Opinion ID: 2625050
Heading Depth: 4
Heading Rank: 1

Heading: The supplementary payment provisions

Text: ANIC's contract with Industrial Boiler provides: We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto. This provision is subject to the one million dollar policy limit. A supplementary payments provision of the contract states that ANIC will make payments beyond the one million dollar policy limit for: (5) All costs taxed against the insured in any suit we defend. (6) All interest on the full amount of any judgment that accrues after entry of the judgment in any suit we defend; but our duty to pay interest ends when we have paid, offered to pay or deposited in court the part of the judgment that is within our Limit of Insurance. In construing insurance policies, we do not strictly adhere to traditional principles of contract interpretation; instead, we try to effectuate the reasonable expectations of lay parties. [5] This flexible approach is appropriate regardless of whether the policy language is ambiguous. [6] However, this approach is not to be used as an instrument for ignoring or rewriting insurance contracts. [7] The contractual provisions at issue in this case resemble the provisions that we interpreted in Hughes v. Harrelson [8] and Guin v. Ha . [9] In both cases, we found that the contract language did not require prejudgment interest payments in excess of the policy limit. The Hughes provision is particularly similar to the provision in this case. In Hughes, the insurer agreed to pay [i]nterest on damages awarded in any suit we defend accruing after judgment is entered and before we have paid, offered to pay, or deposited in court that portion of the judgment which is not more than our limit of liability. [10] We draw on parallels with the Hughes contract language in rejecting Farquhar's interpretation of the ANIC contract. Farquhar argues that under the express language of the supplementary payments provision, ANIC is obliged to pay prejudgment interest beyond the one million dollar policy limit. First, he claims that the provision for payment of all interest ... that accrues after entry of the judgment includes prejudgment interest, because prejudgment interest cannot be calculated until after a judgment, and therefore does not accrue until that time. This interpretation is arguably supported by the plain meaning of accrue Webster's first definition of the word is to come into existence as an enforceable claim. [11] However, because Farquhar's interpretation would render superfluous the policy's phrase after entry of the judgment, it seems more likely that accrue in the contract means to be periodically accumulated in the process of time Webster's third definition. [12] This interpretation is consistent with our conclusion, in Hughes, that a provision which covered interest ... accruing after judgment excluded prejudgment interest. [13] Second, Farquhar argues that the second clause of the same provisionstating that our duty to pay interest ends when we have paid ... the part of the judgment that is within our Limit of Insurancemandates payment of prejudgment interest, because the clause does not qualify or limit ANIC's duty to pay. A straightforward reading of provision (6) refutes this claim. The first clause of provision (6) establishes that ANIC's duty is only to pay [a]ll interest... that accrues after entry of the judgment.  (Emphasis added.) Farquhar further argues that a lay reader would not understand ANIC's policy as excluding payment of prejudgment interest. Because ANIC did not expressly exclude such payments, he argues, the policy is unclear and Industrial Boiler could reasonably have expected the payments to be covered. Industrial Boiler's confusion is particularly likely, he says, because the one million dollar limit was in fact susceptible to increase by Rule 82 attorney's fees. These arguments fail. Both the costs of defending a lawsuit and the interest accruing after an entry of judgment are expenses specifically listed in the policy's supplementary payments provision. Farquhar's proposed reading would infer additional coverage for any expense not expressly excludeda result that would not be within the reasonable reader's expectations. Moreover, we also found that the contractual provisions in Guin and Hughes excluded insurer liability for prejudgment interest, although those provisions also failed explicitly to state such an exclusion. [14]