Andrea M. Alonso and Kevin G. Faley

The question of when interest begins to run in a case where the jury has rendered a verdict in excess of the available policies of insurance is a complicated one.

Insurance regulations 11 NYCRR 60-1.1(b) provides as follows:

(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 (emphasis supplied).

The insurance company is responsible for interest from the date of entry of judgment only on that part of the judgment that does not exceed the policy limits. If the policy is $1 million and the jury returns a verdict of $2 million, then interest is owed by the insurance company from entry of judgment only on the $1 million policy limits.

However, the policy language can alter this scenario. If the policy includes language that is a more generous contract term, then an insurer may be required to pay interest on the amount of the obligation exceeding its policy limits. In Dingle v. Prudential Property & Casualty Ins., Co., 85 N.Y.2d 657, 661 (1995) the Court of Appeals found that: "Insurance carriers are liable for interest only on that portion of the judgment which is covered by the insurance policy, unless the contract of insurance contains a broader provision."

Post-judgment interest is calculated from the date judgment is entered on the verdict. In calculating pre-judgment interest, issues arise when (1) a trial is bifurcated; (2) summary judgment is granted on liability, or (3) judgment is granted on default. CPLR §5002 provides as follows:

Interest shall be recovered upon the total sum awarded, including interest to verdict, report or decision, in any action, from the date the verdict was rendered or the report or decision was made to the date of entry of final judgment. The amount of interest shall be computed by the clerk of the court and included in the judgment.

(CPLR §5001 does not apply to personal injury but to contract, property and equitable disputes.)

When damages and liability are determined at the same time as in a unified trial, interest runs from the date of the liability and damages determination. In a bifurcated trial, the date when liability is established is the point where pre-judgment interest begins to run. In Love v. State, 78 N.Y.2d 540, 544 (1991) pre-judgment interest was calculated from the date liability was established regardless of which party was responsible for the delay in the bifurcated trial (a 10-month delay from liability judgment to damages to a final damages decision by the Court of Claims).

In the case of summary judgment, pre-judgment interest is to be calculated from the date common-law liability attaches in favor of the plaintiff. Lifshits v. Variety Poly Bags, 18 A.D.3d 622, 624 (2d Dept. 2004). Interest is applied pursuant to §5002, not to punish the carrier, but rather to indemnify plaintiff for the cost of having the use of the insured's money from the time it is determined that compensation is due up until judgment. See Love, supra.

In cases of serious injury under Insurance Law §5102(d), three of the four Appellate Division departments have held that the serious injury threshold is a question of damages not liability. See Van Nostrand v. Froehlich, 44 A.D.3d 54 (2d Dept. 2007). Pre-judgment interest is to be calculated from the date common-law liability is awarded on a summary judgment decision. In a case where summary judgment on liability is granted and the issue of serious injury under Insurance Law §5102 remains a question of fact for the jury at trial, interest on any damage award will then apply retroactively to the order granting summary judgment.

The Fourth Department stands alone in holding serious injury is an issue of liability not damages. This would require that pre-judgment interest in a no-fault action is not triggered until the serious injury threshold is established at the time of trial. Ruzycky v. Baker, 30 A.D.2d 48 (4th Dept. 2002); Manzano v. O'Neil, 298 A.D.2d 829 (4th Dept. 2002). Based on a conflict among the Appellate Division, this issue is ripe for review by the Court of Appeals.

Excess Policies

An unclear area is whether interest would apply when an excess policy is involved. Generally, a defendant insurance company's obligation to pay interest under NYCRR 60-1.1[b] is conditioned on having defended against the underlying action. Alejandro v. Liberty Mut. Ins. Co., 84 A.D.3d 1132 (2d Dept. 2011).

Typical language regarding interest in an excess policy reads as follows:

When we provide defense, we will: pay interest accruing after judgment is entered in a suit we defend; our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our liability limit.

The definition of an excess insured's obligations is generally explained in the following or similar language:

We are not required to take charge in the investigation, defense or settlement of a claim or suit. We have the right at any time to join an insured or the primary insurers in the investigation, defense and settlement of the claim or suit. We may investigate and settle any claim.

In an action to determine whether interest is owed on the excess policy, it would have to be determined by the trier of fact whether the excess insurance carrier provided a defense. The elements to be considered are whether the company took charge of the investigation, defended and/or settled the suit. Some consideration would be given if the excess policy was written on paper different from the primary policy and whether a single claims examiner was assigned to monitor both policies or separate examiners handled the lawsuit from separate and distinct offices.

Conclusion

Interest on verdicts in excess of the policy limits are usually limited to the interest on the underlying policy limits not on the amount in excess of the policy limits. Interest is calculated from the date of a jury verdict, summary judgment on liability or a default. Except in the Fourth Department, a motion on liability in a serious injury threshold case triggers the running of interest. The application of interest to an excess policy will be determined by whether or not the excess carrier "defended" the underlying lawsuit. Calculation of interest must be taken into consideration by all parties in pre-trial preparation and analysis long before a verdict is rendered.

Andrea M. Alonso and Kevin G. Faley are partners in the firm of Morris Duffy Alonso & Faley.