Opinion ID: 164354
Heading Depth: 2
Heading Rank: 4

Heading: Safe Tire Claim/Postjudgment Interest

Text: 86 One of MCCC's claims for reimbursement arises from its payments to its insured, Safe Tire Disposal Corporation. ERC argues that MCCC is not entitled to any reimbursement on the Safe Tire claim, because MCCC's loss on the claim does not exceed MCCC's $300,000 retention. The validity of this argument turns on whether postjudgment interest is a loss or a claim expense. We hold, as ERC contends, that such interest is a claim expense. 87 MCCC requested reimbursement for the following amounts with respect to the Safe Tire claim: (1) $208,500 for funds MCCC paid to claimants in the underlying lawsuit; (2) $80,432.53 awarded to Safe Tire to reimburse it for attorney fees incurred in the underlying lawsuit; (3) $53,530 awarded to Safe Tire to reimburse it for attorney fees it incurred in the declaratory judgment action; (4) $15,000 awarded to Safe Tire to reimburse it for attorney fees it incurred on the appeal of the declaratory judgment action; and (5) $36,467.25 for postjudgment interest awarded to Safe Tire in the declaratory judgment action. ERC concedes that the $208,500 is loss. As for item (2), we have already held that the $80,432.53 for attorney fees incurred by the insured in the underlying action was a claim expense, not a loss. See supra section II. C. Regarding items (3) and (4), we are remanding to the district court the question whether reimbursement of the insured's declaratory judgment attorney fees and expenses constituted loss, see supra section II. A; but even if we assume that they should be considered loss, the total for items (1), (3), and (4) is just $277,030. Thus, the loss exceeds MCCC's retention threshold only if the postjudgment interest of $36,467.25 is included. For the following reasons we hold that the postjudgment interest is not loss, so the Safe Tire loss is less than $300,000. 88 The district court treated the postjudgment interest as loss, just as it treated the declaratory judgment fees and expenses themselves. ERC disputes that ruling, arguing that postjudgment interest on the attorney fees awarded to MCCC's insureds are claim expenses. ERC asserts that postjudgment interest is covered explicitly by the supplementary payments provisions of MCCC's policies, which are incorporated into the definition of claim expenses. The pertinent language of the supplementary payments provisions (as provided to the district court) states: 89 We will pay, with respect to any claim we investigate or settle or suit against an insured we defend: 90
91 .... 92 g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in a court the part of the judgment that is within the applicable limit of insurance. 93 App. 526-27. 94 We agree with ERC. The claim expenses language clearly includes postjudgment interest. (We note that ERC's previously mentioned error in quoting the MCCC policies has no bearing on this issue.) Not only is ERC's position supported by the plain language of the Agreement (together with the supplementary payments provisions), but it also makes sense. If postjudgment interest were considered a loss, MCCC would have an incentive not to pay a judgment owed to an insured near or above $300,000. Delay in payment could result in sufficient interest being due that the $300,000 retention would be exceeded; and once the retention threshold was reached, ERC would have to pay all subsequently accruing interest. Delay would be an unmitigated boon to MCCC, because the cost of the delay (accruing interest) would be borne solely by ERC. It would be remarkable if ERC agreed to such a result, which would also seem to violate public policy in favor of prompt payment of insurance claims. 95 As a result of determining that postjudgment interest is a claim expense, we hold that MCCC cannot satisfy the $300,000 retention for the Safe Tire claim. 96 E. Does Loss Include 80% or 100% of Payments Arising from the Declaratory Judgment Actions? 97 Under the Agreement, when MCCC makes certain payments for damages, the loss includes either 80% or 100% of the payments, depending on whether ERC agreed to the conduct causing the damages. The relevant provisions of the loss definition state that loss is: 98 (c)(1) equal to 80% of the amount paid by [MCCC] for punitive, exemplary, or compensatory damages awarded to the insured and arising out of the conduct of [MCCC] in the investigation, trial or settlement of any claim or failure to pay or delay in payment of any benefits under any policy if [ERC] has not, in advance of any such conduct by [MCCC] counseled with [MCCC] and concurred in [MCCC's] course of conduct; or 99 (c)(2) equal to 100% of the amount paid by [MCCC] for punitive, exemplary, or compensatory damages awarded to the insured and arising out of the conduct of [MCCC] in the investigation, trial or settlement of any claim or failure to pay or delay in payment of any benefits under any policy if [ERC] has, in advance of any such conduct by [MCCC] counseled with [MCCC] and concurred in [MCCC's] course of conduct. 100 App. 600 (emphasis added). 101 ERC challenges on appeal the district court's ruling with respect to three claims that ERC had counseled and concurred in MCCC's course of conduct in denying coverage to its insureds, thereby triggering paragraph (c)(2) and inclusion of the payments at a rate of 100%. The court based its ruling on the following stipulated facts: (1) ERC ... counseled with [MCCC] and concurred in [MCCC's] course of conduct after the date of filing of any declaratory judgment actions and (2) ERC never advised [MCCC] orally or in writing that [MCCC] had not counseled with ERC and that ERC had not concurred in [MCCC's] course of conduct. App. 2650. After trial the district court decided: Under the language of (c)(2), the Court finds that MCCC did counsel with ERC in advance of the investigation, trial or settlement of the three claims at issue and that ERC concurred in MCCC's course of conduct in the three claims. App. 2539. 102 ERC's sole appellate claim on this issue is that for the damages to be included as loss at the 100% rate, the counseling and concurrence must have occurred before the first step in MCCC's course of conduct — that is, before MCCC filed the declaratory judgment action. MCCC responds that it sufficed for the counseling and concurrence to occur before the last step in its course of conduct—when the declaratory judgment action concluded. 103 We disagree with both parties. As we read the plain language of the Agreement, the percentage treated as loss depends upon whether the damages arose from conduct predating ERC's concurrence in the course of conduct. Some damages could have arisen from conduct predating ERC's concurrence in the course of conduct and some could have arisen from conduct postdating such concurrence. For example, much of an insured's attorney fee in the declaratory judgment action could have been incurred after ERC approved of MCCC's bringing the action, even if approval did not precede filing of the action. Thus, it is likely that some of the payments for damages in this case should be included as loss at an 80% rate and some at a 100% rate. The district court seemed to read the Agreement as we do when it expressed its views during argument on the matter. The parties, however, did not give the district court sufficient information to apportion the payments precisely. The stipulations establish only that at some point ERC counseled and concurred in [MCCC's] conduct. There is no stipulation regarding what, if any, damages occurred as a result of conduct preceding concurrence or what occurred after concurrence. In any event, we reject ERC's contention that all payments must be included at only the 80% rate because it had not approved of the declaratory judgment actions before they were filed. (Perhaps the district court also relied on ratification principles, but we need not reach that issue.) 104 We therefore affirm the district court's ruling. If the district court determines on remand (as discussed supra, part II(A)) that MCCC's payments of its insureds' attorney fees in the declaratory judgment actions constitute payments for compensatory damages, and therefore that Article VIII(c) of the Agreement applies, it should treat these payments as provided in paragraph (c)(2).