Lead Opinion
Thе appellant, Michigan Mutual Liability Company, appeals from a judgment holding the appellant responsible for both prejudgment and post judgment interest on a verdict that was within the limits of a liability policy issued by the appellant.
This action arose when an automobile driven by the appellee, Marian Dittus, was rear-endеd by a car driven by Robert Geyman. Marian Dittus sued for personal injuries, while her husband Richard, who is also an appellee, sought recovery for medical expenses and the loss of the services of his wife. At the time of the collision, Geyman was insured by the appellant on an automobile policy providing a $250,000 maximum liability for bodily injury to one person. Marian Dittus and Richard Dittus obtained verdicts of $200,000 and $35,000 respectively.
After the verdict, costs were taxed in favor of the appellees in the amount of $1,426. The court also awarded the appellees interest of $45,118 at the rate of 6% on the verdict from the date of the complaint to the date the judgmеnt was paid. The appellant paid the appellees $251,426. This amount includes the $235,000 verdict, $15,000 in prejudgment interest and $1,426 in costs.
The payment to the appellees was subject to an agreement and satisfaction of judgment which provided that Geyman was relieved from any further personal liability. It was further agreed that the aрpellees could test in a subsequent action the liability of the appellant for prejudgment interest in excess of the $15,000 paid by the appellant. The
The applicable insurance provisions are as follows:
"Bodily Injury Liability
"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:
"A. bodily injury * * * sustained by any person;
* * *
"Supplementary Payments:
To pay, in addition to the applicable limits of liability:
"(a) * * * all costs taxed against the insured in any such suit and all interest on the entire amount of any judgment therein which accrues after entry of the judgment and before the company has paid or tendеred or deposited in court that part of the judgment which does not exceed the limit of the company’s liability thereon;”
Appellees contend that prejudgment interest on the entire judgment is appropriate under either of two theories. First, it was argued at oral hearing that prejudgment interest is covered by the provisiоns in the insurance contract pertaining either to "damages” or "costs”. The Supreme Court in Ballog v Knight Newspapers, Inc,
It is appellant’s position that thе bodily injury liability provision requiring the insurer to pay "all sums which the insured shall become legally obligated to pay as damages” means that the insurer is liable for any judgment including prejudgment interest, but only up to an amount that does not exceed the policy limits.
The first issue for our consideration is whether prejudgment interest is recoverable as interest or costs under the supplementary payments provision, or as damages under the bodily injury liability clause.
The law is well settled in Michigan that policies containing ambiguities are construed against the insurer and most favorably to the insured. Weaver v Michigan Mutual Liability Co,
The portion of the supplementary payments clause relating to interest provides that the insurance company shall pay "all interest on the entire amount of any judgment * * * which accrues after entry of the judgment and before the company has paid or tendered or deposited in court that part of the judgment which does not exceed the limit of the company’s liability * * * ”. This language in plain and unambiguous terms provides that the insurer will pay post judgment interest on the
We next consider whether prejudgment interest is recoverable as a cost under the supplementary payments provision. Costs were not awardable at common law. Booth v McQueen, 1 Doug 41 (Mich, 1843). Costs are only recoverable when there is statutory authority awarding them. Hester v Commissioners of Parks and Boulevards of the City of Detroit,
It remains for us to determine whether prejudgment interest is covered by the bodily injury provision requiring the insurer to pay "all sums which the insured shall become legally obligated to pay as damages * * * ”. We note that appellant has stipulated that it is liable for prejudgment intеrest as damages, but only to the extent that the amount of interest falls within the policy limits. The distinction between interest on a judgment and interest as an element of damages had been often noted. The former is computed and added to the general verdict. Motyka v Detroit, Grand Haven & Milwaukee Ry Co,
We now turn our attention to whether public policy requires the appellant to pay all prejudgment interest on any verdict that is within the maximum policy limits of the insurance policy.
The issue of liability of insurance companies for prejudgment interest was recently considered in. Cates v Moyses,
In Cosby the plaintiffs obtained a $206,000 verdict against the defendant. The supplementary payments clause in the defendant’s insurance policy provided that the insurer would pay "interest accruing on verdict or after judgment up to the date of payment or tender to the judgment creditor * * * upon the company’s share of such verdict or judgment”. The policy was issued in 1963 when the interest statute, MCLA 600.6013; MSA 27A.6013, only allowed recovery of post judgment interest.
When the Court of Appeals in Cates determined that the insurer was liable for prejudgment interest to the extent of the entire judgment it stated the following:
"Interest is to be computed as of the date the complaint was filed, MCLA 600.6013; MSA 27A.6013. When Cosby, supra, stated that an insurance company can limit its risks, it was discussing only the issue of the amount on which the company’s interest liability would*441 be based, not the date the interest was to begin. In its holding on the date issue, the Cosby court held that the statute requiring interest to be computed as of the date suit was commenced replаced the contrary policy provision and that therefore the statute superseded the interest clause of the policy.” Cates v Moyses, supra, at 411.
It is our opinion that the Court in Cates incorrectly applied Cosby to its factual situation because Cates v Moyses, supra, at 408, had already recognized that the supplementary payments provision in Cates and Cosby were clearly distinguishable. In Cates the supplementary payments provision stated in plain and unambiguous terms that the insurer was only liable for post judgmеnt interest, while the corresponding provision in Cosby imposed on the insurer a clear undertaking to pay prejudgment and post judgment interest on its pro rata share of the verdict. Therefore, in Cosby the amendment to the interest statute allowing prejudgment interest became part of the contract which itself provided for prejudgmеnt interest. However, to hold as did Cates, that the prejudgment interest statute is incorporated into an insurance contract that does not provide for prejudgment interest, is to impose a risk upon the appellant which it neither assumed nor charged a premium for.
The Supreme Court recognized the flaw in the reasoning of Cates v Moyses, supra, and modified the Court of Appeals decision. It held on the authоrity of Cosby v Pool, supra, that the insurer was liable for prejudgment interest only to the extent of the insurance policy limits less the amount advanced to the plaintiffs prior to commencement of the suit. We believe that the Supreme Court was citing Cosby v Pool, supra, for
In the case before us the appellant had stipulated to liability for prejudgment interest to the extent that the prejudgment interest did not exceed the policy limits. We find nothing in the insurance policy that imposes an obligation on the appellant to pay prejudgment interest. However, even if the appellant had not so stipulated we believe it still would have been liable for prejudgment interest to the extent that the amount did not exceed the policy limits.
> In the present case Geyman contracted for liability insurance with the appellant and paid premiums for coverage up to $250,000 and he is entitled to that protection. By virtue of MCLA 600.6013; MSA 27A.6013, defendant is required to pay interest on the judgment from the date of the complaint. The fact that the prejudgment interеst does not fall within the provisions covering interest, costs or damages in no way negates the insurer’s liability for prejudgment interest up to an amount that does not exceed the policy limits. In other words the appellant is liable for the amount of risk it assumed. We hold that the liability of an insured for prejudgment interest is also imposed upоn the insurer upon public policy grounds to the extent: that the amount of prejudgment interest does not exceed the policy limits. This result finds support elsewhere. See Cleghorn v Ocean Accident & Guarantee Corp, Ltd of London,
The effect of allowing prejudgment interest in an amount beyond policy limits would be to force an insurance company to acquiesce to a plaintiff’s demand at an early stage of the proceedings where it may have a meritorious defense, rather than run the risk of paying a large amount of prejudgment interest due to the delays engendered by crowded dockets should the plaintiff eventually recover.
Reversed and remanded for еntry of judgment consistent with this opinion. No costs.
Concurrence Opinion
(concurring in part, dissenting in part). I concur with the result reached by the majority except insofar as it limits the amount of prejudgment interest payable by defendant-appellant to an amount which when added to the judgment for damages does not exceed the policy limits of liability for damages.
The majority opiniоn holds, and I concur, that prejudgment interest is not damages. It also holds, however, that the amount of prejudgment interest when added to the amount of the judgment cannot exceed the policy limits of liability for damages. This to me is inconsistent. If prejudgment interest is not damages, why should the limits of liability for damages have any effect on the amount of interest payаble by the insurance company.
Defendant-appellant’s policy contains the following provisions:
*444 "Michigan Mutual Liability Company * * * agrees * * * [t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:
"A. bodily injury * * * ;
"The limit of bodily injury liability stated in the declarations as applicable to 'each person’ is the limit of the company’s liability for all damages, * * * sustained by one person as the result of any one occurrence”. (Emphasis supplied.)
Defendant-appellant’s argument runs thus. Prejudgment interest is part of the damages which the insured has become legally obligated to pay. Therefore the insurer must pay prejudgment interest under the liability provision of its policy. However, the limits of the insurer’s liability for damages in this case is $250,000. Hence, since the total amount of damages for which the insurer is liable cannot exceed $250,000, it cannot be liable for any amount of prejudgment interest which when added to the judgment exceeds $250,000.
The majority opinion rejects, and I think rightly so, the defendant-appellant’s argument that prejudgment interest is part of the damages which the insurеd has become legally obligated to pay. It then accepts, I think inconsistently, the defendant-appellant’s conclusion that since the insurance company has limited its liability for damages under the terms of its policy the total award cannot exceed those limits of liability.
I would hold that public policy requires that the insurеr pay any and all interest allowable on that amount of any judgment which the insurer is liable to pay.
Any other holding would seem to me to be so unfair to the policyholder as to be unconscionable. It is the insurance company that has control of the litigation. The policyholder cannot settle the law
Moreovеr I disagree with the majority that the effect of allowing prejudgment interest in an amount beyond the policy limits would be to force an insurer to pay a plaintiff’s demand at an early stage of the proceedings even though it may have had a meritorious defense. Rather than pay the demand the insurer could invest the same monеy in an interest earning reserve. In the end, if the plaintiff prevailed, the insurer would have accumulated the interest which it would then be required to pay to the claimant. I see nothing unfair or unreasonable about requiring such a procedure. A plaintiff who has a valid claim has a right to his damages as of the date the claim acсrues. In reality the insurance company which is liable for the payment of those damages holds the funds in trust for the claimant pending judicial determination of the validity of the claim. It would seem to me that public policy would require that the insurance company invest those funds for the benefit of the claimant should he succeed in рroving his claim to be valid. If the claimant fails to prove his claim, the insurance company has its profit from the investment of the reserve.
As indicated above, I would concur in the result reached by the majority except insofar as it limits the amount of prejudgment interest payable by the insurance company to an amount which does not exceed the insurance company’s limits of liability for damages.