Thursday, February 18, 2010

Offering Rather than Tendering Policy Limit Costs Commercial Auto Insurer an Extra $191 Per Day in Interest

Lancer Ins. Co. v. Sunrise Removal, Inc.
(Sup. Ct., Nassau Co., decided 1/22/2010)

Most liability policies provide for the payment of interest on judgments against insureds  But is the interest paid on the full amount of the judgment, or only on the judgment amount not exceeding the policy limit?  Insurers may look to their policy language for the answer, but policy language may not answer the question for New York auto policies.

Section 60-1.1(b) of Subpart 60-1 of New York's insurance regulations (Title 11), entitled "Minimum Provisions for Automobile Liability Insurance Policies", provides:
An "owner's policy of liability insurance", as defined in section 311 of the Vehicle and Traffic Law, shall contain in substance the following minimum provisions or provisions which are equally or more favorable to the insured and judgment creditors, so far as such provisions relate to judgment creditors:
(b) With respect to such insurance as is afforded, the insurer, subject to the policy terms shall: defend any suit, with the right to make such investigation, negotiation and settlement as it deems expedient; pay all premiums on attachment bonds and appeal bonds; pay all expenses incurred by the company, all costs taxed against the insured in any such suit, and all interest accruing after entry of judgment until the insurer has paid or tendered or deposited in court such part of such judgment as does not exceed the applicable policy limits; pay expenses incurred by the insured for first aid to others at the time of accident; and reimburse the insured for reasonable expenses other than loss of earnings, incurred at the company's request. The amounts so incurred under this subdivision, except settlement of claims and suits, shall be payable by the company in addition to the applicable policy limits.
Sunrise Removal's commercial auto policy with Lancer contained  the following provision:
2. Coverage Extension
a. Supplementary Payments
In addition to the Limit of Insurance, we will pay for the "insured":
* * * * * 
(6) All interest on the full amount of any judgment that accrues after entry of the judgment in any "suit" against the "insured" 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.
Robyn Schiffer sued Sunrise Removal and its employee for personal injuries she sustained in an accident with a Sunrise Removal truck.  At the time of the accident, Lancer insured the truck with a liability coverage limit of $100,000.  Prior to trial of the Schiffer action, counsel for Sunrise Removal offered the $100,000 policy limit to settle the matter. Schiffer rejected the offer and the case went to trial, resulting in a jury verdict for Schiffer in the amount of $776,858.05.  Judgment was entered on September 5, 2007.  A subsequent appeal by Sunrise resulted in an affirmance.

Sometime in 2009, Lancer commenced this declaratory judgment action for a declaration that it had no obligation to pay interest above its liability limit of $100,000, an order permitting it to deposit the policy liability limit into court, and a declaration that it was released from liability. Schiffer answered and asserted a counterclaim seeking a declaration that Lancer was obligated to pay interest on the full amount of the judgment in addition to its $100,000 policy limit.  Both parties moved for summary judgment.

In granting Schiffer's motion and ruling that Lancer was obligated to pay 9% statutory interest on the entire $776,858.05 judgment from September 5, 2007 until the date of commencement of this action, Nassau County Supreme Court Justice Angela Iannacci held:
While an insurer can't provide less than the regulation requires, there is no prohibition from being more generous than the regulation requires (see Dingle v Prudential Prop. and Cas. Ins. Co., 85 NY2d 657 [1995]). Here, although the policy language indicates that merely an offer of settlement is sufficient, section 60-1.1(b) requires tender of payment. An offer to settle pursuant to the policy limits is not an unconditional tender of payment and is insufficient to stop the accrual of interest on the judgment (see Levit v Allstate Ins. Co., 308 AD2d 475 [2d Dept. 2003]; Fama v Metropolitan Prop. & Cas. Ins. Co., 242 AD2d 663 [2d Dept. 1997]). Accordingly, the language of the regulation must control and Lancer's offer to settle just before trial was insufficient to stop the accrual of interest. 

Conversely, while the insurance regulation does not require a provision in the policy providing for payment of interest on the entire judgment, Lancer's policy is more generous and clearly provides for the payment of interest on the entire judgment in addition to the payment of the policy limit (see Dingle, supra at 662, fn.2). 
For those wondering, that's $191.55 in interest per day.  If it was not until mid-2009 that Lancer commenced this DJ action, the interest owed over and above its $100,000 policy limit is approximately $105,000.  Yikes.

It's important to note that 11 NYCRR § 60-1.1(b) applies only to an "owner's policy of [automobile] liability insurance" as defined by Vehicle & Traffic Law § 311.  There is no similar regulation applicable to non-auto policies.  Policy language should control the payment of post-judgment interest under those policies.

Editor's Note ~~ The Appellate Division, Second Department, affirmed this decision on November 30, 2010.  Review that decision here

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