Opinion ID: 2633929
Heading Depth: 2
Heading Rank: 2

Heading: Prejudgment Interest Is Subject to Policy Limits in Personal Injury Cases

Text: We hold that the court of appeals erred in its application of section 5-12-102, which governs the award of prejudgment interest in non-personal-injury cases only. See Farmers Reservoir & Irrigation Co. v. City of Golden, 113 P.3d 119, 133 (Colo.2005). By contrast, section 13-21-101, C.R.S. (2007), provides for the award of prejudgment interest in personal injury cases. [7] By treating this case like a breach of contract case subject to section 5-12-102, the court of appeals circumvented Colorado caselaw dictating that all damages arising from personal injuries, including prejudgment interest, are subject to relevant limits on damages in a defendant's insurance policy. See, e.g., Allstate Ins. Co. v. Allen, 797 P.2d 46, 48 (Colo.1990); Allstate Ins. Co. v. Starke, 797 P.2d 14, 18-19 (Colo.1990). Prejudgment interest in a personal injury case is an element of compensatory damages, awarded to compensate the plaintiff for the time value of the award eventually obtained against the tortfeasor. Starke, 797 P.2d at 19. As an element of compensatory damages, prejudgment interest is subject to relevant coverage limits in the defendant's insurance policy. Id. For example, in Starke, prejudgment interest was awarded as an element of compensatory damages in a wrongful death suit. Id. at 21. We held that the defendant's liability insurer was obligated to pay the interest, but only to the extent of the defendant's coverage for damages arising from personal injury. Id. By contrast, in a breach of contract action against an insurer, an award of prejudgment interest would not fall within the liability damage clause of the insured's policy. The policy contractually limits the insurer's obligation to shield the insured from liability to third persons, but the insurer cannot use that contract to shield itself from liability for its own wrongdoing. Peterman v. State Farm Mutual Auto. Insurance Co., 8 P.3d 549, is an illustrative case. There, the insureds brought a breach of contract and bad faith action against the insurer after it refused to pay out an uninsured motorist policy. Id. at 550. After the insureds obtained a judgment against the insurer, the court of appeals appropriately awarded prejudgment interest in excess of policy limits. Id. at 552. The court held that the prejudgment interest damages arose not from the insured's car accident, but from the insurer's breach of an obligation to pay. The terms of the uninsured motorist policy could not limit the insurer's liability for its own wrongdoing. Id. The court of appeals treated the case at hand as one involving a breach of contract, subject to Peterman. However, as stated above, the defendant-insureds dismissed all breach of contract claims against Old Republic several years ago. The Rosses, who are not in privity of contract with Old Republic, initiated the proceedings at hand, and the Rosses' intention was to recover damages arising from the airplane accident. In this context, a claim to prejudgment interest, allegedly accruing on the stipulated judgment against the defendant-insureds, is a claim for additional compensatory damages. We reiterate our holding in Allen and Starke that when the insurer is merely indemnifying a judgment against the insured, the insurer cannot be compelled to pay more than policy limits. Allen, 797 P.2d at 48; Starke, 797 P.2d at 18-19. Therefore, we hold that Old Republic's obligation was discharged when it paid policy limits.