No. 84-305 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

SAFECO INSURANCE COMPANY, 

Plaintiff and Respondent, 

LOVELY AGENCY and DONALD E. 

McHENRY, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Joseph B. Gary, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Berg, Coil, Stokes & Tollefsen, P.C.; Michael Coil 

argued for McHenry, Bozeman, Montana 

Morrow, Sedivy & Bennett; Douglas Harris arqued for 

Lovely agency, Bozeman, Montana 

Kirwan & Barret; Peter M. Kirwan, (McHenry), Bozeman, 

Montana 

For Respondents: 

Landoe, Brown Law Firm; Allen M. McGarvey argued for 

Safeco Ins., Bozeman, Montana 

- 

Submitted: January 22, 1985 

Decided: April 11, 1985 

APR ' i985 

Filed: 

Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

Defendants Lovely Agency and Donald McHenry appeal from 

the judgment of the Gallatin County District Court, awarding 

Sa.feco Insl~rance Company (Safeco) pre judgmen.t interest, and 

from the court's order requiring a supersedeas bond in an 

amount covering the judgment and prejudgment interest. We 

affirm. 

The issues are: 

1. Is the plaintiff entitled to prejudgment interest? 

2. Did the District Court abuse its discretion by 

requiring a supersedeas bond in an amount large enough to 

cover the entire judgment including prejudgment interest? 

Safeco settled a claim against its insured, Leonard 

Doran, by paying to the estate of Donald Sorum the full 

amount of the policy limits, S300,OOO. Before settling the 

Sorum claim, investigation by Safeco revealed 

misrepresentations on the insurance applications and a 

forgery of Doran's signature. Safeco discovered that Donald 

McHenry, the agent who sold the insurance to Doran, was 

responsible for the forgery and the misrepresentations. 

After settling Sorum's wrongful death claim against Doran, 

Safeco sought damages from McHen.ry and the Lovely Agency for 

wrongfully issuing the insurance policy. 

The Gallatin County District Court entered judgment 

against Safeco and for the agents, and Safeco appealed. This 

Court reversed the District Court's judgment, holding that 

Safeco was entitled to judgment as a matter of law on the 

issue of liability and remanding for tria.1 on the issue of 

damages. Safeco Insurance Co. v. Lovely Agency (Mont. 1982), 

652 P.2d 1160, 39 St.Rep. 1861. In so holding, this Court 

ruled that as a matter of law Safeco was not - in pari delicto 

with McHenry and Lovely Agency. This Court also ruled that 
Safeco did not ratify the unauthorized acts of McHenry and 

Lovely Agency. Safeco, 652 P.2d at 1162-63, 39 St.Rep at 

1864-65. This Court remanded to the District Court with 

directions to enter judgment for Safeco on the issue of 

liability and to grant Safeco a new trial on the issue of 

damages. 

At the trial on damages, defendants attempted to reduce 

Safeco's recovery below the $300,000 sum paid on the Sorum 

wrongful death claim. Defendants characterized their defense 

as a "mitigation defense." In substance, they argued that 

Safeco could have discovered the coverage problems and 

cancelled coverage prior to the loss, that Safeco should have 

discovered Doran's prior driving record before issuing the 

insurance policy, that Safeco's alleged delay in settling 

the claim increased the size of the settlement, that 

settlement by lump sum rather than structured settlement 

increased the amount paid, and that defendants had no 

opportunity to participate in settlement negotiations. 

Based on the evidence presented at trial, the District 

Court entered findings of fact and conclusions of law. The 

District Court found that Sorum's estate sought damages of 

approximately $4,250,000 and that the amount of $750,000 

alone was estimated as wages naturally earned in the 

deceased's normal remaining life span. The Court found that 

Safeco advised McHenry and Lovely Agency that Sorum's estate 

was demanding the policy limit of $300,000 and was demanding 

more from Doran individually, and that Safeco felt compelled 

to settle for that amount if defendants failed to respond 

within 5 days. The court found that Safeco had offered to 

settle the case for $270,000, but that offer was rejected. 

The court found that Safeco did not settle the case 

sooner because it went to court for a determination regarding 
the fraudulent statements in the insurance application and 

that the Sorum estate did not request settlement earlier 

because of its desire to first settle separate claims with 

Doran and Workers' compensation. The court found that after 

Safeco learned of the forgery on the application it acted 

with reasonable diligence in settling the claim of Sorum's 

estate. The court found that the Sorum claim was reasonably 

calculated to substantially exceed the policy limits of 

$300,000 and that given the facts known by Safeco it acted 

reasonably in paying the settlement. The court further found 

that defendants McHenry and Lovely Agency had attempted 

improperly to raise in the damages trial matters bearing on 

the already-decided issue of liability. The court found that 

$300,000 was a reasonable settlement amount. Finally, the 

court concluded that Safeco was entitled to recover $300,000 

plus interest from September 18, 1980, the date of the 

settlement. Our review of the transcript indicates that the 

findings and conclusions of the District Court are supported 

by substantial credible evidence. 

Judgment was entered on March 5, 1984. Thereafter, 

motions were made to suspend the supersedeas bond 

requirement. After consideration of the motions, the entire 

case file, and companion cases arising from the same 

incident, the District Court denied the motion to suspend the 

supersedeas bond and ordered defendants to post a supersedeas 

bond within 15 days. 

In explanation of its ruling, the court issued a 

memorandum addressing defendants' arguments on the 

supersedeas bond issue. The court rejected defendants' 

argument that money deposited by defendants' malpractice 

carrier in two companion cases was avaiiable to satisfy this 

judgment should Safeco prevail on appeal. 
Is the plaintiff entitled to prejudgment interest? 

Appellants argue that the District Court erred in 

awarding Safeco prejudgment interest from the date Safeco 

paid $300,000 in settlement of the Sorum claim. Appellants 

contend that the criteria for an award of prejudgment 

interest are not met in this case, and because the initial 

jud.gment was reversed on appeal, interest is allowable only 

from the date the subsequent judgment was entered. We 

disagree. 

The criteria for an award of prejudgment interest are 

clear in Montana. Section 27-1-211, MCA provides: 

"Every person who is entitled to recover damages 

certain or cap3ble of being made certain by 

calculation and the wight to recover which is 

y~ested in him upon a particular day is entitled 

also to recover interest thereon from that day It ... 

The three criteria which must he satisfied for an award of 

prejudgment interest are: (1) an underlying monetary 

obligation; (2) the amount of recovery must be certain or 

capable of being made certain by calculation and (3) the 

right to recover must vest on a particular day. Agrilease, 

Inc. v. Gray (1977), 173 Mont. 151, 160, 566 ~.2d 1114, 

Appellants argue that this case is a tort claim based on 

negligence, misrepresentation and breach of duty, and that 

prejudgment interest is disallowed in such cases as a matter 

of law. Appellants emphasize this Court's language in 

Carriger v. Ba-llenger (Mont. 1981), 628 P.2d 11.06, 1110, 38 

St.Rep. 864, 868, where the opinion suggests that an element 

of the prejudgment interest test is tha-t one be entitled to 

recover damages for the unpaid balance of a contract or an 

account. Appellants contend that Safeco not entitled 
prejudgment interest because their action is not for the 

unpaid balance of a contract or an account. 

A careful reading of Carriger reveals that prejudgment 

interest was disallowed in that case because the damages were 

not "a sum certain," not because the action was something 

other than for recovery on a contract or an account. In 

fact, Carriger was an action for breach of contract. In 

holding the prejudgment interest statute, section 27-1-211, 

XCA inapplicable, we emphasized that "the amount of the 

damages due upon breach was not clearly ascertainable. . . ." 

628 P.2d at 1110, 38 St-Rep. at 868. 

Appell-znts do not cite, nor does our research disclose, 

any Montana cases denying prejudgment interest solely on 

grounds that the underlying action could be labeled a tort 

claim. Instead, this Court has focused primarily upon 

whether or not the amount was certain or capable of being 

made certain by calculation. In Price Bulding Service, Inc. 

v. Holms (Mont. 1985), 693 P.2d. 553, 42 St.Rep. 84, this 

Court rejected the argument that prejudgment interest can be 

awarded only where there is an account stated or where there 

is a fixed contract price. We stated that the statute, 

§ 27-1-211, MCA, "merely requires that the damages he 

certain, or capable of ascertainment by calculation." 693 

P.2d at 559, 42 St.Rep. at 90. 

Appellants argue that Safeco is not entitled to 

prejudgment interest because its damages were not certain or 

capable of being made certain by calculation as of the date 

Safeco paid $300,000 in settlement of the Sorum claim. 

Appellants contend the amount of damages is not clearly 

ascertainable where there is a dispute as to the a-mount and 

that no interest can run until a fixed amount has been 

arrived at by agreement, appraisal or judgment. 
We concl-ude that Safeco's damages were certain or 

capable of being made certain by calculation as of September 

1.8, 1980, when it paid $300,000 to settle the Sorum claim. 

The Safeco policy limit was $300,000 and there was no serious 

dispute whether the Sorum claim was likely to substantial-ly 

exceed that amount. The District Court noted that Sorum's 

estate sought damages of approxi-mately $4,250,000 and that 

lost wages alone were approximately $750,000. The District 

Court rejected appellants' attempts to reduce the $300,000 

damage figure because their allegations concerned liability 

rather than damages. The amount of Safeco's damages was 

certain as of the date it paid the Sorum claim. 

The fact that a claim is disputed does not make it 

uncertain and therefore incapable of supporting an award of 

prejudgment interest. Price Building Service, supra, 693 

P.2d at 559, 42 St.Rep. at 90-91; North Pacific Plywood, Inc. 

v. Access Road Builders, Inc. (Wa.App. 1981), 628 P.2d 482, 

487. Here, appellants' "mitigation" defense did not reduce 

the certainty of the amount of Safeco's damages, which was 

set by Safeco's policy limit and the payment of the policy 

limit in settlement of the Sorum claim. 

Appellants also contend that the right to recover here 

did not vest on the particular day that Safeco paid the 

$300,000 settlement to the Sorum estate. Appellants' 

argument on this issue is without merit. In substance, 

appellants argue that the right to recover cannot vest until 

it is reduced to judgment. This argument leads to the absurd 

conclusion that there can never be an award of prejudgment 

interest because the right to recover can never vest before 

judgment. Here, the right to recover for the settlement 

vested on the day that Safeco paid the settlement. 
Defendants argue in substance that this Court's reversal 

of the District Court in the first appeal of this case alters 

the rule regarding recovery of prejudgment interest. We 

disagree. The cases relied upon by a.ppellants in this 

respect do not support their contention. These cases hold 

that where the appellate court reduces the anount of recovery 

on appeal, interest on the new award runs only from the date 

of the appellate decision. See Annotation, 4 A.L.R.3d 1221, 

1222 n.2. Those cases are distinguishable because this 

Court's previous opinion did not address in any manner the 

amount of damages recoverable by Safeco. The rationale of 

those cases seems to be that a party should not be entitled 

to prejudgment interest on an amount it was never entitled to 

receive. Here, the amount of Safeco's damages was clear from 

the date the settlement was paid. 

We hold that Safeco was entitled to prejudgment interest 

and the District Court did not err in awarding prejudgment 

interest from the date Safeco paid $300,000 in settlement of 

the Sorum claim. 

Did. the District Court abuse its discretion by requiring 

a supersedeas bond in an amount large enough to cover the 

entire judgment including prejudgment interest? 

Appellants argue that the District Court abused its 

discretion by requiring a supersedeas bond in an amount large 

enough to cover prejudgment interest. This argument is 

without merit in light of our conclusion that the District 

Court was correct in a.warding prejudgment interest. 

Rule 7(a), M.R.App.Civ.P. provides that a supersedeas 

bond shall be conditioned for satisfaction of the judgment in 

full together with interest, among other items. The purpose 

of a supersedeas bond as a condition for staying enforcement 
and execution on a judgment is to secure the rights of the 

judgment creditor during the appeal process. Poulsen v. 

Treasure State Industries, Inc. (1979) , 183 Mont. 439, 442, 

600 P.2d 206, 208. In accordance with these rules, the 

District Court required a supersedeas bond in an amount 

sufficient to cover the judgment plus prejudgment interest. 

Appellants nonetheless argue that a bond in a lesser 

amount would have protected Safeco during the appeal because 

$250,000, deposited in another court in companion cases, was 

also available to protect the interests of Safeco during 

appeal. Appellants further contend that the District Court 

abused its discretion by requiring bond in an amount which, 

together with the $250,000 on deposit in the companion cases, 

exceeded the limit of their insurer's coverage. They argue 

the District Court was aware that the insurer had already 

deposited $250,000 in the companion cases and that requiring 

them to post a $420,000 supersedeas bond in this case would 

force them to pay sums in excess of the policy limits. 

The District Court carefully addressed whether the 

deposit of $250,000 in the companion cases should reduce the 

amount of the supersedeas bond in this case. The court 

concluded those funds were not available to satisfy this 

judgment and did not protect the interests of Safeco on 

appeal. The District Court did not act arbitrarily without 

employment of conscientious judgment or exceed the bounds of 

reason in requiring a supersedeas bond in the amount it did. 

We hold the District Court did not abuse its discretion 

by requiring a supersedeas bond in an amount large enough to 

cover the entire judgment including prejudgment interest. 

The judgment is affirmed. 
We concur: ,./7