The Court of Appeals of New York recently held that an excess insurer was responsible for all interest on a judgment after the primary insurer paid its policy limits. The decision offers an important ruling on the duties of primary and excess insurers, particularly in light of damages calculations and policy language.
In Ragins v. Hosp. Ins. Co., Inc., 2013 NY Slip Op 8374, a dispute arose over the extent of an excess insurer’s responsibility for interest on medical malpractice judgment. The question arose after a court entered a judgment of $1,100,000 against a doctor. Before the claim was resolved, the doctor’s primary insurer became insolvent and the State Superintendent of Insurance was appointed as its liquidator. Assuming the insurer’s liabilities, the liquidator paid the primary policy’s limits of $1,000,000. The doctor’s excess insurer then paid the remaining $100,000 according to its policy obligations. After both insurers paid the damages, the trial court entered an amended judgment to account for costs and accumulated interest on the judgment. In light of these additional amounts, the excess insurer made an additional payment for its proportional share of the interest based on the portion of the judgment it had originally been obligated to pay, but the primary insurer’s liquidator offered no additional payment. The doctor then sued the excess insurer for the remaining interest.
The excess insurer argued that its obligations relative to the interest on the judgment were limited to the proportion of its payments in the underlying judgment. Because it was responsible for only one-eleventh of the underlying judgment, the excess insurer maintained that it should be responsible for only one-eleventh of the interest on the judgment. The lower court agreed with this analysis. Citing to Dingle v. Prudential Prop. & Cas. Ins. Co., 85 N.Y.2d 657 (1995), the court found that an insurer is responsible for interest only on that portion of the underlying judgment which it was obligated to pay under its policy.
However, on appeal, the state’s highest court reversed the lower court’s ruling. While Dingle set forth the general rule that an insurer is responsible for interest only in proportion to its underlying obligations, the court distinguished the case, finding that the policy language at issue here dictated otherwise. The Court of Appeals observed that in Dingle, the primary insurer expressly agreed to pay all interest that accrued on the judgment, even above the policy limits. But in this case, the primary policy did not expressly cover interest beyond the policy’s liability limit and the excess policy broadly provided coverage for “all sums” in excess of the primary policy’s limits. According to the court, the liquidator, acting for the primary insurer, satisfied its obligations under the primary policy when it paid the policy’s limits of $1,000,000. After the primary insurer’s payment of the policy limits, the excess insurer became obligated for “all sums in excess of the limits of liability on the underlying policy.” The excess policy did not define “sums” but the court, applying the word’s plain meaning, concluded that “all sums” covered all remaining amounts, including the total amount of interest on the judgment.
The court also rejected the excess insurer’s argument that the primary insurer’s insolvency affected the parties’ obligations. The excess insurer had argued that the excess policy expressly stated that that it had no duty to “drop down to cover any portion of the judgment that the primary insurer would be required to supply” should the primary insurer become insolvent. But the court did not think the insolvency in this case altered the insurers’ obligations. The primary insurer, even had it not become insolvent, would have been responsible only for its $1,000,000 policy limit, and the judgment interest would not have expanded its obligations beyond those limits. Either way, the excess insurer would have been responsible for all of the interest.
While insolvencies often complicate the settlement process and the respective rights and obligations of the interested parties, the insolvency here did not change the excess insurer’s obligations. According to the court, the plain language of the two policies clearly set forth the obligations. The primary insurer had no responsibility for interest after paying its liability limit and the excess insurer assumed responsibility for all remaining amounts in excess of the primary limits, including interest on the judgment.
The decision provides an important interpretation of policy language and clarifies the interplay between primary and excess policies. The court applied the plain language of both policies and found that the excess insurer’s broad grant of coverage made it responsible for the interest on the judgment. Pursuant to this decision, primary and excess insurers should understand the limitations of their policy language and the scope of their obligations regarding pre-judgment and post-judgment interest.
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