- .. , I .. STATE OF MAIIVE . ,. SUPERIOR COLTRT I . , , - CIVIL ACTION CUMBERLAND, ss. . " - 8 - * STATE FARM FIRE & CASUALTY COMPANY,
Plaintiff * * ORDER
ANGELA C. HAL:EY and * STEPHEN M. HALEY, * * Defendant * *
Before the court is Defendants Angela and Stephen Haley's motion for
summary judgment on Plaintiff State Farm Fire & Casualty Company's
declaratory judgment action.
BACKGROUND
On September 29,2003, Hazel Stygles was driving on Pernham Street in
Farmington, Maine, when she ran a stop sign and a red flaslung light and
broadsided Angela Haley's vehcle in the driver side door. As a result of the
accident, Ms. Haley suffers from serious long-term injuries.' State Farm Fire &
Casualty Company ("State Farm") was Ms. Stygles' insurer. On November 18,
2003, Angela and Stephen Haley (the "Haleys") served Ms. Stygles with a Notice
of Claim. On or about June 7,2005, the Haleys filed suit in the Franklin County
Superior Court. Angela C. Haley and Stephen M. Haley v. Hazel Stygles, Docket No.
1 Angela was diagnosed with L4-5 disc herniation. She suffers severe low back pain, numbness over the right anterior thigh, weakness in her right side, and problems with bowel control. In and around September, 2005, Ms. Haley and Ms. Stygles reached a
settlement. Ms. Haley agreed to accept a settlement of $100,000, Ms. Stygles'
policy limit with State Farm. The parties did not agree, however, whether State
Farm was also responsible for pre-judgment interest and costs in excess of the
policy limit. Conz,equently,the parties agreed that State Farm would file this
declaratory judg~nentto determine whether State Farm is also responsible for
pre-judgment interest and costs in excess of its policy limit. The parties agree
that if the court firtds that State Farm is responsible, the pre-judgment interest is
$9,8414.70 and the costs are $149.33.
Ms. Stygles' policy states:
In addition to the limits of liability, we will pay for an insured any costs listed below resulting from such accident:
1. Court costs of any suit for damages that we defend. 2. Interest on damages owed by the insured due to a judgment and accruing: a. After judgment, and until we pay, offer or deposit in court the amount due under t h s coverage; or b. Before the judgment, where owed by law, and until we pay, offer or deposit in court the amount due under this coverage, but only on that part of the judgment we pay. (Policy p. 7).
DISCUSSION
The parties agree that there are no genuine issues of material fact before
the court. The only legal issue to be determined is whether State Farm is
responsible for pre-judgment interest and costs above and beyond the settlement
amount and policy limit of $100,000.
State Farm argues that the language of the policy requires the payment of
pre-judgment interest only when litigation culminates in a judgment. Because
the parties reached a settlement on the policy limit, there is no judgment from which to apply pre-judgment interest. As such, State Farm argues that it is not
responsible for pre-judgment interest.
In response, the Haleys argue essentially that that the difference between
a judgment and a settlement in this context is merely one of semantics. The
policy underlying prejudgment interest is to discourage parties from delaying
litigation, wluch c,anoccur whether the parties go to trial or settle on the eve of
trial. Were the court to hold that prejudgment interest does not apply to
settlements, in effect it would be discouraging settlements by establishing lower
policy limits pre-tirial and htgher policy limits post-trial. In support of their
argument, the Haleys urge the court to follow the holding of the Supreme Court
of Alaska ill Tucker v. United Services Automobile Association, 827 P.2d 440 (Alaska,
1992).
Under Maine law, prejudgment interest is allowed in all civil actions involving a contract that contains a provision relating to interest. 14 M.R.S.A. §
1602-B(2). The interest accrues from the time of the service of a notice of claim or
the filing of the co:mplaintuntil the date that an order of judgment is entered. 14
M.R.S.A. § 1602-B(:5).The order of judgment must state the applicable interest
rate for prejudgment interest to be awarded. 14 M.R.S.A. § 1602-B(4).
The policy reasons behtnd prejudgment interest are two-fold. First, it
compensates an injured party for the inability to use money rightfully belonging
to that party between the date the notice of claim is served or suit is filed and the
date judgment is entered. Jasch v. The Anchorage Inn, 2002 ME 106, 9 13, 799 A.2d
1216, 1219 (discussing prejudgment interest in the workers' compensation
setting). Second, it encourages the defendant to pursue settlement of clearly
meritorious suits. Id. The Law C'ourt first examined the issue of prejudgment interest in Nunez
v. Nationwide Mutual lizsurnnce Co., 472 A.2d 1383 (Me. 1984).' On strilungly
similar facts to the present case, Nz.~rzezarose from a declaratory judgment action
brought by a plaintiff who had settled with the insured tortfeasor's liability
carrier for the policy limit. The policy provided that the policy limit was $50,000
for all damages, but was silent on prejudgment interest. The settlement
agreement, however, provided that the insurer would pay such prejudgment
interest as it was found legally obligated to pay under the terms of the policy.
Regardless of the language of the settlement agreement, the Law Court
held that the plain language of the policy is controlling on whether prejudgment
interest is due. Id. Accordingly, the Court adopted the majority rule and held
that a liability insurer has no obligation to pay on behalf of its insured any sums,
including prejudgment interest, in excess of the policy limiL3 Nunez, 472 A.2d at
1384. The Court further noted: "The limitation serves a legitimate purpose and,
except for express policy exceptions or statutory requirements not present in this
case, the limitation ought to apply to all sums which the insurer is obligated to
pay." Id.
2 14 M.R.S.A. § 1602 then provided:
In all civil actil~ns,except those actions involving a contract or note which contract or note contains ii provision relating to interest, interest shall be assessed from the date on which the complaint is filed in court. . . . From and after the date of entry or an order for judgment, including the period of pendency of an appeal, interest shall be allowed at the rate of 10% per year. 3 See Lessard u. Milwaukee Ins. Co., 524 N.W.2d 556,558-559 (Minn. 1994); Carney u. Auto 111s. Co., 877 P.2d 1113,1118-11'19 (Okla. 1994); Guiiz v. Ha, 591 P.2d 1281 (Alaska 1979); Factory Mtltual Liability I~zsurailceColnpaizy of America v. Cooper, 106 R.I. 632,262 A.2d 370 (R.I. 1970); Walker v. Walker, 108 N.H. 341,235 A.2d 520 (N.H. 1967);Laplant v.Aetna Casualty and Surety Co., 107 N.H. 183,219 A.2d 283 (N.H. 1966).
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- .. , I .. STATE OF MAIIVE . ,. SUPERIOR COLTRT I . , , - CIVIL ACTION CUMBERLAND, ss. . " - 8 - * STATE FARM FIRE & CASUALTY COMPANY,
Plaintiff * * ORDER
ANGELA C. HAL:EY and * STEPHEN M. HALEY, * * Defendant * *
Before the court is Defendants Angela and Stephen Haley's motion for
summary judgment on Plaintiff State Farm Fire & Casualty Company's
declaratory judgment action.
BACKGROUND
On September 29,2003, Hazel Stygles was driving on Pernham Street in
Farmington, Maine, when she ran a stop sign and a red flaslung light and
broadsided Angela Haley's vehcle in the driver side door. As a result of the
accident, Ms. Haley suffers from serious long-term injuries.' State Farm Fire &
Casualty Company ("State Farm") was Ms. Stygles' insurer. On November 18,
2003, Angela and Stephen Haley (the "Haleys") served Ms. Stygles with a Notice
of Claim. On or about June 7,2005, the Haleys filed suit in the Franklin County
Superior Court. Angela C. Haley and Stephen M. Haley v. Hazel Stygles, Docket No.
1 Angela was diagnosed with L4-5 disc herniation. She suffers severe low back pain, numbness over the right anterior thigh, weakness in her right side, and problems with bowel control. In and around September, 2005, Ms. Haley and Ms. Stygles reached a
settlement. Ms. Haley agreed to accept a settlement of $100,000, Ms. Stygles'
policy limit with State Farm. The parties did not agree, however, whether State
Farm was also responsible for pre-judgment interest and costs in excess of the
policy limit. Conz,equently,the parties agreed that State Farm would file this
declaratory judg~nentto determine whether State Farm is also responsible for
pre-judgment interest and costs in excess of its policy limit. The parties agree
that if the court firtds that State Farm is responsible, the pre-judgment interest is
$9,8414.70 and the costs are $149.33.
Ms. Stygles' policy states:
In addition to the limits of liability, we will pay for an insured any costs listed below resulting from such accident:
1. Court costs of any suit for damages that we defend. 2. Interest on damages owed by the insured due to a judgment and accruing: a. After judgment, and until we pay, offer or deposit in court the amount due under t h s coverage; or b. Before the judgment, where owed by law, and until we pay, offer or deposit in court the amount due under this coverage, but only on that part of the judgment we pay. (Policy p. 7).
DISCUSSION
The parties agree that there are no genuine issues of material fact before
the court. The only legal issue to be determined is whether State Farm is
responsible for pre-judgment interest and costs above and beyond the settlement
amount and policy limit of $100,000.
State Farm argues that the language of the policy requires the payment of
pre-judgment interest only when litigation culminates in a judgment. Because
the parties reached a settlement on the policy limit, there is no judgment from which to apply pre-judgment interest. As such, State Farm argues that it is not
responsible for pre-judgment interest.
In response, the Haleys argue essentially that that the difference between
a judgment and a settlement in this context is merely one of semantics. The
policy underlying prejudgment interest is to discourage parties from delaying
litigation, wluch c,anoccur whether the parties go to trial or settle on the eve of
trial. Were the court to hold that prejudgment interest does not apply to
settlements, in effect it would be discouraging settlements by establishing lower
policy limits pre-tirial and htgher policy limits post-trial. In support of their
argument, the Haleys urge the court to follow the holding of the Supreme Court
of Alaska ill Tucker v. United Services Automobile Association, 827 P.2d 440 (Alaska,
1992).
Under Maine law, prejudgment interest is allowed in all civil actions involving a contract that contains a provision relating to interest. 14 M.R.S.A. §
1602-B(2). The interest accrues from the time of the service of a notice of claim or
the filing of the co:mplaintuntil the date that an order of judgment is entered. 14
M.R.S.A. § 1602-B(:5).The order of judgment must state the applicable interest
rate for prejudgment interest to be awarded. 14 M.R.S.A. § 1602-B(4).
The policy reasons behtnd prejudgment interest are two-fold. First, it
compensates an injured party for the inability to use money rightfully belonging
to that party between the date the notice of claim is served or suit is filed and the
date judgment is entered. Jasch v. The Anchorage Inn, 2002 ME 106, 9 13, 799 A.2d
1216, 1219 (discussing prejudgment interest in the workers' compensation
setting). Second, it encourages the defendant to pursue settlement of clearly
meritorious suits. Id. The Law C'ourt first examined the issue of prejudgment interest in Nunez
v. Nationwide Mutual lizsurnnce Co., 472 A.2d 1383 (Me. 1984).' On strilungly
similar facts to the present case, Nz.~rzezarose from a declaratory judgment action
brought by a plaintiff who had settled with the insured tortfeasor's liability
carrier for the policy limit. The policy provided that the policy limit was $50,000
for all damages, but was silent on prejudgment interest. The settlement
agreement, however, provided that the insurer would pay such prejudgment
interest as it was found legally obligated to pay under the terms of the policy.
Regardless of the language of the settlement agreement, the Law Court
held that the plain language of the policy is controlling on whether prejudgment
interest is due. Id. Accordingly, the Court adopted the majority rule and held
that a liability insurer has no obligation to pay on behalf of its insured any sums,
including prejudgment interest, in excess of the policy limiL3 Nunez, 472 A.2d at
1384. The Court further noted: "The limitation serves a legitimate purpose and,
except for express policy exceptions or statutory requirements not present in this
case, the limitation ought to apply to all sums which the insurer is obligated to
pay." Id.
2 14 M.R.S.A. § 1602 then provided:
In all civil actil~ns,except those actions involving a contract or note which contract or note contains ii provision relating to interest, interest shall be assessed from the date on which the complaint is filed in court. . . . From and after the date of entry or an order for judgment, including the period of pendency of an appeal, interest shall be allowed at the rate of 10% per year. 3 See Lessard u. Milwaukee Ins. Co., 524 N.W.2d 556,558-559 (Minn. 1994); Carney u. Auto 111s. Co., 877 P.2d 1113,1118-11'19 (Okla. 1994); Guiiz v. Ha, 591 P.2d 1281 (Alaska 1979); Factory Mtltual Liability I~zsurailceColnpaizy of America v. Cooper, 106 R.I. 632,262 A.2d 370 (R.I. 1970); Walker v. Walker, 108 N.H. 341,235 A.2d 520 (N.H. 1967);Laplant v.Aetna Casualty and Surety Co., 107 N.H. 183,219 A.2d 283 (N.H. 1966). In further examining this issue, the Law Court fortified Nunez by holding
that prejudgment interest is an element of compensatory damages and therefore
governed by the policy language limiting an insurer's exposure for damages.
Moholland v. Empire Fire & Marine Insurance Co., 2000 ME 26, ¶ 4, 746 A.2d 362,
364; Trask v. Auto~irobileIlzstirance Co., 1999 ME 94, ¶ 6, 736 A.2d 237, 238. Costs,
on the other hand, are not an element of compensatory damages in that they d o
not compensate an injured person for loss, detriment, or injury. Trask, 1999 ME
94, ¶ 13,736 A.2d at 240. In Trask, when the policy was silent on the issue of
costs, the Court held that because costs are simply a burden of litigation, the
prevailing party was entitled to recover costs in excess of the policy limit. Id.
Although the Haleys urge the court to follow the holding of the Supreme
Court of Alaska, the facts presented in Tucker v. United States Automobile
Association, are distinguishable from these facts. In Tucker, the policy anticipated
payment of prejudgment interest on a settlement by the parties. It stated that the
insurer would award prejudgment interest "if we make an offer to pay the
applicable limit of liability." 827 P.2d at at 440. Here, the State Farm policy
limitation only states that prejudgment interest is due upon judgment.
In this case, the analysis begins with the plain language of the State Farm
policy. The policy states that State Farm will pay prejudgment interest in excess
of the policy limit due on a judgment. The plain language of the policy does not
indicate that prejucdgment interest shall be paid after settlement. Rather, the
policy limits prejudgment interest to cases that culminate in a judgment. T h s
interpretation is in line with a common sense understanding of the term
"prejudgment inteirest," w h c h implies that interest accrues until final judgment
in the matter. While the law does not specifically mandate prejudgment interest after
settlement, on a policy level, the impending threat of prejudgment interest
served its purpose in this case. State Farm defended Ms. Stygles and the parties
reached a settlement. There is no allegation that State Farm delayed the litigation
or otherwise actecl in bad faith. The Haleys could have rejected the settlement
and chosen to take the case to trial. Had they prevailed, they would have been
entitled to prejudgment interest under the terms of the policy.
Trial entails risk w h l e settlement eliminates risk through a negotiated
compromise. Her'e, the Haleys negotiated a favorable outcome by settling to the
limit of Ms. Styglesl policy. Thus, according to Nunez, they are not entitled to
prejudgment interest under the plain language of the State Farm policy.
Turning to the issue of costs, the policy clearly states that State Farm will
pay "Court costs of any suit for damages that we defend." Although the policy is
not silent on costs, as in Trask, it does not require a judgment in order to trigger
this provision. Accordingly, the Haleys are entitled to recover costs in excess of
the policy limit.
The entry is':
Defe:ndantsl motion for summary judgment is DENIED in part and GRANTED in part. Because there are no genuine issues of material fact, the court holds that Plaintiff is not responsible for prejudgment interest but is responsible for $149.33 in costs.
~ o g e rE. t Crowley Justice, Superior Court