United States Fire Insurance v. Federal InsuranceUnited States Fire Insurance v. Federal Insurance
Plаintiff United States Fire Insurance Co. (“U.S. Fire”) appeals from a final judgment entered in the United States District Court for the Southern District of New York following a bench trial before Bernard Newman, Judge
I. BACKGROUND
The following facts are not in dispute. In 1981, Michael Bell (“Bell”), the parties’ common insured, was involved in an automobile accident. Bell was driving a car owned by John Boyle & Co. (“Boyle”), of which his father was president. A passenger in the car suffered personal injuries in the accident and brought an action for damages against Bell and Boyle. That action triggered disputes over the proper allocation of liability among the insurers who had issued four insurance policies, each of which covered Bell at the time of the accident: (1) a primary insurance policy issued by Federal to Boyle (the “business auto policy”) in the amount of $500,000; (2) a primary insurance policy issued by Aetna Casualty & Surety Co. (“Aetna”) to Bell’s mother (the “personal auto policy”), also in the amount of $500,000; (3) a “Personal Excess Liability Policy” issued by Federal to Bell’s father (the “excess policy”) in the amount of $2,000,000; and (4) a “Commercial Comprehensive Catastrophe Liability Policy” issued by U.S. Fire to Boyle (the “catastrophe policy”) in the amount of $10,-000,000. As discussed in greater detail in part II.A. below, both Federal’s excess policy and U.S. Fire’s catastrophe policy contained provisions stating that the policy’s coverage did not come into play until the insured had exhausted other available sources of insurance (the “exhaustion provisions”).
The personal injury suit was settled for $1,366,345. Of this amount, Federal paid $500,000 under its business auto policy but nothing under its excess policy, and Aetna eventually contributed $500,000 under the personal auto policy. At issue on this appeal is the remaining $366,345, paid by U.S. Fire under its catastrophe policy. U.S. Fire commenced the present action against Federal in state court, from which it wаs removed to the district court.
To the extent pertinent here, U.S. Fire contended that its catastrophe policy was excess to both (a) the primary insurance policies and (b) Federal’s excess policy, and that U.S. Fire was entitled to recover the entire $366,345 from Federal. Federal, on the other hand, contended that its excess policy was excess to both (a) the primary
After a bench trial on stipulated facts, the district court held that U.S. Fire was entitled to recover one-sixth of the $366,345 from Federal. In an Opinion, Findings of Fact and Conclusions of Law dated October 7, 1987, the court found that since both U.S. Fire’s catastrophe policy and Federal’s excess policy purported to provide coverage only after all other available insurance had been exhausted, the two exhaustion provisions canceled each other оut, and both U.S. Fire and Federal must contribute to the $366,345 portion of the settlement in proportion to their respective policy limits. Since the limits of the pertinent U.S. Fire and Federal policies were, respectively, $10,000,000 and $2,000,000, the court concluded that the ratio of their liability was 5 to 1 and ordered Federal to reimburse U.S. Fire for one-sixth of the $366,345 paid by U.S. Fire, or $61,057.50.
In a Memorandum dated November 24, 1987 (“Memorandum”), the court rejected U.S. Fire’s request for prejudgment interest on the ground that N.Y.Civ.Prac.L. & R. (“CPLR”) § 5001(a) (McKinnеy 1963) allows an award of such interest only when the court has found a breach of contract. The court’s rationale for concluding that U.S. Fire’s action was not grounded in contract was as follows:
The New York Court of Appeals has often noted that there is a fundamental distinction between contribution and indemnity. See, e.g., McDermott v. City of New York,50 N.Y.2d 211 ,428 N.Y.S.2d 643 ,406 N.E.2d 460 (1980); .... The right to contribution is not founded on, nor does it arise from, contract. It exists where ratable or proportional reimbursement is sought. Conversely, the right to indemnity springs from an express or implied contract in situations where full, not partial, reimbursement is sought....
In the underlying matter, a ratable distribution of insurance proceeds was ordered. Consequently, the parties’ insurance action was founded upon the right of contribution and not indemnification.
Memorandum at 3-4 (other citations omitted).
These appeals followed.
II. DISCUSSION
On its appeal, U.S. Fire urges principally that we review the insurance policies de novo and find that its catastrophe policy applied only after exhaustion of Federal’s excess policy. Federal argues that the “clearly erroneous” standard of review set forth in
We note that though the events and the language of the pertinent insurance policies were stipulated in the district court, the proper inferences to be drawn from the language remained in dispute. Accordingly, the trial cоurt’s factual findings may not be overturned unless they are clearly erroneous. Anderson v. City of Bessemer City,
U.S. Fire also contends that it is entitled to prejudgment interest and that it should be awarded such interest on the entire amount that it paid in the settlement. To the extent that U.S. Fire seeks to recover from Federal interest on any sum greater than the sum awarded to it from Federal, its claim is frivolous. To the extent that U.S. Fire seeks prejudgment interest on the amount Federal is required to contribute,
A. Liability
The general rule under New York law is that “[tjhere is [a] well-settled equitable right to contribution, where there is concurrent insurance even in the absence of a policy provision for apportionment,” Travelers Insurance Co. v. General Accident, Fire & Life Assurance Corp.,
The Lumbermens court determined that the general rule did not apply to three policies at issue before it because the plain language of each demonstrated that the respective parties to each insurance “contract did not bargain for a ratable contribution with any of the [other] policies.” Id. at 656,
As to the last factor mentioned in Lum-bermens, premium size may be an important factor in determining priority of coverage, see State Farm,
In the present case, the district сourt concluded that the general rule of ratable contribution applied, finding that neither the U.S. Fire catastrophe policy nor the Federal excess policy manifested a sufficiently clear intent that it would provide a higher tier of coverage than the other. Given the language of each policy’s exhaustion provisions, this finding can hardly be
the total of the applicable limits of the underlying policies listed in Schedule A hereof, and the applicable limits of any other insurance collectible by the insured ....
The Federal excess policy defines its retained limit as:
the limit of liability of the primary insurance as it is shown in the Schedule hereof, or the actual limits of liability of any applicable primary or other insurance, whichever is greater ....
Each poliсy thus evinces the same broad general intent that its coverage is to be excess to all other coverage, as U.S. Fire refers to exhaustion of “underlying” policies and “any other insurance,” while Federal refers to exhaustion of “primary” insurance and “other insurance”; but neither policy defines these terms in a way that plainly renders one broader than the other.
Further, the policies’ “Other Insurance” clauses suggest that the two policies should be regarded as providing the same tier of coverage. The “Other Insurance” clause in U.S. Fire’s policy states:
If other collectible insurance including other insurance with this company is available to the insured covering a loss also covered hereunder (except insurance purchased to apply in excess of the sum of the retained limit and the limit of liability hereunder) the insurance hereunder shall be in excess of and not contribute with, such other insurance.
The parallel clause in Federal’s policy states:
The insurance provided by this policy shall be in excеss of, and shall not contribute with, any other insurance (except insurance purchased to apply in excess of the sum of the retained limit and the limit of liability hereunder) available to the named insured ..., not only under any policy enumerated in the Schedule, but also under any other insurance available to the insured, and this insurance shall not apply until all such insurance is exhausted.
Both of these clauses refer broadly to exhaustion of “other ... available” insurance. Neither policy еxplicitly states, as did the third policy in Lumbermens, that it is excess to other “excess” insurance. Rather each is similar to the second policy at issue in Lumbermens, in that the two clauses contain an identically worded exception to the insurer’s nonobligation to “contribute with” other insurance, that exception being for “insurance purchased to apply in excess of the sum of the retained limit and the limit of liability hereunder.” The Lumbermens court characterized such a provision as one that “conceded the possibility that another policy could provide coverage in excess of its coverage.”
In sum, each оf the two policies states generally that it is to be excess to “other” insurance, yet neither states specifically that it is to be excess to excess insurance, and each in effect concedes that a tier more remote may be provided. The district court’s finding that the exhaustion provisions of the two policies offset each other is not clearly erroneous.
Federal argues that the disparate costs of the two policies should have led the district court to find that its policy, costing $144 annually for $2,000,000 of coverage, was intended to provide more remote coverage than that of U.S. Fire, which cost $7,500 for $10,000,000 of coverage. The court noted, however, that
U.S. Fire insured three corporations and provided for a variety of coverage including, inter alia, workmen’s compensation, comprehensive general liability, advertising liability and products liability. The Federal excess policy covered two resi*887 dential properties, one аutomobile and three licensed drivers.
The court found that the premium disparity reflected not different layers of coverage but rather significant differences in the number and types of risks covered. This finding is not clearly erroneous.
We conclude that the district court’s findings that the two policies provided coverage at the same level may not be overturned, and we affirm the ruling that the two insurers are therefore required to contribute in proportion to their respective limit amounts of insurance.
B. Prejudgment Interest
The availability of prejudgment interest is governed by CPLR §§ 5001 and 5002 (McKinney 1963). The former deals with interest for the period prior to a jury verdict or the court’s decision of the case; the latter deals with interest from the date of the verdict or decision to the date of judgment.
Section 5002 provides, in pertinent part, that “[ijnterest shall be recovered upon the total sum awarded, including interest to ... decision, in any action, from the date the ... decision was made to the date of entry of final judgment.” There seems to be little question that the district court in the present case should have ordered Federal to pay U.S. Fire interest on the $61,-057.50 for the postdecision-prejudgment period.
With respect to the predecision period, CPLR § 5001(a) provides for interest, in pertinent part, as follows:
Interest shall be recovered upon a sum awarded because of a breach of performance of a contract, ... except that in an action of an equitable nаture, interest and the rate and date from which it shall be computed shall be in the court’s discretion.
The district court’s denial of U.S. Fire’s request for prejudgment interest under this section was apparently premised on its view that because there was no actual contract to which both U.S. Fire and Federal were parties, and because the court awarded U.S. Fire only partial reimbursement, U.S. Fire’s claim against Federal should be treated as one for contribution among tort-feasors rather than one grounded in contract. We reject this analysis.
In the context of “apportionment of liability among joint tortfeasors,” McDermott v. City of New York,
Nonetheless, in the context of apportionment of liability among coinsurers, the term “contribution” is used as the equivalent of partial indemnificаtion, and the existence vel non of that right depends on the rights reflected in the insurance contracts. Thus, a right of partial indemnification is implied by the court in order to avoid allowing one insurer a windfall in light of the existing insurance contracts. In Aetna Casualty & Surety Co. v. Merchants Mutual Insurance Co.,
We hold that a cause of action based on a theory of implied indemnification exists in favor of the plaintiff against the defendant by virtue of the specific provisions of the policy of insurance issued by the defendant on the trailer.... [Both policies] insure the driver and both insurers must contribute to a judgment based on the negligence of the driver.
Id. at 178,
In the insurance context, therefore, where the insurance contracts reveal multiple coverage, the court exercises its equity powers to imply a contract between the coinsurers to contribute, and the proportion of their required contribution is grounded in the policy limits set forth in the contract of each insurer with the insured. Accordingly, we reject the district court’s premise that U.S. Fire’s claim against Federal was analogous to a claim for contribution between tortfeasors as to which predecision interest was barred.
Our conclusion that predecision interest was not barred, however, does not necessarily mean that U.S. Fire was entitled to it as a matter of law. Although § 5001(a) requires an award of such interest as of right if a plaintiff receives his award “because of a breach of performance of a contract,” it commits the matter of such interest to the discretion of the court when the “action [is] of an equitable nature.” Although we have found no state cases directly in point, and although the implication of an insurer’s right to contributiоn is an exercise of the court’s equity powers, several factors persuade us that an insurer’s contribution action should be viewed as a type of contract action in which the successful plaintiff is entitled to prede-cision interest as a matter of right.
First, though the recognition of a coin-surer’s right of contribution, or partial indemnification, is an exercise of the court’s equity powers, the contribution suit is nonetheless a quasi-contract action, which is an action at law. Thus, the Aetna Casualty court, in recognizing a right of contribution, stated,
“[conceptually, implied indemnification finds its roots in the principles of equity. It is nothing short of simple fairness to recognize that ‘[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity’ (Restatement, Restitution, § 76). To prevent unjust enrichment, courts have assumed the duty of placing the obligation where in equity it belongs,”
Second, § 5001(a)’s phrase “because of a breach of performance of a contract” appears to be sufficiently broad to encompass an insurer’s recovery of contribution for two reasons. To begin with, such a recovery requires (a) the existence of a contract between the defendant and the insured and (b) nonpayment by the defendant to the insured of a sum called for by that contract. The defendant’s nonpayment may easily be construed as a breach of performance of that contract, “because of” which the coinsurer is entitled to contribution. In addition, since the court implies the exist
Third, the history of § 5001(a) supports the conclusion that a plaintiff who recovers under an implied contract was meant to recover predeeision interest as a matter of law. Section 5001(a)’s predecessor, § 480 of the New York Civil Practice Act (“CPA”), provided in pertinent part as follows:
In every action wherein any sum of money shall be awarded by ... decision upon a cause of action for the enforcement of or based upon breаch of performance of a contract, express or implied, interest shall be recovered upon the principal sum.
(Emphasis added.) Cases construing this provision tended “to include contracts implied in law and quasi-contracts under the general heading of implied contracts.” 5 J. Weinstein, H. Korn & A. Miller, New York Civil Practice, ¶ 5001.04, at 50-13 (1987); see, e.g., Employers’ Liability Assurance Corp. v. Empire City Iron Works, Inc.,
For all of these reasons, we conclude that U.S. Fire was entitled as a matter of law to predecision interest from Federal on the $61,057.50 awarded. Such interest should be computed from the date on which U.S. Fire made the settlement payment. As noted above, U.S. Fire was also entitled to interest from the date of decision to the date of entry of the judgment “upon the total sum awarded, including interest to ... decision.” CPLR § 5002.
We reverse so much of the judgment below as denied U.S. Fire prejudgment interest, and we remand for the calculation of such interest in accordance with the foregoing and for the entry of a new judgment that includes the award of such interest.
CONCLUSION
The judgment of the district court is affirmed in part and reversed in part, and the matter is remanded for further proceedings in accordance with this opinion. Each party shall bear its own costs on these appeals.
Notes
The Honorable Bernard Newman, Senior Judge of the United States Court of International Trade, sitting by designation.