Opinion ID: 1671172
Heading Depth: 1
Heading Rank: 2

Heading: Scope of Insurer's Liability for Post-Judgment Interest

Text: Safeway next argues that its joint and several liability for post-judgment interest should not extend to the entire amount of the judgment, $353,000, but should be confined to the interest on $50,000, the amount of its policy limits. In interpreting an insurance policy, we will construe ambiguities against the insurer that drafted the clause in question, but will give effect to the reasonably determined intent of the parties. See Alabama Ins. Guaranty Ass'n v. Magic City Trucking Serv., Inc., 547 So.2d 849, 855-56 (Ala.1989); Employers Ins. Co. of Alabama, Inc. v. Jeff Gin Co., 378 So.2d 693, 695 (Ala.1979); Billups v. Alabama Farm Bureau Mut. Cas. Ins. Co., 352 So.2d 1097, 1102 (Ala.1977). The relevant portion of Safeway's policy provides: SUPPLEMENTARY PAYMENTS In addition to our limit of liability, we will pay on behalf of a covered person: .... 3. Interest accruing after a judgment is entered in any suit we defend. Our duty to pay ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage. (Emphasis added.) If the first sentence of paragraph 3 had stated that Safeway was liable for all interest or interest on the entire judgment, we could easily conclude that it was liable for post-judgment interest on the entire amount of the judgment. Alternatively, if the first sentence had stated that Safeway would pay only the interest accruing on that part of the judgment which does not exceed our limit of liability, a phrase we know Safeway was fully capable of using because it did so in the very next sentence, we could easily conclude that Safeway was liable only for post-judgment interest on an amount equal to its policy limits. Instead, Safeway's supplementary payments clause is ambiguous. It simply does not define the numerical base on which post-judgment interest is to be computed. Thus, the general rule that requires the construction of ambiguous insurance policy language against the insurer militates in favor of requiring payment of post-judgment interest on the entire amount of the judgment. We would not lightly hold, however, that an insurer is liable for post-judgment interest on a potentially unlimited judgment based solely on a general canon of construction without substantial authority reasonably showing that the insurer intended such a result. Some courts have considered it reasonable to require the insurer to pay interest on the entire judgment because it is the insurer, not the insured, who controls the decision to appeal, that is, the decision to incur post-judgment interest. Thus, it might be reasonable to conclude that the insurer intended to pay the interest that it alone determined to incur. See C.T. Drechsler, Annotation, Liability Insurer's Liability for Interest and Costs on Excess of Judgment Over Policy Limit, 76 A.L.R.2d 983, 985 (1961); see, e.g., United Services Auto. Ass'n v. Russom, 241 F.2d 296 (5th Cir.1957). On the other hand, some courts have considered it unreasonable to require the insurer to pay post-judgment interest on the entire judgment because interest represents payment for the use of money, and it is the policyholder, not the insurer, that during the pendency of the appeal has use of the money in excess of the policy limits. Thus, it might be reasonable to conclude that the insurer did not intend to pay for the use of money that it did not enjoy. See Drechsler, Liability for Interest, 76 A.L.R.2d at 986; see, e.g., United States Fidelity & Guaranty Co. v. Hotkins, 8 Misc.2d 296, 170 N.Y.S.2d 441 (Sup.Ct.1957). These conflicting judicial rationales produced a reaction by the insurance industry: `Several court cases have held that an insurer's obligation to pay interest extends only to the part of the judgment for which the insurer is liable. The respective rating committees have agreed that this is contrary to the intent.' B.G. Ramsey, Interest on Judgments Under Liability Insurance Policies, 414 Ins. L.J. 407, 411 (1957) (quoting a directive from the National Bureau of Casualty Underwriters to its members). The National Bureau recommended that the language of standard supplementary payments clauses be changed to make the numerical base on which post-judgment interest should be computed perfectly clear. Id. See Norman E. Risjord, Underwriting Intent, 7 Fed. of Ins. Counsel Q. 41 (1956) (noting that after a divergence of interpretations by courts, a standard clause was developed that made it clear that the intent of the insurers was to pay interest on the entire amount of the judgment). Both commentators and courts have now adopted the rationale that the insurer's control of whether post-judgment interest is incurred requires the insurer to pay such interest on the entire amount of the judgment. For example, an author of a leading insurance treatise states: [S]ince the insurer controls the litigation, on appeal as well as in the trial court, it should bear the burden of all interest which accrues during [the post-judgment period]. This would appear to be the only fair result, inasmuch as the insurer has control of the litigation, and can make its election to appeal irrespective of the insured's desires in the matter. It seems fair to compel the insurer to pay all the interest which accrues pending an appeal, even though the judgment is in excess of the policy limits, for the reason that the insured might desire to pay the excess judgment and thus prevent the running of interest, but the insurer's control of the litigation would prevent him from doing so. John Alan Appleman & Jean Appleman, Insurance Law and Practice § 4894.25 (1981). The significance of control of the litigation is evidenced in Safeway's own policy, which limits its liability for post-judgment interest to that interest incurred in a suit we defend. [5] Since the 1950s, a clear majority of the courts that have addressed the issue have held the insurer liable for interest on the entire judgment. Compare, e.g., Providence Washington Ins. Co. v. Fireman's Fund Ins. Cos., 778 P.2d 200, 203 (Alaska 1989) (holding insurer liable for post-judgment interest on entire judgment amount, not just on policy limits); Southern Farm Bureau Cas. Ins. Co. v. Robinson, 236 Ark. 268, 275-76, 365 S.W.2d 454, 459 (1963) (same); Security Ins. Co. v. Houser, 191 Colo. 189, 552 P.2d 308 (1976) (same); Aetna Cas. & Sur. Co. v. Protective Nat'l Ins. Co. of Omaha, 631 So.2d 305, 309 (Fla.Dist.Ct.App.1993) (same), rev. denied, 641 So.2d 1346 (Fla.1994); Southeast Atl. Cargo Operators, Inc. v. First State Ins. Co., 216 Ga.App. 791, 795, 456 S.E.2d 101, 104 (1995) (same); Hartford Acc. & Indem. Co. v. Aetna Ins. Co., 173 Ill.App.3d 665, 123 Ill.Dec. 312, 527 N.E.2d 950 (1988) (same), aff'd, 132 Ill.2d 79, 138 Ill.Dec. 145, 547 N.E.2d 114 (1989); Farm Bureau Mut. Ins. Co. v. Milne, 424 N.W.2d 422, 424 (Iowa 1988) (same); Glenn v. Fleming, 247 Kan. 296, 309, 799 P.2d 79, 87-88 (1990) (same); McLemore v. Fox, 565 So.2d 1031, 1037-38 (La.App.) (same), cert. denied, 569 So.2d 966 (La.1990); Matich v. Modern Research Corp., 430 Mich. 1, 25-27, 420 N.W.2d 67, 77-78 (1988) (same); Stibal v. Carland, 381 N.W.2d 855, 857-58 (Minn.App.1986) (same); Coventry v. Steve Koren, Inc., 1 Ohio App.2d 385, 205 N.E.2d 18 (same), aff'd, 4 Ohio St.2d 24, 211 N.E.2d 833 (1965); Bossert v. Douglas, 557 P.2d 1164, 1168 (Okla.App.1976) (same); Incollingo v. Ewing, 474 Pa. 527, 537-38, 379 A.2d 79, 84-85 (1977) (same); Western Cas. & Sur. Co. v. Preis, 695 S.W.2d 579 (Tex.App.1985) (same); and McPhee v. American Motorists Ins. Co., 57 Wis.2d 669, 205 N.W.2d 152, 159 (1973) (same), with, e.g., Faulkner v. Smith, 747 S.W.2d 592 (Ky.1988) (holding that insurer's liability for interest was limited to interest on policy limits); Shnarch v. Empire Mut. Ins. Co., 144 A.D.2d 795, 535 N.Y.S.2d 180 (1988) (same); Crook v. State Farm Mut. Auto. Ins. Co., 235 S.C. 452, 112 S.E.2d 241 (1960) (same). [6] The Supreme Court of Colorado stated the majority view as follows: The insurer controls any litigation from which liability might ensue and further controls settlement negotiations. Thus, the accrual of interest may be attributable to the insurer's decision to contest a judgment by appeal. Consequently, it is reasonable to impose the entire expense of accrued interest upon the insurer in view of the company's right to control the conduct of the suit and its power to escape liability for interest through the payment or tendering of its part of the judgment into the court. ... [M]any courts have noted that the insurance industry, itself, has always intended that the clause be interpreted to require payment of interest on the entire judgment, even though it exceeds policy limits. Houser, 191 Colo. at 192, 552 P.2d at 310 (internal quotation marks and citations omitted). Given that the insurer drafted the policy, that it controlled the decision whether to incur post-judgment interest, and that it had the option to avoid such interest by paying its policy limits, we are compelled to conclude that Safeway's ambiguous supplementary payments clause requires that Safeway pay post-judgment interest on the entire amount of the judgment. The judgment of the trial court is affirmed. 1951122AFFIRMED. 1951123AFFIRMED. HOOPER, C.J., and MADDOX, SHORES, HOUSTON, KENNEDY, COOK, and BUTTS, JJ., concur.