Opinion ID: 457688
Heading Depth: 2
Heading Rank: 2

Heading: Calculation of Interest

Text: 12 Under Massachusetts law, interest to be added to a judgment rendered in a contract action is governed by Mass.Gen.Laws ch. 231, Sec. 6C, which provides: 13 In all actions based on contractual obligations, upon a verdict, finding or order for judgment for pecuniary damages, interest shall be added by the clerk of the court to the amount of damages, at the contract rate, if established, or at the rate of twelve per cent per annum from the date of the breach or demand. If the date of the breach or demand is not established, interest shall be added by the clerk of the court, at such contractual rate, or at the rate of twelve per cent per annum from the date of the commencement of the action. (Emphasis added.) 14 In this case, the district court, 592 F.Supp. 659, assessed interest not from the date of breach, as Liberty claims should have been done, but rather from the various dates on which Liberty spent its money in making payments to Goodwin, Procter & Hoar. The court explained that despite the literal wording of section 6C, to assess interest from the date of breach (which the court vaguely defined as the day when Continental announced that it would not defend Robertson) would defeat the statutory purpose of making Liberty whole for the [loss of the] use of its own funds because Liberty had not actually incurred any legal expenses until the beginning of 1978, years after the initial breach occurred. In other words, the district court assessed interest from the dates of Liberty's payments for Robertson's legal services in order to keep Liberty from obtaining a tremendous windfall under what the court believed to be a too literal application of section 6C. We review the district court's determinations both for any clearly erroneous findings of fact and for any errors of law. 15 Initially, we note that the date of breach has not been clearly established. The state declaratory judgment proceedings established only that there was a breach of the duty to defend, Continental Casualty Co. v. Gilbane Building Co., 391 Mass. at 156, 461 N.E.2d at 217, not when that breach occurred. Similarly, neither the court nor the jury in this proceeding made a formal finding as to the date of breach. Liberty's choice of June 8, 1973--when Continental's agent first responded that it did not appear that a contract action by John Hancock would fall within the policies' coverage--may be a plausible choice, but it is by no means the only one. A good argument can be made, for example, that there could have been no breach of the duty to defend a suit until a suit was actually filed and Continental formally refused to defend Robertson, i.e., on October 10, 1975, in the John Hancock case and on January 26, 1976, in the Mama Leone case. See, e.g., 14 G. Couch, Cyclopedia on Insurance Sec. 51:43, at 457 (The mere fact a claim has been asserted against the insured does not impose any duty of 'defense' upon the insurer, since until an action has been brought against the insured there is by definition no claim against which the insurer is required to defend.) Without a formal finding as to a precise date of breach, 5 Liberty's claim for interest from June 8, 1973, is seriously, if not completely, undermined. 16 In addition, it is worth noting that the absence of a finding as to the date of breach is in significant part attributable to Liberty's presentation of its case. Throughout most of the proceedings below Liberty was seeking, in the words of its original complaint, interest calculated from the dates of payment by Liberty of Robertson's defense costs and legal fees.... Indeed, it was not until a few days before trial, when Liberty filed its requests to charge, that it gave any indication that it might seek interest from the date of breach. 6 Moreover, Liberty did not move to amend the prayer for relief in its complaint to reflect its request for additional interest until more than three weeks after trial. Although the motion was granted, we note that what Liberty clearly established at trial was not the date of breach but rather the various dates of payment of fees to Goodwin, Procter & Hoar. 17 This prompts us to look to the dates of payment to determine whether, as Continental contends, they can be considered dates of demand within the meaning of section 6C. 7 In Sargeant v. Commissioner of Public Welfare, 383 Mass. 808, 822, 423 N.E.2d 755, 764 (1981), the Massachusetts Supreme Judicial Court held that the date of demand for payment was a suitable starting point for the accrual of interest. Although the situation in this case differs from that found in Sargeant, similar considerations apply. The duty to defend can and, in this case, did extend over a long period of time. As the testimony of both one attorney from Goodwin, Procter & Hoar and one representative of Liberty reveals, the firm and Liberty repeatedly told Continental over the years that it could fulfill its obligations by agreeing to defend Robertson for the remainder of the proceedings and reimbursing Robertson and Liberty for the fees already incurred. Thus, what we find in this case is a series of demands, and refusals, made over the lifetime of the two liability suits. 18 Viewed in this light, measuring interest from the several dates upon which Liberty paid fees for services that Continental was refusing to provide makes sense both in terms of the language of section 6C and in terms of the type of contract that is involved here. In terms of section 6C, these dates are in effect dates of demand for services or, perhaps more precisely, for payment for such services. As such, we conclude that it is permissible to view them as dates of demand within the meaning of section 6C. In terms of general insurance law, it is these dates that mark the beginning of the insured's loss of the use of its own funds. As one treatise on insurance law puts the matter, [w]here interest is added to the amounts recovered it is calculated only from the time expenditures were actually made. 7C J. Appleman, Insurance Law and Practice Sec. 4691, at 252 (1979). 19 We find no conflict, therefore, between the dictates of section 6C and the general rule of awarding interest for the insured's loss of the use of its funds. The Massachusetts Supreme Judicial Court has ruled that section 6C is designed to compensate a damaged party for the loss of use or unlawful detention of money.... Perkins School for the Blind v. Rate Setting Commission, 383 Mass. 825, 835, 423 N.E.2d 765, 772 (1981); accord Mirageas v. Massachusetts Bay Transportation Authority, 391 Mass. 815, 821, 465 N.E.2d 232, 236 (1984) ([T]he interest afforded by [section 6B, which governs tort actions,] is not a penalty. It is awarded to compensate for the delay in the plaintiff's obtaining his money.). Were interest on the full amount of the verdict to be assessed from June 8, 1973, or even from the end of 1975, the windfall accorded to Liberty would amount to hundreds of thousands of dollars. Such a result would defeat the purpose of section 6C. 20 Accordingly, although the district court's memorandum decision was based upon only part of the above reasoning, we conclude that it should be affirmed. The absence of a formal finding as to a single date of breach, the nature of the relief sought by Liberty throughout most of these proceedings, the clear determination of dates that are, in essence, dates of demand, and the stated purpose of section 6C all argue for the assessment of interest from the dates of payment. 8 21