Monday, August 4, 2008

That'll Be Another $5.1 Million in Interest in Excess of Your $1 Million Policy Limit, Please

Miraglia v. Essex Ins. Co.
(Sup. Ct., Orange Co., decided 7/23/2008)

Liability insurers sometimes forget that their policies provide interest on judgments in excess of policy limits (depending on policy language). In this case, motions and appeals of what originally was a $86+ million personal injury verdict rendered in 2004 ultimately resulted in an award of approximately $5.1 million in pre- and post-judgment interest in excess of Essex's $1 million policy limit.

In September 2000, Miraglia was impaled on a steel bar, resulting in his paraplegia. A February 2004 trial in Bronx County Supreme against Essex's insured, H&L Holding Corp., resulted in a verdict in the amount of nearly $87 million. On a CPLR § 4404 post-trial motion, the trial judge reduced the award to $23.3 million and entered judgment for that amount on May 4, 2005.

On behalf of H&L Holding, Essex appealed the trial judgment to the Appellate Division, First Department, which ordered a new trial unless the plaintiff stipulated to a further reduction of the trial verdict/judgment by approximately $5.2 million in future medical expenses and future pain and suffering to just over $18 million. Plaintiff so stipulated and an amended judgment for approximately $24 million, which included $6 million in pre-judgment interest, was entered on October 29, 2007.

By letter dated February 15, 2008, plaintiff's counsel demanded that Essex "pay to the plaintiff the full amount of their insurance coverage, One Million ($1,000,000.00) Dollars, plus interest". In response, Essex sent a letter to plaintiff's counsel on March 10, 2008, which stated and offered to pay the following:
Essex Insurance Company hereby unconditionally tenders its one million dollars limits ($1,000,000.00) in payment of the final judgment entered in October. Essex Insurance Company is willing to pay the one million dollars immediately and unconditionally, and litigate at a later date the outstanding interest owed; or, alternatively, Essex Insurance Company is willing to pay the one million dollars immediately plus $927,349.13 in interest which has accrued to this date since the final Judgment was rendered in October 2007 with the understanding and agreement that such payment of $1,927,349.13 satisfies Essex Insurance Company's obligation to pay the Judgment obtained by Mr. Miraglia against H & L Holding Corp.

The $1,927,349.13 payment is calculated as follows:

Essex policy limits: $1,000,000.00
Interest on the policy limits: (2-13-04 to 10-29-07) $333,863.01
Post-judgment interest: (10-29-07 to 3-10-08) $593,486.12

Total: $1,927,349.13

Plaintiff brought this action against Essex in Orange County Supreme Court pursuant to Insurance Law § 3420(b)(1) to enforce the judgment. Plaintiff argued that pre-judgment interest ended with the entry of the original trial judgment on May 4, 2005, and post-judgment interest began on that date in the amount of the amended judgment. Essex counter-argued that pre-judgment interest ended with the entry of the amended judgment on October 29, 2007 and that the calculation of post-judgment interest began with the entry of the amended judgment and ended with the tender of its $1 million policy limit by way of its March 10, 2008 letter.

Under Essex's policy, pre-judgment interest was to be calculated using the $1 million policy limit, whereas post-judgment interest would be calculated based on the entire judgment at issue. That's why Essex sought to maximize the pre-judgment interest period, and minimize the post-judgment interest period. Both parties moved for summary judgment.

In mostly agreeing with the plaintiff's position, Orange County Supreme Court Justice William Giacomo held that the calculation of pre- and post-judgment interest was to be made as follows:

(1) Pre-judgment interest accrued from verdict on February 10, 2004 through May 4, 2005, the date the initial Judgment was entered and Essex is obligated to pay such pre-judgment interest on the portion of the Judgment/Amended Judgment awarded to plaintiff up to its Policy limit of $1,000,000.00, said interest totals $110,466.14;

(2) Post-judgment interest began to accrue on May 4, 2005, the date the initial Judgment was entered;

(3) Post-judgment interest ceased to accrue on March 10, 2008, the date Essex sent its letter offering to pay $1,000,000 under the terms of its Policy; and

(4) Post-judgment interest in the amount of 9% per annum is calculated on the sum of $20,116,825.60 from May 4, 2005 through March 10, 2008. The amount of post-judgment interest is $4,995,032.17.

Justice Giacomo based his pre- and post-judgment interest rulings on Essex's policy language, which provided:

We will pay, with respect to any claim we investigate or settle, or any "suit" against an insured we defend: ...

6. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.

7. 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 court the part of the judgment that is within the applicable limit of insurance. (Emphasis added.)
The court rejected Essex's argument that "the judgment" referred to in Paragraph 7 of the policy was the amended judgment entered on October 29, 2007:

Defendant's position, i.e. that post-judgment interest should only be calculated from October 29, 2007, the date the Amended Judgment was entered, if adopted, would ignore the aspects of the Judgment left unmodified by the Appellate Court. Such an outcome would deprive plaintiff of his right to be indemnified for the use of his money from the date of the judgment. See, Love v. State, supra .

Furthermore, contrary to the defendant's assertions, the Appellate Court did not vacate the Judgment. It conditioned vacating the award as to future pain and suffering unless plaintiff within thirty days of service of a copy of the Appellate Court's Order with Notice of Entry stipulated "to accept a reduced award for future pain and suffering in the amount of $5,000,000 and to entry of an amended Judgment in accordance therewith". Miraglia v. H & L Holding Corp., 36 AD3d 456, 828 NYS2d 329 (1st Dept., 2007), lv. app. denied, 10 NY3d 703, 883 NE2d 1010, 854 NYS2d 103 (2008). Plaintiff so stipulated, therefore the Judgment was never vacated.

Based on the foregoing this Court holds that the date post-judgment interest began to accrue was May 4, 2005, the date the Judgment was entered.
Judgment to plaintiff against Essex for just over $6.1 million. The court's finding that post-judgment interest began to run in May 2005 resulted in an award of an additional $2.16 million in interest per year through March 10, 2008, for a total of $4,995,032.17 in post-judgment interest above policy limit, considerably more than Essex's offer of $593,486.12.

With a $23.3 million judgment in place, should Essex have offered to pay its $1 million policy limit and pre-judgment interest then owing in May 2005 unconditionally and continued prosecuting the appeal to the First Department? Such an offer or payment arguably would not have mooted or rendered the appeal academic, since the insured ostensibly would still be interested in seeking an appellate reduction of the judgment, and Essex ostensibly would have had an obligation to continue defending the insured in that regard. The time it took to work this case through motion and appellate practice, however, ended up costing Essex $5.1 million in interest above policy limit.

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