Court Opinion

ID: 852004
Source: CourtListenerOpinion
Date Created: 2013-03-02 01:14:26.942308+00
Date Added: 2024-06-11T12:38:26.746986
License: Public Domain

ATTORNEY FOR APPELLANT                                      ATTORNEYS FOR APPELLEE
Nicholas C. Deets                                           Robert A. Durham
Hovde Dassow & Deets LLC                                    State Farm Litigation Counsel
Indianapolis, Indiana                                       Indianapolis, Indiana

                                                            Karl L. Mulvaney
                                                            Margaret M. Christensen
                                                            Bingham Greenebaum Doll LLP
                                                            Indianapolis, Indiana
______________________________________________________________________________

                                            In the
                            Indiana Supreme Court
                                                                                     FILED
                                                                                   Dec 12 2012, 1:45 pm

                            _________________________________
                                                                                            CLERK
                                                                                        of the supreme court,
                                    No. 41S01-1108-CT-515                               court of appeals and
                                                                                               tax court

KATHY INMAN,                                                        Appellant (Plaintiff),

                                                v.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,       Appellee (Defendant).
                      _________________________________

               Appeal from the Johnson Superior Court, No. 41D03-0711-CT-66
                       The Honorable Richard L. Tandy, Special Judge
                          _________________________________

           On Transfer from the Indiana Court of Appeals, No. 41A01-1005-CT-225
                          _________________________________

                                      December 12, 2012

Dickson, Chief Justice.

       The plaintiff, Kathy Inman, challenges the trial court's denial of her motion for prejudg-
ment interest in the amount of $3,616.44 pursuant to Indiana Code Chapter 34-51-4. Inman's
appeal raises two questions regarding the scope of the Tort Prejudgment Interest Statute
("TPIS"), Ind. Code §§ 34-51-4-1 to -9: whether the TPIS applies to an action by an insured
against an insurer to recover benefits under the insured's underinsured motorist ("UIM") policy;
and whether prejudgment interest can be awarded in excess of the policy limits set forth in an
insured's UIM policy. Having granted transfer, we hold that the TPIS does apply to UIM cover-
age disputes because they are properly considered "civil actions arising out of tortious conduct"
as required by Indiana Code Section 34-51-4-1. We also hold that, because prejudgment interest
is a collateral litigation expense, it can be awarded in excess of an insured's UIM policy limits.
We conclude, however, that Inman is not entitled to prejudgment interest because the trial court
acted within its discretion when it denied her request for prejudgment interest.

       This case arises out of a motor vehicle collision wherein Inman's vehicle was "rear-
ended" by Nicholas Shinnamon's vehicle on November 26, 2006. Inman sued Shinnamon and
settled with his insurer for $50,000, the maximum of his automobile liability policy. Claiming
that she had sustained more than $50,000 in damages, Inman then sought an additional $50,000
under her UIM policy with State Farm Mutual Automobile Insurance Company ("State Farm"),
which promised UIM coverage in the amount of $100,000.1 On March 11, 2009, State Farm
filed an Answer and denied that Shinnamon was at fault for the collision and that Inman's dam-
ages exceeded $50,000. On June 14, 2009, Inman offered to settle her UIM claim against State
Farm for $50,000 pursuant to Section 34-51-4-6 of the TPIS. State Farm did not respond to In-
man's offer and did not make its own offer to settle. Following trial, on March 17, 2010, the jury
returned a verdict in favor of Inman in the amount of $50,000, and judgment was entered. Inman
then made a motion for prejudgment interest in the amount of $3,616.44 pursuant to the TPIS.
The trial court denied Inman's motion without explaining its reasoning.

       On appeal, Inman challenges the trial court's denial of prejudgment interest as error be-
cause it is undisputed that she satisfied the statutory requirements imposed by the TPIS. Appel-
lant's Br. at 4–5. State Farm contends that (1) the TPIS does not apply to a contract action by an
insured against an insurer for the recovery of benefits under a UIM policy, and, (2) even if the
TPIS does apply to such actions, public policy prohibits an award of prejudgment interest in ex-
cess of the UIM policy limits in the absence of bad faith. Appellee's Br. at 3, 5. The Court of
Appeals rejected State Farm's arguments and reversed the trial court's denial of Inman's motion
for prejudgment interest. Inman v. State Farm Mut. Auto Ins. Co., 938 N.E.2d 1276 (Ind. Ct.
App. 2010). The Court of Appeals also ordered the trial court to award Inman prejudgment in-

       1
        Inman and State Farm agree that Inman could only recover a maximum of $50,000 under her
$100,000 UIM policy.

                                                 2
terest in the amount of $3,616.44 plus $13.10 per day after April 12, 2010. Id. at 1283. We
granted transfer.

        An award of prejudgment interest under the TPIS is discretionary. See Ind. Code § 34-
51-4-7 ("The court may award prejudgment interest as part of a judgment." (emphasis added)).
Accordingly, we review a trial court's ruling on a motion for prejudgment interest under the TPIS
for abuse of discretion.2 See Hupfer v. Miller, 890 N.E.2d 7, 9 (Ind. Ct. App. 2008) (holding that
an award of prejudgment interest under the TPIS is reviewed using an abuse of discretion stand-
ard), trans. not sought. The trial court abuses its discretion when its decision is "clearly against
the logic and effect of the facts and circumstances before the court or if the court has misinter-
preted the law." State v. Willits, 773 N.E.2d 808, 811 (Ind. 2002).

        On appeal, State Farm first contends that the TPIS applies only to tort actions, which, it
argues, do not include UIM actions because UIM actions derive from a contract between the in-
surer and the insured. Appellee's Br. at 3. We disagree. State Farm's interpretation reads the
statute too narrowly. Section 34-51-4-1 of the TPIS declares that the statute "applies to any civil
action arising out of tortious conduct." Ind. Code § 34-51-4-1 (emphasis added). This language
employs broad classifications to delimit the scope of the TPIS rather than referencing any specif-
ic causes of action. The use of the phrase "arising out of tortious conduct" implies that the Gen-
eral Assembly intended to sweep within the reach of the TPIS a wider array of civil actions in-
volving tortious conduct than merely actions sounding directly in tort. Had the legislature in-
tended to restrict the TPIS only to such actions, it simply could have said the TPIS "applies to
tort actions" as it has done in other instances. Cf. Ind. Code § 34-51-5-1 (restricting a jury’s abil-
ity to consider tax consequences of its verdict to "a tort action for personal injuries." (emphasis

        2
          Inman urges us to apply a de novo standard when reviewing an award of prejudgment interest.
Appellant's Br. at 4 (relying on INS Investigations, Inc. v. Lee, 784 N.E.2d 566 (Ind. Ct. App. 2003),
trans. denied; Harlan Sprague Dawley, Inc. v. S.E. Lab Grp., Inc., 644 N.E.2d 615 (Ind. Ct. App. 1994),
trans. denied; and Duke Bland Trucking, Inc. v. Kiger, 598 N.E.2d 1103 (Ind. Ct. App. 1992), trans. de-
nied). The cases offered by Inman do not support her proposition because they do not contemplate an
award of prejudgment interest under the TPIS. Likewise, our own research has not revealed any other
precedent that supports her contention. Moreover, reviewing an award of prejudgment interest for abuse
of discretion is consistent with the permissive language of Indiana Code Section 34-51-4-7. Employing a
de novo standard of review would abrogate this express delegation of discretion to the trial court by the
statute.

                                                    3
added)); Ind. Code § 34-51-2-10 (allowing a plaintiff to recover compensatory damages in a
"civil action for intentional tort" from a defendant "convicted after a prosecution based on the
same evidence" (emphasis added)).

        A UIM action such as Inman's is a prototypical example of a "civil action arising out of
tortious conduct." It "arises out of" the automobile collision between Inman and Shinnamon on
November 26, 2006. This civil action was necessitated by State Farm’s refusal to pay the excess
damages not covered by Shinnamon's insurer that Inman sustained as a result of that collision.
Indeed, absent that collision, Inman would have no basis for bringing this UIM action in the first
place. The purpose of a UIM policy is to indemnify insureds against damages uncompensated by
a tortfeasor's insurance policy. See Alan I. Widiss & Jeffrey E. Thomas, Uninsured and Under-
insured Motorist Insurance § 31.1 at 1 (LexisNexis, 3d ed. 2005). Thus, in essence, the UIM
insurance provider steps into the shoes of the tortfeasor in order to provide the insured an alterna-
tive source of recovery for her damages. Accordingly, we hold that the TPIS can apply to civil
actions, such as a UIM breach of contract action, which arise due to tortious conduct but which
are not tort actions.3

        State Farm also contends that, even if the TPIS does apply in this case, prejudgment in-
terest is unavailable to Inman because State Farm is not liable for any amount beyond the policy
limit set forth in her UIM insurance contract. Appellee's Br. at 5. Inman responds that prejudg-
ment interest is a collateral litigation expense and is thus not subject to the award limits estab-
lished by her UIM policy. Appellant's Reply Br. at 5. We agree with Inman that prejudgment
interest can be awarded in excess of her UIM policy limit.

        We examined the nature of post- and prejudgment interest awarded under Indiana's Post-
Judgment Interest Statute, Ind. Code § 24-4.6-1-101 to -104, and the TPIS, respectively, in a se-
ries of cases addressing the interplay between the statute and the liability limits imposed by the

        3
          The Court of Appeals has held on several occasions that the TPIS, Ind. Code §§ 34-51-4-1 to -9,
applies only to tort actions. See, e.g., Hanson v. Valma M. Hanson Revocable Trust, 855 N.E.2d 655, 665
(Ind. Ct. App. 2006), trans. not sought; Thor Electric, Inc. v. Oberle & Assocs., Inc., 741 N.E.2d 373, 380
(Ind. Ct. App. 2000), trans. not sought; Ind. Erectors, Inc. v. Trs. of Ind. Univ., 686 N.E.2d 878, 882 (Ind.
Ct. App. 1997), trans. not sought. To the extent that these cases are inconsistent with our opinion today,
they are disapproved.

                                                     4
Medical Malpractice Act ("MMA"). Cahoon v. Cummings, 734 N.E.2d 535 (Ind. 2000); Emer-
gency Physicians of Indianapolis v. Pettit, 718 N.E.2d 753 (Ind. 1999); Poehlman v. Feferman,
717 N.E.2d 578 (Ind. 1999). In Poehlman, we were faced with the question of whether post-
judgment interest and court costs could be awarded in excess of the liability limits on the recov-
ery of medical malpractice damages imposed by the MMA. Poehlman, 717 N.E.2d at 579. We
held that interest and costs are "collateral financial obligations associated with litigation general-
ly," reasoning that "[t]hese collateral litigation expenses arise separately by operation of law and
are regulated under distinct statutes, which guide parties' decisions in nearly every stage of either
pursuing or defending medical malpractice claims under the Act." Id. at 581 (footnote omitted).
As such, we concluded that the liability limits imposed by the MMA do not apply to collateral
litigation expenses because the actions covered by the act "remain essentially tort suits notwith-
standing the [MMA]" and thus are not entitled to a "separate set of rules for the allocation of the-
se expenses." Id. We extended this rationale to prejudgment interest awarded under the TPIS in
Cahoon and Pettit, concluding that prejudgment interest is also a collateral litigation expense not
subject to the MMA's liability limits. Cahoon, 734 N.E.2d at 547; Pettit, 718 N.E.2d at 757.

        State Farm argues that an award of prejudgment interest in a UIM action is "totally unlike
an injured patient's situation under the [MMA]" because "[t]he injured patient's cap on damages
was not selected by the patient, but rather was set by the legislature." Appellee's Br. at 8. This
argument is misplaced. An award of prejudgment interest under the TPIS is permitted in excess
of the health care provider's limits under the MMA, not because the plaintiff does not have the
opportunity to bargain for the amount of the statutory liability limit, but because prejudgment
interest is a collateral litigation expense imposed at the discretion of the trial court as a penalty
for the defendant’s failure to conduct litigation consistent with the legislatively ordained policy
of expediency. That a prejudgment interest award also compensates the plaintiff for the lost
time-value of an eventual damage award is an incidental benefit; it is secondary to the TPIS’s
primary purpose of achieving amicable settlement and conservation of resources by encouraging
speedy resolution of disputes through negotiation. As such, it is not within the parties’ power to
contractually preclude a prejudgment interest award made under the TPIS. The statute does not
authorize the parties to avoid its application except by making qualifying settlement offers. See
generally Ind. Code §§ 34-51-4-1 to -9.

                                                   5
        These principles likewise apply in the UIM insurance context. At its core, the TPIS is a
tool given to the trial court to expedite the amicable settlement of litigation without trial, and to
permit compensation to a party who is unreasonably deprived of proceeds as a result of settle-
ment delay. See Cahoon, 734 N.E.2d at 547 ("If a defendant has the option to terminate the dis-
pute at a known dollar cost, and chooses not to do so, that defendant and not the plaintiff should
bear the cost of the time value of money in the intervening period if the ultimate result is within
the parameters set by the legislature."). Two aspects of the statutory language evidence this leg-
islative intent. First, the TPIS only makes prejudgment interest available when the plaintiff
makes, and the defendant fails to make, a qualifying settlement offer pursuant to the conditions
of the TPIS.4 Ind. Code §§ 34-51-4-5, -6. Second, the TPIS grants the trial court broad discre-
tion to determine when an award of prejudgment interest is warranted even when qualifying set-
tlement offers have been made. See id. §§ 34-51-4-7 ("The court may award prejudgment inter-
est as part of a judgment."), -8 ("If the court awards prejudgment interest, the court shall deter-
mine the period during which prejudgment interest accrues."), -9 (authorizing the court to set the
interest rate for purposes of prejudgment interest under the TPIS).

        4
         To be eligible for an award of prejudgment interest, the TPIS requires the plaintiff to make a
qualifying settlement offer:
        This chapter does not apply if:
             (1) within one (1) year after a claim is filed in the court, or any longer period determined by
        the court to be necessary upon a showing of good cause, the party who filed the claim fails to
        make a written offer of settlement to the party or parties against whom the claim is filed;
             (2) the terms of the offer fail to provide for payment of the settlement offer within sixty (60)
        days after the offer is accepted; or
             (3) the amount of the offer exceeds one and one-third (1 1/3) of the amount of the judgment
        awarded.
Ind. Code § 34-51-4-6. The TPIS also enables a defendant to avoid prejudgment interest by making a
qualifying settlement offer:
        This chapter does not apply if:
             (1) within nine (9) months after a claim is filed in the court, or any longer period determined
        by the court to be necessary upon a showing of good cause, one (1) or more of the parties against
        whom the claim is filed makes a written offer of settlement to the party receiving a judgment;
             (2) the terms of the offer include payment within sixty (60) days after the offer is accepted;
        and
             (3) the amount of the offer is at least two-thirds (2/3) of the amount of the judgment award.
Ind. Code § 34-51-4-5.

                                                      6
        State Farm also contends that the TPIS's purpose of incentivizing speedy resolution of
disputes is "adequately served by the insurer's obligation to deal in good faith with its insured."
Appellee's Trans. Br. at 9. The duty to deal in good faith "includes the obligation to refrain from
(1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in mak-
ing payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an
insured into a settlement of his claim." Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind.
1993). "To prove bad faith, the plaintiff must establish, with clear and convincing evidence, that
the insurer had knowledge that there was no legitimate basis for denying liability." Freidline v.
Shelby Ins. Co. 774 N.E.2d 37, 40 (Ind. 2002). There is little question that it is difficult for the
insured plaintiff to prove bad faith. It is a fact-intensive inquiry providing little certainty as to a
plaintiff's probability of success. See, e.g., id. at 42–43; Erie, 622 N.E.2d at 520–23; Colley v.
Ind. Farmers Mut. Ins. Grp., 691 N.E.2d 1259, 1260–61 (Ind. Ct. App. 1998), trans. denied; see
also Schimizzi v. Ill. Farmers Ins. Co., 928 F. Supp. 760, 772–775 (N.D. Ind. 1996). Given the
high hurdle imposed by a bad faith claim, the legislature very well might have preferred the rea-
sonable, bright-line approach afforded by the TPIS for accomplishing its policy objectives. We
defer to the public policy choices made by our legislature.5 Accordingly, we hold that prejudg-

        5
           State Farm points to cases from other jurisdictions holding that prejudgment interest cannot be
awarded in excess of the insured’s policy limits. Appellee's Trans. Br. at 7 (citing Guin v. Ha, 591 P.2d
1281 (Alaska 1979); Nunez v. Nationwide Mut. Ins. Co., 472 A.2d 1383 (Me. 1984); Watlington v. N.C.
Farm Bureau Mut. Ins. Co., 446 S.E.2d 614 (N.C. Ct. App. 1994); Factory Mut. Ins. Co. of Am. v.
Cooper, 262 A.2d 370 (R.I. 1970); Buckhannon-Upshur Cnty. Airport Auth. v. R&R Coal Contracting,
Inc., 413 S.E.2d 404 (W. Va. 1991)). We do not find these cases persuasive because they address a whol-
ly different issue than the one before us here. In each of these cases, the insured was held personally lia-
ble for prejudgment interest to a third-party, and thus the issue was whether the insurance contract in-
demnified the insured for prejudgment interest in excess of the policy limits. Guin, 591 P.2d at 1283;
Nunez, 472 A.2d at 138; Watlington, 446 S.E.2d at 615; Cooper, 262 A.2d at 371; Buckhannon-Upshur,
413 S.E.2d at 406. By contrast, the issue before us here is whether the insurer, who has been held directly
liable for prejudgment interest to the insured, should be obligated to pay such interest in excess of the in-
sured's UIM policy limit. Under the TPIS, as we hold today, prejudgment interest is imposed on the in-
surer not by reason of its contract with the insured, but because the insurer has failed to make a qualifying
settlement offer and the trial court believes such interest is warranted. In addition, none of these cases
involve a prejudgment interest statute akin to the TPIS that conditions prejudgment interest on whether
the parties have made qualifying settlement offers. State Farm also points to J.C. Penney Cas. Ins. Co. v.
Woodward, 380 S.E.2d 282 (Ga. Ct. App. 1989), to support its argument. Appellee's Trans. Br. at 7. J.C.
Penney involves a dispute between the insured and the insurer under an uninsured motorist policy, which
provides coverage similar to an underinsured (UIM) policy, and involves a prejudgment interest statute
relatively similar to the TPIS. See id. at 283, 286. In concluding that the insurer was not entitled to pre-
judgment interest in excess of the uninsured motorist policy limit, the court in J.C. Penney simply as-

                                                     7
ment interest can be awarded in excess of an insured’s UIM policy coverage limit in an action by
the insured to recover under a UIM policy.

        In seeking to overturn the trial court's denial of her Motion for Prejudgment Interest, In-
man argues that she is entitled to prejudgment interest because it is undisputed that she made a
qualifying settlement offer to State Farm in compliance with Indiana Code Section 34-51-4-6
and that State Farm failed to make a qualifying settlement offer as required by Indiana Code Sec-
tion 34-51-4-5 to avoid application of the TPIS. Appellant's Br. at 10. While, under these cir-
cumstances, the TPIS permits the trial court to award prejudgment interest, the TPIS does not
require an award of prejudgment interest. See Ind. Code §§ 34-51-4-7 ("The court may award
prejudgment interest as part of a judgment." (emphasis added)), -8 ("If the court awards pre-
judgment interest, the court shall determine the period during which prejudgment interest ac-
crues." (emphasis added)). Under the plain language of the statute, an award of prejudgment in-
terest is committed solely to the discretion of the trial court6 once the statutory prerequisites are
satisfied. Indeed, this understanding of the TPIS is consistent with the statute's function as a tool
for the trial court to encourage settlement and incentivize expeditious resolution of disputes, see
Van Winkle v. Nash, 761 N.E.2d 856, 860–61 (Ind. Ct. App. 2002) (rejecting an invitation to
limit the trial court's discretion to award prejudgment interest under the TPIS where there are
disputed issues of liability and damages because to do so would contravene the purpose of the
TPIS by incentivizing defendants "to manufacture token disputes of liability or damages in order
to avoid prejudgment interest"), trans. not sought, and we must tread carefully to uphold these
legislative policy choices.

sumed that "the extent of liability is governed by the insurance contract," but offered no explanation to
support this conclusion. Id. at 286. We are not persuaded by this assertion.
        6
           Inman asserts that "[t]he logical inference of the use of the general term 'court' rather than 'trial
court' [in Indiana Code Sections 34-51-4-1 to -9] is that the Court of Appeals is free to compute prejudg-
ment interest to promote judicial economy when the trial court erroneously refuses to do so." Appellant's
Trans. Br. at 12. However, the term "court" for purposes of the TPIS is defined as "the court awarding a
judgment." Ind. Code § 34-6-2-31. The judgment on which prejudgment interest is sought was that de-
termined and entered by the trial court, not by a reviewing appellate court. We thus look to the trial court
here to consider and rule on the plaintiff's motion for prejudgment interest in accord with the TPIS.

                                                       8
        Here, the trial court's order denying Inman's request for prejudgment interest stated only:
"Request for interest denied," and did not articulate a basis for the decision. Appellant's Br. at
12. We find no basis to conclude that the trial court abused its discretion. There is no indication
that the trial court's denial of prejudgment interest was predicated on a belief either that the TPIS
did not apply to a UIM action or that prejudgment interest could not be awarded in excess of the
UIM policy limit. The trial court could simply have believed that prejudgment interest was in-
appropriate given the particularities of the case. Absent a persuasive showing to the contrary,
we will assume that the trial court acted in compliance with the law and thus properly exercised
its discretion.

                                              Conclusion

        Through its passage of the TPIS, the legislature has enacted a scheme which affords trial
courts wide-ranging discretion to award prejudgment interest in civil actions arising out of tor-
tious conduct, a broad category of cases which includes UIM coverage disputes. The trial court
alone has discretion to determine whether to award prejudgment interest and what time period
and interest rate to use in its computation. This discretion is not limited by insurance policy lim-
its, the good-faith conduct of the parties, or the common law.7 Rather, it is limited only by the
statutory requirements enumerated in Indiana Code Sections 34-51-4-1 to -9. Because the trial
court here acted within its statutory discretion in denying Inman's request for prejudgment inter-
est, the judgment of the trial court is affirmed.

Rucker, David, Massa, Rush, JJ., concur.

        7
          In another case handed down today, Kosarko v. Padula, ___ N.E.2d. ___, ___ (Ind. 2012), we
hold that the TPIS "abrogates and supplants the common law rules governing the availability of prejudg-
ment interest in cases covered by the statute." Kosarko, ___ N.E.2d at ___. Thus, in cases where pre-
judgment interest is requested under the TPIS, the common law Roper standard, requiring damages to be
complete and readily ascertainable in order for prejudgment interest to be awarded, N.Y., Chi. & St. Louis
Ry. Co. v. Roper, 176 Ind. 497, 507, 96 N.E. 468, 472 (1911), is irrelevant to the trial court's determina-
tion.

                                                    9