1 The UM carri er agreed in i ts bri ef that the po licyhold er’s State men t of the C ase an d Sta teme nt of the F acts in

her bri ef were accurat e.



### IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE Decem ber 11, 200 2 Session TERESA MALONE v. SHANE MADDOX, ET AL 

### . Appeal from the Circuit Court for Hamilton County No. 01C341 W. Neil Thomas, III, Judge FILED FEBRUARY 25, 2003
No. E2002-01403-COA-R3-CV

This case focuses on an insurance compa ny’s liability

under the uninsured motorist (“UM”) provisio ns of an aut omobile insurance policy. I t arises out of an automobile accident involving Teresa Malone ( “th e policy holder”) and Shane Maddox (“the uninsured motorist”). The policyholder

appeals the trial court’s judgment decreeing that the policyholder’suninsure d motorist carrier, Harleysville Mutual I nsurance Company

(“the UM carrier”), ca

nnot be held liable for prejudgment

interest underthe facts of this case because such an a ward would cause the total judgmen t again st the UM c arrier

to exceed

the UM co verag e limit in the policy . We affir

m. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed; Case Remanded
C HARLES D. S USANO , J R ., J., delivered the opinion of the court, in which H ERSCHEL P. F RANKS and D. M ICHAEL S WINEY , JJ., joined. Phillip C. Lawrence, Chattanooga , Tennessee, for the appellant, Teresa Malone.
William A. Lockett and Michael A. K ent, Chattanooga, Tenne ssee, for t he appellee, Ha rley sville Mu tu al Ins ur an ce Co mp an y. OPINION
I.
The material facts pertaining to the issues on this appeal are not in dispute. 1 On February 18, 2000, at about 11:15 p.m., the policyholder and the uninsured moto rist were involved in a twovehic le accident in Chattanooga. At the time of this nighttime, head-on c ollision, the uni nsure d motorist was driving on the wrong side of the road , at an exc essive r ate of sp eed, without headl ights,2 Ten n. Cod e Ann. § 4 7-14-12 3 pro vides, in pertinent part, as follows:
P rejudgme nt interest, i.e., interest as a n element of, or in the nat ure of, damag es, a s permittedby the statutory and common laws of the stat e as of Apri l 1, 1979, may be awarded by c ourts or

jurie s in acc ordance with the pr incipl es of equi tyat any rate not in excess of a maxim um effective rate of ten percent (10% ) per annum; . . . -2- andwhile under the influence of an intoxicant. As a result of the accident, the policyholder sustaine d seriouspersona l injuries

. The policyholder

sued the uninsured motorist, seeking to recover compensa tory damages for the injuries and damages proximately caused by the

unins u red motorist’s negligence. She ca used processto be served on the UM carrier. The UM c arrier filed an answer and de f e nded in its own name. The jury re

turned a verdict against the uninsured motorist for $200,000. T he trial cou rt entered judgment against the UM ca rrier for $50,000. Following the entry of the trial court’s judgment on the jury ’s verdict, the policyholde r moved the trial court, pursuant to the provisions of Tenn. Code Ann. § 47- 14-1 23 (2001), 2 for an award of prejudgment interest against the UM c arrier “on the $50,000policy amount from the date of th e i nj ur y to th e d at e o f t he pa ym ent of the judgment into [c]ourt.” The trial court denied the motion. I n its orde r deny ing the r equeste d relief

, the tria l court op ined as f

ollows:
Aftercaref

ul deliberation, the Court concludes that the languag e of the au to mo bi le li ab il it y in su ra nc e p ol ic y pertaining to the limit of liability for uninsured/underinsured motorist coverage prohibits any award of pre-judgment interest that would exceed the limit of liability applica ble to the policy. However, were it not for th e poli cy language andthe limit of

liability , the Cour

t would find that it is equitable that Harley sville

pay pre- judgment interest for a period of one y

ear prior to the date

of the judgment

on the amount of its liability of $50,000 in this case at the rate of ten percent (10% ) per annu m, an am ount equal to $5,000.
II.
The poli cyhol der makes several argume nts in support of her contention that the trial court erred in ref using to award prejudgment interest. First, she a rgues that an award of pre judgment interest on a dama

ge awa rd aga inst a UM carr

ier is an a dd-on, se parate and distinct from, a

nd in addition to, the basic judgment against the UM carr ier based upon the negligenc e of the uninsured motorist. While conceding, as she must, that the jury ’s award o f $200,00 0 extrapol ates toan award against theUM carrier

of $50,000 – the amount of the UM carrier’s limit of liability in this case – she argues tha

t the nature of

the statut ory “crea ture” known as pr

ejudgme nt intere st is such a s to render it not subject to the contractual limitation of $50,000.3 Ten n. Cod e Ann. § 4 7-14-12 1 pro vides, in pertinent part, as follows:
Interest on judgments, including decrees, shall be computed at the eff ective rat e of ten percent (10%) per annum, exce pt as may be oth erwi se pr ovided or permi tt ed by statute; . . . -3- In support of her first argument, the policyho lder relies on the case of Goff v. Permanent Gener al Assurance Corp. , C /A N o. 0 3A0 1-9 405 -CV -00 185 , 19 94 W L 585771 (Tenn. Ct. App. E.S. , filedOctober 19, 1994). In Goff , we were presented squar ely with the q

uestion of whether a judgment against a UM carrier for the full amount of its coverage w as s ubject to postjudgment interest under Tenn. Code Ann. § 47-14-121 (2001), 3 even though such an award w ould obviou sly cause the total amount due from the UM carrier to exceed the stated limit of UM coverage i n the po li cy. Id . at *2. We held that postjudgment interest was mandated by the statut e and that all judgments were subject to it. Id . We concluded that the UM carrier in that case, i.e. , PGAC, was liable for postjudgment interest on top of the “maxed-out” judgment of $25,000:

Tenn. Code Ann. § 47-14- 121, et seq. provides for post-judgment interest , andit

is not controverted that the personal injury judgment bears interest

at the rate of ten percent. Neither is it controverted that in any eve

nt, PGAC would have been liable for interest only on $25,000.00, as contrasted to the entire a mount of the judgme

nt. We do notagree with the arg

ument of PGAC that under no circumstances can it b e liable for more than $25,000.00, “the maximum limit of liability for all damages.” The statutes regulating interest, bad faith, and the like, impose liabilities in addition to the limits of coverage

. Goff , 1994 WL 585771, at *2 (citations omitted) (emphasis added).
For her second

argume nt, the policyholder conte nds that her policy of a

utomobile insurance does not includ

e prejud gment in terest wi thin the concept of damages that is subject to the cap of $50,000. Thus, so the argument goes, pre judgme nt interest, not being an element of the damag es so limited, is j ust

like postju dgment interest a nd can be added to a judgment against the UM carr ier even though the pre-existing damage s award is already at the maximum limit of UM coverage.
The policyholder also ar

gues that the trial court’s conclusi on reg arding prejudgment inter

est is at odds with the public policy embodied in the prejudgment

interest statute. She contends that the trial court’s denial of prejudgment interest in the instant case “is erroneous because it i gnores the explicit purpose o f prejud

gment in terest a wards, d isrega rds the in surance

company ’s oblig ation to pay compensatory da

mages at thetime when

it is equitable to pay them, and c reates an incentive for insurance companie s to delay pay ing claims even after the

total amount of the obligation becomes clear.”-4- III.
The issues in thi s case bring into play the following UM c overage language of the subject po li cy: INSURING AGREEMENT

A. We will pay

compensa

tory damage s which a

n “insured” is legall y entitled t o recover

from the owner or operator of an “uninsured motor vehicle” because of:
1. “Bodily injury

” sustained by an “insured ” an d caused by a

n accident; . . .

* * *
LIMIT OF L IABILITY
A. The limit of Bodily I njury Liability shown in the Schedule or in the Dec laration s for ea ch person for Unin sured Mot orists Cover age is our maximum limit of li ability for all da mages, including damages for care, loss of services or death, arising outof “bodily injury

” sustained by

any one person in any one accident.
* * *
This is the most we will pay reg ardless of the number of: 1. “Insureds”; 2. Claims made; 3. Vehicles or premiums shownin the Schedule or in the Declarations; or 4. Vehic les involv ed in the a ccident

. (Bold lettering in policy) . Damages under the UM fea ture of the policy ar

e not further defined

in the po li cy. As previously noted, the policy at issue limits the UM coverage for bodily injury for

each person to $50,000. There is a total limit for each accident of $100,000.
The insuring agreement for the liability feature of the

policy includes the

following provision pe rt ai ni ng to da ma ge s r ec ov er ab le un de r t ha t p ar t o f t he po li cy:-5- Damages include p

reju dgment interest a warded against the “insured.”
The policyholder ar

gues that, since the definition of damage s in the liabil ity part of the policy expressly includes“prejud

gment in terest”while

the reference to damag es in the uninsured motorist featureof the policy contains no such e xplicit referenc e, damag es u nder the UM coverage do not include prejudgment interest and, therefore , there is no violation of the policy’s terms by

adding such interest to the “maxed out” damages award of $50,000 in the instant c ase. The UM carrier does not dispute the trial court’s finding that equity would militate in favor of an award of prejudgment intere st in this case. However, it argues that the court be low was correct in holding that such anaward was not proper in this case beca use the addition of

such an a ward to the already -existing $50,000 judgment would cause t he total award to exceed the limit of UM covera ge con tracted for by the part ies.
The UM carrier contends that the limit of liability provided for under the contract is clear. It point s to t he lan guage of th e p ol ic y an d a rg ue s t ha t i t s ta te s, un eq ui vo ca ll y, that $50,000 “is the most we will pay. . . .” The

UM carrier argues tha

t this language speaks for its elf and that the $50,000 lim

it is exactly

that, eve n with res pect to the subject of preju dgment interest. The UM carrier also addresses the policy hold er’s “negative infere

nce” argument. I

t contends that if the poli cy

holder’ s argum

ent is correct, then t he UM s ectio n of th e poli cy offers n o cove rage whatsoever for prejudgment interest awards. I t points out that its liability in this case is entire l y derivative of

the judgment ente

red ag ainst

the uninsu

red motor ist. If prejud

gment in terest isa claim agains tthe UM carrier for failure to pay the claim earlier and not

connected to the negligenc e of the uninsuredmotorist, then prejud gment interest is not derivative of the uninsured motorist’s negligence. If this be the case, a ccording to the UM carrier, prejudgment interest is not covered at al l u nd er th e t er ms of

th e U M s ec ti on of

th e s ub je ct po li cy. The UM carrier also responds to the policyholder’s public policy argument. It a sserts that the policy

ratio n ale for postjudgment interest is not logically transferable to the subject of prejudgment

interest . In a

ddition, it p oints out that the policyholder doesnot alleg e that it w as guilt y of bad fait h or breach of

contract. The UM carrier conc ludes that, absent some allegation of such conduct, the policy

rationale cited by

the policyholder for

prejudgment interest is not implicated by the insurance company ’s decision not to settle.
IV.
This case presents a question of law. “[W]hen there is no conflict in the evidenc e as toany material fact, . . . , the quest ion on app eal is one of la

w, and our

scope of review i s de novo with no presumption of correctness accompany ing the [trial court’s] conclusions of law.” Union Carbide Corp. v. Huddleston , 854 S.W.2d 87, 91 (Tenn. 1993).-6-

It is clear that the a

utomobile insuranc e policy in this cas e is a con

tract betwe en the policyholder

and Har ley sville Mutual Insu

rance C ompany . Ins urance policies a

re const rued in accordance

with the rules andpr in ci pl es ap pl ic ab le to co nt ra ct s g en er al ly. See Guardian Lif e Ins. Co. of America v. Richardson , 23 Tenn. Ap p. 1 94, 207 , 12 9 S .W .2d 110 7, 1 115 -16 (19 39) . In Guardian , we stated the applicable law:

Contract s of insura

nce, like other co ntracts, are to be construed according to the sense and meaning of the terms which t he pa rties have used, and if they

are clear and unambiguous, their terms are to be taken and underst

ood in thei

r plain , ordinary, a

nd popular sense. The rule of s trict con struction does n ot authorize a perversion of language, or the exercise of inventive powers for the pu rposeof creating a n ambig uity where none exists, nor does it authorize the court to make a new contract for the partiesor disregard the evidence (intention) as exp

ressed , or to refine away terms of a contract expressedwithsufficie

nt clear ness toconvey the pla

in meaning of the parties andembodying r

equirements, compliance with which is made the condition

to liability

thereon . Neither

does t he rule prevent the ap plication of the pr

inciple th at policie s of insur ance, li ke oth e r contracts, must receive a reasonable interpre tation consonant with the appare nt object and plain intent of t

he parti es. Id . (citations omitted).
V.
A.
The policyholder’s re

liance on our opinion in Goff andother postjudgment inter

est case s is misplaced. There a

re funda mental dif

ferenc es between postjud gment in terest and pre judgment interest th at be li e t he po li cyh ol de r’ s a ss er ti on th at th e p os tj ud gm en t i nt er es t c as es , b y an al og y, support an award of prejudgment intere st in this case. Postjudgment

interest is mandatory. Vooys v. Turner , 49 S.W.3d 318, 322 (Tenn. Ct. App. 2001). It is imposed by statute, Tenn. Code Ann. § 47-14-121, “ on judgments.” Tenn. Code Ann. § 47-14-12 2 (2001) p

rovides t h at such “[i]nte

rest shall be computed on every judgment . . . . (Emphasi s add ed). On ce the amount of the judgment has been established, it bea rs interest at the statutory rate of 10% “except as may be otherwise provided or permitted by statute.” Tenn. Code Ann. § 47-14-121. If the e xception do es not app ly, the statut e makes t he add-on of 10% in

terest ma nd at or y; a court i s without a uthority to relieve a debtor of its statutorily-manda ted postjudgment interest obligation. Inman v. Inman , 840 S.W.2d 9 27, 931 (Tenn. Ct. Ap p. 1992); Bedwell v. Bedwell , 774 S.W.2d 953, 965 (Tenn. Ct. App. 1989). As the Goff opinion holds, postjudgment interest is “in addition to the limits of coverage.” Goff , 1994 WL 585771, at *2.4 We recogni ze that the Goff Court st ated th at the “ stat utes regulati ng interes t .

. . impose li abil it [y] in a ddit ion to the limits of coverag e.” (Emphasis added). Ho wever, this language must be read in the context of the fact s in Goff

. See Na tional Life & Accide nt Ins. Co. v. Eddings , 188 Tenn. 51 2, 523, 221 S .W.2d 695, 699 (1949) (“It is a max im not to be disreg arde d that ge neral e xpre ssions, in e very o pinio n are to be taken in co nnection with the case in wh ich those expressions are used.” (quoting Co hen s v. Virg inia , 19 U.S. (6 Wheat. ) 264, 399, 5 L. Ed . 257 , 290 . (182 1))). W e limit the ho lding in Goff

perta ining to inte rest to the subje ct of po stjudg men t interest. -7- Prej udgment

interest is very differe nt. Rather

than being a mandatory obligat ion, its imposition is clearly subject to the sound discretion of the trial court or jury, as the ca se may be. See Tenn. Code Ann. § 47-14-123 (“ may be awarded . . . in accordanc e with the principles of equity” ) (emphas is added). See also Myint v. All state Ins. Co ., 970 S.W.2d 920 , 92 7 (T enn . 19 98) . In addition, and of g

reat significance in thiscase, prejudgment interest is defined as“an element of, or in the nature of, damages .” Tenn. Code Ann. § 47-14-123 (emphas is added) . In our opinion, prejudgment

interest is nothing

more tha n an elem ent of da mages c harge able ag ainst a defendant , in this case the unins ured moto rist. As a

n “eleme nt of . . . da

mages, ” prejud

gment in terest is necessa rily a calculation that

is made in arriving at the amo unt of the judgmen t. As prev

iously noted, postjudgment interest comes into play only after the

judgment has already

been established.
Tenn. Code Ann. § 47-14-1 21 and the cases, s uch as Goff

, 4 interpre ting it are not authority for the policyholder’sargume nt that pre judgmen t interes t can be a

dded toa judgment against a UM carrier even t hough to do so is to enl arge the UM carr ier’s liabi lity beyond the li mit o f UM co verage in th e p ol ic y. B.
The policyholde

r next argues that the

concep t of “d amages” allud ed to i n the U M cove rage does not include prejudgment interest. Thus, so the argument g oes, there is no violation of t he policy’s terms by

adding prejudgment interest to the maximum limit of “damages.” Contrary to the policyholder’s

assertion, there is no ambiguity in the policy pertaining

to the issue of prejudgment interest. The UM coverage extends to “ all damages.” (Emphasis added). As we ha ve pr ev io us ly n ot ed , p re ju dg me nt in te re st , b y t he l anguage of the applica ble statute, is “an element of, or in the nature o f, damag es.” Tenn. Code Ann. § 47-14-123. I n the instant case, the UM carrier contracted to pay “all damages.” Prejudgment intere st is an element of da ma ges. Therefore, prejudgment interest is covered by the language of the policy pertaining to that which can be recovered under the UM cove rage. We reject t

he poli c yholder’s ar

gument that the language “all damages” does not include prejudgment

interest. We also reject the policy holder’s argument that the refer ence to prejudgment interest in the damages section of the liability feature of the policy in some way means tha t prejudgment

interest is not a part of “all damages” unde r the UM cover

age. U nder the liability featureof the policy, pre

judgment interest is a part of the co ve re d d am ag es be ca us e t he po li cy s ays it is. Under

the UM co verag e, it is a

part of the covere d damag es beca use “all damage s” meansjust that, all damages, and, by

statute, p rejudgment inter

est is an ele ment of the

injured p arty ’s damag es.5 Ten n. Cod e Ann. § 5 6-7-105 (a) provid es as follows:
The insu rance companie s of t his s tate , and forei gn ins urance companies and ot her persons or corporati ons doing an insu rance or f ideli ty bondi ng busi ness i n thi s st ate, in all cases when a loss occu rs and they refuse to pa y the loss w ithin sixty (60 ) days afte r a demand has been made by the hol der of the policyor fi delit y bond on which the los s occu rred, shal l be liable to pay the hold er of the polic y or fide lity bond , in addition to t

he l oss a nd in ter est

the reon, a sum n ot exceeding twenty- five percent (2 5%) on the liabil ity f or the loss; provided, that it is made to appear to the cour t or jury try ing the case that t he refusal to pay the loss was not i n good fait h, and t hat such fai lur e to pa y inflicte d additi onal expens e, los s, or i njury incl uding at torney fees upon the hol der of the policy or f

idelit y bond; and provided fu rther , th at suc h additi onal liability, within the limit pres cribe d, shall, in t he di scre ti on of

the court or jury trying the case, b e me asure d by the add itional ex pen se, loss, and injury includin g at torn ey f

ees t hus e ntai led. -8-

C.
The policyholder ar

gues that the trial court’s judg ment is at odds with a public policy underlying

the prejudgment interest statute. She contends that the statut e embodies a policy encouraging the prompt settleme nt of cla ims with mer

it. She ar

gues tha t if the low er cour

t’ s judgment is allowe d to stand , it will, in e ffect, deprive

an insura nce comp any

of any incentiv e to settle a meritorious UM claim objectively worth more than th e l im it of co ve ra ge un de r t he po li cy. We disagree.
In general terms, an insurance company has a

n incentiv e to settle

a UM claim with meri

t in order to elimina

te the possibility of a damag e award that includes prejudgment intere st. When the value of a UM claim arguably exceeds the UM limit of c overage , the insurance company still has motivation to settle f

or a numbe

r of rea sons, not th

e least of which is fear of the imposition of a bad faith penalty under Tenn. Code Ann. § 56-7-105 (2000). 5 In any event, we hold that the conclusion reached by the trial court with re spect to prejudgment inter

est does not violate

an estab lished pub lic policy of this state.
D.
The policyholder cites a

number of cases from other jurisdictions . In our j udgmen t these cases are not authority

for the positions asserted by the policyholder in this case.6 The Connecticut stat ute provi des, i n perti nent par t, as foll ows : (a) After commencement of any civi l action based upon contract or for the r ecovery

of money on ly , the pl aint

if f may befor e tr ial fi le wi th t he cl erk of

the court a writ

ten “off er of jud gme nt” signed by him or his atto rney, direc ted to the de fenda nt or his attorne y, offering to settle t he claim underlyi ng the action a nd to stipul ate to a judg men t for a sum certain

. . . . * * * (b) After tri al the court shall examine the rec ord to de termin e whe ther the p laintiff made an “of

fer of judg me nt” which the defendant failed t o accept. If the court ascertains from the reco rd that the plaintiff has rec overed an amoun t equ al t o or greate r than t

he sum cert ain st ated in hi s “of fer of judgment”, the co urt shall ad d to the amount so recovered twelve per cent annual int erest on said amount

computed

. . . . from the date th e com plaint in the civil actio n was filed with the co urt if th e “off er of jud gme nt” was fil ed not later than ei ghteen months from the fil ing of such com plaint. If s uch off

er was f iled l ater t

han eig hteen months from the date of fil ing of the com plaint, th e in ter est shal l be c omputed from t he dat e th e “of

fer of judg men t” was filed

. . . . Conn. Gen. Stat. Ann. § 52-192a (W est, WEST LAW 1991).

7 This case a lso i nvolves a tort clai m under Texas law

.

-9- In Cox v. Peerless Ins. Co. , 774 F. Supp. 83 (D. Conn. 1991) , a fede ral cou rt, ap plying a Connecticut

statute, 6 imposed pr

ejudgme nt intere st, noting that “[a]n award of prejudgment inter

est arises from a defense attorney ’s strategic decis ion to reject an off er of se ttlement, and proc eed to trial.” Id . at 86. Under the Connecticut statute, however, a court is required to impose interest when the plain tiff rec overs “a

n amount equal toor greater than the s um certa

in stated in [the plain

tiff’s] ‘off erof ju dgment.’” Tennessee does not have a similar statute. We do not find the Cox case persuasive on the facts before us. Three other cases cited by the policy holder, Sotelo v. Washington Mut. Ins. Co. , 734 A.2d 421 (Pa. Super. Ct. 1999), Vasque z v. LeMa rs Mut. Ins. Co. , 477 N.W.2d 404 (Iowa 1991), and Potomac Ins. C o. v. Howar

d , 813 S.W.2d 557 (Tex. App. 199 1), 7 in volve direct actions against insurance companies for bre ach of contract. None of these cases are implicated by t he fact s now bef

ore us. VI.
Th e judgmen

t of the trial court is affirmed. This matter is remanded to the trial cour t for enforcement

of the judgment below and for collection of costs ass essed in t

he trial c ourt, all pursuant to applicable law. Costs on appeal are taxed to Teresa Malone.

_______________________________ CHARLES D. SUSANO, JR., JUDGE