Kotzian v. Barr

408 A.2d 131, 81 N.J. 360, 1979 N.J. LEXIS 1277

• Court: Supreme Court of New Jersey
• Decided: November 15, 1979
• Status: Published

Opinions

The opinion of the Court was delivered by

CLIFFORD, J.

The factual complex giving rise to the litigation is adequately set forth in the opinion of the Appellate Division, 152 N.J.Super 561, 563-64 (1977), as follows:

* * * Plaintiff James Kotzian was seriously injured on June 24, 1973 when his automobile was struck by that of defendant Barr, who had fallen asleep at the wheel. Barr was insured by Government Employees Insurance Company (GEICO) under a liability policy providing a maximum coverage of $15,000, a sum which, in view of the severity of the injury and the virtually incontestible negligence of Barr, was substantially less than the fair value of plaintiffs’ claim. Barr himself was conceded to be judgment-proof and there were apparently no special circumstances here in respect of the relationship between the insured and the insurer which could have subjected GEICO to any liability in excess of the policy limit. Rather early in the litigation, which was commenced on January 10, 1974, GEICO offered plaintiffs the policy limit of $15,000, but without any interest thereon, in full settlement of Barr’s liability. Plaintiffs refused, making the final counter proposal, rejected by GEICO, of their acceptance of the policy limit plus prejudgment interest on the fair value of the claim, calculated by them to be $100,000. GEICO ultimately applied to the trial court pursuant to E. 4:57-1 for leave to deposit the $15,000 in court. That leave was granted by an order entered on June 25,1976, which also included, on GEICO’s application, the provision that that sum represented the “full extent of the obligation of that insurer including any obligation of the insurer to pay prejudgment interest.” The order further provided that all prejudgment interest, “regardless of who is obligated to pay same, is tolled as of the date of the offering of said policy limits to the plaintiff in settlement of this claim.” The action was then tried before a second trial judge to a jury which returned a combined verdict in plaintiffs’ favor against Barr in the amount of $100,000. Plaintiffs’ application for prejudgment interest was denied by the second trial judge, who regarded himself bound by the entry of the earlier order. It is from that final order of denial that plaintiffs appeal.

The Appellate Division viewed the sole question raised by the appeal as “whether or not the trial judge erred in denying prejudgment interest on the verdict obtained by plaintiffs * *.” Its approach to resolution of this issue began with a review of the history of the prejudgment interest rule, R. 4:42—11(b), and of the policy considerations which prompted this Court to adopt the Rule, as extensively set forth in Busik v. Levine, 63 N.J. 351, appeal dismissed, 414 U.S. 1106, 94 S.Ct. 831, 38 L.Ed.2d 733 (1973). The Rule as originally drawn was in mandatory terms but was later amended, effective April, 1975, to permit suspension of prejudgment interest in “exceptional cases.” The court below concluded that judicial suspension of prejudgment interest extended “only to those cases where an award of interest would neither advance the aim of early settlement nor constitute fair compensation to the plaintiff for money withheld and used or presumptively used by the defendant.” 152 N.J.Super. at 566.

In applying this principle the Appellate Division held that in the circumstances of this case it was “not inequitable to require GEICO' to pay interest on its $15,000 from the date the complaint was filed until the date it placed the money beyond its own reach by making the deposit in court,” pointing out that the carrier can always “stop the running of the prejudgment interest by a deposit in court where it finds itself, as did GEICO here, willing to settle but unable to do so for reasons not implicating any unreasonable conduct on the part of the plaintiff.” 152 N.J.Super. at 567. It went on to hold that the $85,000 portion of the verdict which was beyond Barr’s liability coverage was not subject to prejudgment interest; and, finally, that an evaluation of what constitutes an exceptional case within the meaning of the rule “cannot realistically be undertaken prior to the final disposition of the action.” Id. at 568.

We granted certification, 76 N.J. 241 (1978), to review so much of the determination below as imposes prejudgment interest on GEICO’s $15,000 portion of the plaintiffs’ judgment. As to that issue, we reverse.

At the outset we emphasize that there are two issues projected. The first is the question of prejudgment interest on GEI-CO’s policy limits. Although the company expressed at oral argument before the Appellate Division a willingness to submit itself directly to the jurisdiction of the court with respect to that issue, it is important not to overlook the fact that the insurance carrier is not a party to this suit.¹ Hence, the ultimate question before us remains whether the defendant, Barr, should suffer judgment against him in an amount which includes prejudgment interest on a part of that judgment—that is, so much of it as is within his ability to pay by reason of his having protected himself through liability insurance. That protection in this instance was limited by contract to $15,000.

As did the Appellate Division, we advert to the policies underlying the prejudgment interest rule, namely, the indemnification of a plaintiff for the loss of income he presumably would have earned had payment not been delayed, and the encouragement of prompt consideration of settlement possibilities. Busik v. Levine, supra, 63 N.J. at 358-60. As pointed out above, the original mandatory terms of the Rule were amended precisely for the reasons set forth by Judge Conford in his dissent in Busik, 63 N.J. at 383-85, wherein he urged that the application of prejudgment interest be left to the sound discretion of the trial court. As R. 4:42-ll(b) now stands, the exercise of that discretion is to be guided essentially by the aforementioned policies which gave birth to the Rule. And so we must determine whether, under all the circumstances, the trial court mistakenly exercised its discretion in denying prejudgment interest.

In examining those circumstances we necessarily focus on the settlement posture of the parties. In this case there were certain restraints on both plaintiff and defendant as they approached amicable disposition of the claim. On defendant’s side there was the limitation of the insurance contract which defendant had purchased from GEICO. The policy limit was $15,000, the amount the company agreed to pay as damages because of bodily injury sustained by any person as the result of an automobile accident. In addition GEICO agreed to pay interest “on the entire amount of any judgment [in any covered lawsuit] 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 thereon * * * ”—that is, post-judgment interest on $15,000. The policy contains no undertaking by the company to pay prejudgment interest, and there is neither a regulation of the insurance commissioner nor any statute requiring the inclusion of any such undertaking in automobile liability policies issued in this state. Cf. State Farm Mutual Automobile Insurance Co. v. Estate of Simmons, 169 N.J.Super. 133, 138 (App.Div.1979) (every automobile policy offered as proof of financial responsibility in this State is deemed to contain the broad omnibus clause required by N.J.S.A. 39:6-46(a), the Motor Vehicle-Security Responsibility Law); Denham v. Bedford, 82 Mich. App. 107, 266 N.W.2d 682, 686 (Ct.App. 1977) (prejudgment interest statute becomes a part of the insurance contract).

On the other hand the plaintiffs too were laboring under certain strictures. In addition to their claim against Barr they had filed suit against the Borough of Stone Harbor, alleging that police officials were negligent in ordering Barr out of town after they discovered him sleeping in his parked car, with the result that being forced to drive while in a tired condition he fell asleep at the wheel and struck the Kotzian vehicle. When GEICO offered its policy limits very early in the litigation, plaintiffs understandably took the position that they could not settle, for to do so would have reduced by half the amount of any judgment which they might ultimately recover against the Borough. See Theobold v. Angelos, 44 N.J. 228, 239-41 (1965).² As it turned out, the Borough ultimately succeeded on a motion for summary judgment, and this result was affirmed by the Appellate Division in December, 1975.

It was within these restrictions that the parties explored settlement. As has been pointed out, defendant’s liability carrier promptly offered its full policy limits. The Appellate Division was of the view that plaintiffs’ refusal to accept that offer did not implicate any unreasonable conduct on their part. To the extent that the open claim against the Borough was an inhibiting factor, we agree that non-acceptance of the offer was not unreasonable. But beyond that we think plaintiffs’ tactics were decidedly open to question. They insisted, as part of what the court below termed their “final counter proposal,” on the full policy limit “plus prejudgment interest on the fair value of the claim, calculated by them to be $100,000.” 152 N.J.Super. at 563. Insistence on prejudgment interest as part of a settlement flies directly in the face of the spirit, if not the letter, of this Court’s Notice to the Bar, published some three years before the settlement negotiations in this case were commenced, 95 N.J.L.J. Index Page 341 (1972), to the effect that R. 4:42-ll(b) does not apply where a judgment is entered following a settlement, and “[t]he Supreme Court intends that [prejudgment] interest be added only when an award is made as a result of a trial, whether by a jury or by a judge sitting without a jury.” See also Pressler, Current N.J. Court Rules, Comment R. 4:42-ll(b).

During the entire course of negotiations plaintiffs never budged from their demand of policy limits plus prejudgment interest on $100,000 “from the date of the filing of the complaint to the time the matter is either settled or tried.” They adhered to this position even after the Borough was exonerated. In determining that plaintiffs’ intransigence and their refusal to forego all prejudgment interest were not unreasonable, the Appellate Division first suggested that “it is clear that GEICO’s maximum liability on its contract of insurance was the policy limit of $15,000 plus prejudgment interest on the first $15,000 of the verdict”, 152 N.J.Super. at 566; and then said that “[i]n view of the fact that [plaintiffs] had no hope of realizing the fair value of their virtually indefensible claim because of Barr’s impecuniousness, it would be unjust to penalize them for declining to accept in full settlement anything less than the maximum amount of the carrier’s post-verdict liability, which would have included prejudgment interest on the policy limit,” id. at 567 (emphasis added).

This, of course, begs the ultimate question in the case and completely disregards the fact that the company’s maximum exposure under its contract with its assured was $15,000 plus post -judgment interest—not pre -judgment interest. In addition, the difficulty with the position of the court below is that while there is an unwillingness to “penalize” plaintiffs for not accepting defendant’s offer, there is no apparent recognition of the consequence, that is, a penalty on the carrier for offering no more than the full amount it had contracted to pay. Were policy limits not involved, we would have little difficulty in concluding that prejudgment interest should be assessed in this case. Surely, as the court below pointed out, GEICO could have immediately deposited the policy limits into court, as it eventually did. See R. 4:57. However, we are not prepared to say that GEICO’s failure to have made earlier deposit of its full policy limits, having sought early in the proceedings to make the money available to plaintiffs by its offer, should result in the company’s being required to pay over and above the amount contracted for with its assured. This is not to say that the insurance contract is so sacrosanct that misconduct or bad faith on the part of the carrier would protect it against a claim for prejudgment interest over its policy limits; but that is not the case here and indeed at oral argument plaintiffs’ attorney expressly eschewed any such claim. Under all the circumstances we detect no mistaken exercise of the trial court’s discretion in disallowing prejudgment interest.

Accordingly, so much of the judgment appealed from as imposes prejudgment interest on GEICO’s $15,000 portion of plaintiffs’ judgment is:

Reversed.

¹

R. 4:42-11(b) provides for prejudgment interest to be included “in the judgment.”

2 Had the accident in question occurred a mere 59 days later, these fears would have been ill-founded. Under the Comparative Negligence Law N.J. S.A. 2A:15-5.1 et seq., effective August 22, 1973, comparative contribution would apply and “only the percentage amount equal to the percentage of negligence attributable to the settling defendant is deducted, no matter what the size of the settlement.” Rogers v. Spady, 147 N.J.Super. 274, 278 (App.Div.1977).