Is the Amount of A Self-Insured Retention the Most A Policyholder Ever Might Have to Pay? Well, There's this Thing Called Post-Judgment Interest.
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This story is reprinted with permission from FC&S Legal, the industry s only comprehensive digital resource designed for insurance coverage law professionals.Visit the website to subscribe.
July 24, 2017 Steven A. Meyerowitz, Esq., Director, FC&S Legal
A federal district court in Michigan has issued a decision explaining whether a policyholder with a $2 million self-insured retention ( SIR ) had to pay post-judgment interest on that amount, or whether that fell to its commercial excess liability insurer.
The Case
Key Safety Systems, Inc. ( KSS ) was sued in Georgia state court in a products liability action (the Underlying Action ). Because it had obtained a commercial excess liability insurance policy with a $2 million SIR per occurrence from AIG Specialty Insurance Company, KSS hired its own counsel to defend it in the Underlying Action and elected to try the case to a jury.
The jury returned a verdict in favor of the underlying plaintiff in the amount of $4,639,416 and apportioned 80 percent liability against KSS. Thereafter, the trial court entered a judgment against KSS in the Underlying Action in the amount of $3,711,532.80.
Again because of the $2,000,000 SIR, KSS paid all fees and costs incurred in its defense of the Underlying Action through the conclusion of the jury trial.
KSS appealed. AIG paid 50 percent of KSS s defense fees and costs incurred to appeal; KSS paid the remaining 50 percent.
An appellate court in Georgia affirmed the judgment against KSS and the Georgia Supreme Court denied KSS s petition for certiorari.
Thereafter, KSS demanded that AIG pay all amounts owed by KSS under the judgment including all post-judgment interest in excess of the $2,000,000 SIR.
In response, AIG denied that it owed any interest attributable to KSS s $2,000,000 SIR.
KSS and AIG paid the judgment against KSS in the amount of $3,711,532.80, plus interest in the amount of $586,183.82, plus court costs in the amount of $2,517.40. KSS paid $2,306,808.46 of the judgment, subject to a reservation of rights. This amount was comprised of KSS s $2,000,000 SIR under the policy, plus the interest owed on the $2,000,000 SIR in the amount of $306,808.46.
AIG paid the balance of the judgment that had been entered against KSS.
KSS sued AIG, claiming breach of contract and alleging that it was due $306,808.46 in post-judgment interest under its insurance policy. KSS argued that it had the right to recover the post-judgment interest it had paid on the underlying judgment because, under its policy, it had satisfied its SIR obligation when it had paid the first $2,000,000 of the judgment. Once that was done, KSS contended, AIG was obligated to promptly pay the remainder, regardless of whether it was for interest, damages, or both.
AIG asserted that the policy dictated that it would pay the amount of loss determined by an agreed final judgment that fell within the terms of the policy and because post-judgment interest was not included in the definition of loss, it was not liable for that amount.
The parties moved for summary judgment.
The AIG Policy
The AIG policy provided:
A. We will pay on behalf of the Insured those sums in excess of the Self-Insured Retention that the Insured becomes legally obligated to pay as damages by reason of liability imposed by law because of Bodily Injury, Property Damage, or Personal Injury and Advertising Injury to which this insurance applies or because of Bodily Injury or Property Damage to which this insurance applies assumed by the Insured under an Insured Contract.
The amount we will pay for damages is limited as described in Section IV.
Endorsement 6, which stated that the SIR was $2,000,000 for each occurrence for the products liability coverage provided in the policy, provided:
I. We will not make any payment under this policy unless and until the total applicable Self-Insurance Retention has been satisfied by the payment of Loss . . .
When the amount of Loss has been determined by an agreed settlement or a final judgment, we will promptly pay on behalf of the Insured the amount of such Loss falling within the terms of this policy .
The policy defined:
loss
as:
those sums actually paid as judgments or settlements.
The policy also provided:
When we [the insurer] assume the defense of any Suit against the Insured that seeks damages covered by this policy we will pay . . . post-judgment interest that accrues after entry of judgment on that part of the judgment within the applicable Limits of Insurance of this policy we pay and before we pay and before we have paid, offered to pay or deposited in court that part of the judgment that is within the applicable Limits of Insurance of this policy
If the Insured does not appeal a judgment in excess of the Self-Insured Retention, we may elect to do so. If we do appeal, we will be liable for, in addition to the applicable Limits of the Insurance of this policy, all court costs, expenses incurred, and interest on that amount of any judgment which does not exceed the applicable Limits of Insurance of this policy incidental to such an appeal.
The District Court s Decision
The district court granted AIG s motion.
In its decision, the district court explained that the judgment was clear the jury awarded $3,711,532.80 for compensatory damages in the underlying action, and the trial court later added $586,183.82 in post-judgment interest after the exhaustion of appeals. In the district court s view, it was clear from this that the judgment as to the damages determined by the jury, on the one hand, and the post-judgment interest, on the other, were separate.
Moreover, the district court noted, the policy explicitly stated that AIG would be responsible for post-judgment interest in two circumstances. It reasoned that the fact that post-judgment interest was singled out in these two sections as being paid by AIG in these limited circumstances provided further support that KSS s position had to fail.
Finally, the district court rejected KSS s argument that AIG had to pay the post-judgment interest because the most KSS was obligated to pay under the policy was $2,000,000, again observing that post-judgment interest was not included as covered loss unless one of two specific and limited instances occurred. Therefore, it concluded, AIG had not violated the policy by failing to pay the $306,808.46 in post-judgment interest.
The case is Key Safety Systems, Inc. v. AIG Specialty Ins. Co., No. 16-11974 (E.D. Mich. July 20, 2017). Attorneys involved include: For Key Safety Systems, Inc., Plaintiff: David S. McDaniel, Jaffe, Raitt, Ann Arbor, MI; Mark G. Cooper, Jaffe, Raitt, Southfield, MI. For AIG Specialty Insurance Company, Defendant: Charles W. Browning, Plunkett & Cooney, Bloomfield Hills, MI; Josephine A. DeLorenzo, Plunkett Cooney, Detroit, MI.
About The Author
Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.
