Opinion ID: 1925572
Heading Depth: 1
Heading Rank: 5

Heading: Proper Prejudgment Interest Formula in UM Cases

Text: At what point does an injured party's right to prejudgment interest accrue in respect to a claim against the insured's UM insurer? One of the amici, Defense Counsel of Rhode Island, contends that a UM carrier has no knowledge that a claim even exists until such time that the insured's damages are adjudged. Similarly, in its amicus curiae brief, the Property Casualty Insurers Association of America, while recognizing a melding of contract and tort principles when UM benefits are at issue, argues that an injured insured's cause of action against the tortfeasor and the UM carrier are separate and distinct, and are often governed by separate rules regarding the imposition of prejudgment interest. The Rhode Island Trial Lawyers Association (Trial Lawyers) in its amicus brief to this Court, recognizes the competing policy concerns of the insured and his or her UM carrier and argues in favor of a uniform and consistent rule that removes the uncertainty surrounding interest in UM arbitration cases. The Trial Lawyers urge us to apply existing law, as set forth in Trenn, Tanasio and Tavarez II, and hold that the coverage that a UM carrier contracts to provide includes prejudgment interest from the date of the injury. The Trial Lawyers contend that this rule best approximates the compensation due an injured plaintiff had the tortfeasor been adequately insured. We agree with this reasoning because we are satisfied that, although UM cases may present a melding of contract and tort principles, the contractual duties of the UM carrier are set forth in the insurance policy and begin at the date of the injury. Rhode Island's uninsured motorist statute, G.L.1956 § 27-7-2.1(a), requires that a UM policy provide for the protection of persons insured under the policy who are legally entitled to recover damages from owners or operators of uninsured motor vehicles   . The insurance policy in effect in this case provided that Metropolitan would pay damages for bodily injuries arising out of the ownership, maintenance, or use of an uninsured vehicle that the insured is  legally entitled to collect from the owner or driver of an uninsured highway vehicle. (Emphasis added.) In this state, an injured plaintiff who recovers damages in any civil action, is legally entitled to collect, both pecuniary damages, and interest at the rate of twelve percent (12%) per annum thereon from the date the cause of action accrued[.] Section 9-21-10(a). [5] Thus, we are of the opinion that an insured is legally entitled to collect prejudgment interest from the date the cause of action accrues, which we hold is the date of the injury. We therefore deem the fairest and best way to calculate prejudgment interest in cases such as this, Barry, 857 A.2d at 762, to be that method first enunciated in Tanasio, 703 A.2d at 1104, and reaffirmed in Trenn, 706 A.2d at 1312. Accordingly, in all pending and future UM arbitration cases, prejudgment interest shall accrue on the total damages fixed by the arbitrator(s), computed from the date of injury to the date of any partial payment; at which point the partial payment shall be deducted from the first calculation and prejudgment interest shall accrue on the reduced amount from the date of the partial payment to the date that the judgment is satisfied. Under this method, any total damages ascertained in a UM arbitration case will accrue prejudgment interest from the date of the injury until the date of any partial payment; and, after that calculation is made by the arbitrator(s), prejudgment interest shall continue to accrue on the balance until the judgment is paid. We are satisfied that this formula, although a departure from Tavarez II as followed in Geremia, best harmonizes the policy goals of (1) promoting swift settlement and (2) compensating the insured for any delay in benefits that the insured, who purchased the UM policy, is legally entitled to collect. Although we acknowledge the juxtaposition of tort principles and contract law in the framework of uninsured motorist insurance, we are satisfied that because, as Metropolitan argues, a UM carrier is liable in contract to pay UM benefits pursuant to the terms of its contract, a mandatory rule that the prejudgment interest clock starts at the time of the incident, is fair to both sides. Such a rule protects the injured insured by encouraging early settlement or providing for prejudgment interest in the event of delay, while at the same time recognizing the contractual rights of the UM carrier. Under the terms of the insurance policy, the UM carrier may decide to negotiate with its insured and make an offer of settlement early in the process. This option is particularly relevant when the tortfeasor is uninsured, or when, as here, the tortfeasor's insurer offers the policy limits, or when, because of the extent of the injuries, it is obvious the tortfeasor's policy will provide inadequate compensation. The UM carrier has implicitly agreed in the contract, which it drafted, to take into account these possibilities. Before this Court, Metropolitan has argued that interest should not accrue until the claim is denied because, it contends, the claim does not arise on the date of the accident. We respectfully disagree. Although at the time of the injury the UM carrier is not required to pay the claim and has every right to investigate the circumstances of the incident giving rise to damages, its contractual obligation to pay the claim is controlled by the terms of the policy. The extent of plaintiff's damages may not be ascertained or indeed ascertainable on the date of the accident; but that does not alter the obligation of the insurer to pay all that the insured is  legally entitled to collect from the owner or driver of an uninsured [or underinsured] highway vehicle. In this state, the injured insured legally is entitled to collect prejudgment interest from the date the cause of action accrues. Section 9-21-10. In Skaling v. Aetna Insurance Co., 799 A.2d 997 (R.I.2002), this Court held that insurers doing business in Rhode Island have an implied obligation to promptly and fully respond to their insured and this responsibility also includes a duty to investigate a claim and to subject that claim to appropriate review. Id. at 1010. This assessment must occur before the carrier refuses to pay a claim. Id. Insurers must deal with their insureds in good faith and by fair dealing and must have a lawful basis to deny the claim or be subject to tort liability for bad faith. See id. at 1011. Further, the insurer is obliged to engage in settlement discussions in an effort to relieve the insured from the burden and expense of litigation. Id. In light of these well-established principles, we have no hesitation declaring that prejudgment interest in the UM context begins to accrue on the date of the injury. By its terms, the policy in effect in this case anticipates that the injured party and Metropolitan will reach an agreement about whether the claimant is legally entitled to collect damages and about the amount of damages. Failing such an agreement, the dispute may be resolved by arbitration upon the written consent of both parties. Only if one party declines arbitration is the insured required to file suit against the tortfeasor and Metropolitan  or against Metropolitan in the event the driver is unknown. The policy requires that the insured promptly notify the insurer of the claim. The insurer then has several options: it may elect to settle the claim early-on, or to proceed to arbitration, or to decline coverage, thereby forcing its insured to institute litigation. Consequently, when faced with a claim for UM benefits, the carrier is free to set its own course and may not seek a safe harbor against prejudgment interest by declining to settle a legitimate claim or requiring its insured to first proceed against the tortfeasor. Moreover, our review of the policy in this case reveals that the insured also has contractual obligations, including the duty to notify Metropolitan as soon as possible of an accident or loss. The insured also must cooperate with the carrier in every effort to investigate the accident or loss, settle any claims and defend the insured. Under the terms of the policy, Metropolitan may require the insured to take appropriate action to preserve [his or her] right to recover damages from any other person responsible for the bodily injury. It also has subrogation rights against other responsible pockets. Accordingly, we are satisfied that under the terms of its contract Metropolitan has extensive protections, including the insured's obligation to provide it with prompt notice and full cooperation in its investigation of the claim. Therefore, in answer to question 2, as set forth in Barry, 857 A.2d at 762, we are of the opinion that a rule requiring that prejudgment interest begins to accrue on the date of injury and continues until the date the UM carrier pays the claim, subject to reductions for any partial payment(s) consistent with our holdings in Trenn and Tanasio, is the fairest and best way to calculate prejudgment interest in UM arbitration claims, and we so order.