advance payment was a gift, stating: "This conclusion strikes us wrong with the force of a five-week-old, unrefrigerated dead fish."  Brown v. Gobble, 196 W.Va. 559, 563, 474 S.E.2d 489, 493 (1996) (quoting United States v. Markling, 7 F.3d 1309, 1319 (7th Cir. 1993)).

Because the advance payment was to be deducted from the judgment, State Farm did not have to pay prejudgment interest on this amount. Credits, payments, and set-offs are deducted prior to calculating prejudgment interest.

As for the prejudgment interest on the "loss of household services," the Supreme Court found that prejudgment interest is not calculated for awards for "loss of household services" when the plaintiff has not paid or incurred an obligation to pay for household services.

Read the full text of the opinion here.