Armacost v. Amica Mut. Ins. Co.

• Decision Date: 04 October 1993
• Docket Number: No. 93-1641,93-1641
• Citation: 11 F.3d 267
• Parties: Melinda Ryan ARMACOST, Plaintiff, Appellee, v. AMICA MUTUAL INSURANCE COMPANY, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 267

11 F.3d 267

Melinda Ryan ARMACOST, Plaintiff, Appellee, v. AMICA MUTUAL INSURANCE COMPANY, Defendant, Appellant.

No. 93-1641.

United States Court of Appeals First Circuit.

Heard Oct. 4, 1993.

Decided Dec. 10, 1993.

Thomas R. Bender, with whom David P. Whitman, and Hanson, Curran, Parks & Whitman, Providence, RI, were on brief, for defendant-appellant.

Mark S. Mandell, with whom Mandell, DeLuca & Schwartz, Ltd., Providence, RI, were on brief, for plaintiff-appellee.

Before TORRUELLA, Circuit Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

BOWNES, Senior Circuit Judge.

The principal issue in this automobile accident diversity case is whether a Rhode Island statute requires that an insurer pay prejudgment interest over and above its policy limits to the plaintiff. We hold that the statute does so require. Some background facts are necessary.

I.

Plaintiff-appellee, Melinda Ryan Armacost, was a pedestrian in Newport, Rhode Island, when she was struck by an automobile owned and operated by Stephen B. Owen, a resident of New York. Owen was insured by defendant-appellant, Amica Mutual Insurance Company (Amica) of Providence, Rhode Island. A complaint was filed in the district court against Owen, but the summons was returned non est inventus. Plaintiff promptly amended her complaint, naming Amica as defendant under Rhode Island's direct action statute. ¹ After discovery was completed, but prior to trial, Amica admitted negligence by its insured. The only issue for trial, therefore, was the amount of damages.

Shortly prior to the trial date, plaintiff's counsel made a written demand "equal to the coverage limits of $500,000" to settle the case. The demand specifically referred to the statute at issue, R.I.Gen.Laws Sec. 27-7-2.2. Amica rejected the demand and made a counter offer of $175,000. This was spurned by plaintiff. During the trial Amica again offered to settle for $175,000; the offer was again rejected. The jury returned a verdict of $750,000. The district court amended the judgment by reducing it to the amount of Amica's contractual liability under its policy--$495,000. ² The district court then held that Amica was required under the statute to pay plaintiff prejudgment interest on the amended judgment, "even though such interest, when added to the amended judgment, requires Amica to pay an amount which exceeds the limits of its liability under the applicable insurance policy." Armacost v. Amica Mut. Ins. Co., 821 F.Supp. 75, 82 (D.R.I.1993).

II.

The statute at issue has not been interpreted by the Rhode Island Supreme Court. The only court to have considered it is the United States District Court in the opinion from which this appeal has been taken. This means that we are called upon to decide how the Rhode Island Supreme Court would construe the statute in the context of this case. The standard of review of the district court's opinion is de novo. We do not accord deference to the district court's determination of Rhode Island law. Salve Regina College v. Russell, 499 U.S. 225, 231-35, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991).

The statute to be construed provides:

Interest on judgment--Payment by insurer.--In any civil action in which the defendant is covered by liability insurance and in which the plaintiff makes a written offer to the defendant's insurer to settle the action in an amount equal to or less than the coverage limits on the liability policy in force at the time the action accrues and the offer is rejected by the defendant's insurer then the defendant's insurer shall be liable for all interest due on the judgment entered by the court even if the payment of the judgment and interest thereon totals a sum in excess of the policy coverage limitation. This written offer shall be presumed to have been rejected if the insurer does not respond within a period of thirty (30) days.

R.I.Gen.Laws Sec. 27-7-2.2.

Rhode Island's prejudgment interest statute provides:

Interest in civil action.--In any civil action in which a verdict is rendered or a decision made for pecuniary damages, there shall be added by the clerk of the court to the amount of damages, interest at the rate of twelve per cent (12%) per annum thereon from the date the cause of action accrued which shall be included in the judgment entered therein. This section shall not apply until entry of judgment or to any contractual obligation where interest is already provided or as to any condemnation action.

Id. Sec. 9-21-10.

The question is whether the prejudgment interest statute, Sec. 9-21-10, applies to the rejected-settlement-offer statute, Sec. 27-7-2.2. Ordinarily, we would certify to a state supreme court a question of first impression involving the interpretation of a state statute. In this case, however, the language of the implicated statutes, the evident purpose of the statutes, and the case law are so clear that we think certification would be a waste of judicial resources.

Amica raises two issues: whether the Rhode Island Supreme Court would construe Sec. 27-7-2.2 as not applicable to direct action suits against insurers; and whether the Rhode Island Supreme Court would limit the interest due on cases arising under Sec. 27-7-2.2 to that accruing after judgment.

A. The Applicability of Sec. 27-7-2.2 to the Direct Action Statute

Amica's argument on the first issue runs as follows. The starting point is that statutes granting interest on judgment must be strictly construed because they are in derogation of the common law. So construed, Sec. 27-7-2.2 applies only to actions "in which the defendant is covered by liability insurance." Amica therefore contends that, because it is an insurer, and not, in the words of the statute, "a defendant covered by liability insurance," it does not come within the compass of the statute. It argues that the phrase "written offer to the defendant's insurer" is directed at the situation where the decision to settle is not within the control of the defendant, but lies with defendant's insurer. The purpose of the statute, Amica concludes, is to protect a defendant who is insured from interest liability in excess of the policy limits due to a decision made by the insurer.

This is an ingenious argument; it uses the strict construction doctrine to avoid the plain meaning of the statute. But it ignores the legal fact that the action against the insurer is a derivative action. Amica was the insurer of defendant Owen. The complaint was originally brought against Owen. Amica was made a defendant under the direct action statute, Sec. 27-7-2, because its insured could not be served with process. Amica stands in Owen's shoes. It is both defendant and insurer. This case started out, in the words of Sec. 27-7-2.2, as a "civil action in which the defendant is covered by liability insurance." If process had been served on Owen, Amica's handling of the case would have been no different, and it would be making the same argument as to prejudgment interest because in either case it would have to pay the amount found due. We see no basis in logic or common sense for the argument that Sec. 27-7-2.2 is not applicable to the insurer under the direct action statute.

B. Construing the Statute

Amica makes a number of arguments attacking the district court's construction of the statute. The overarching argument is that the district court did not apply the rules of statutory construction that would have been applied by the Rhode Island Supreme Court and, as a result, improperly construed the statute. Because our review is de novo without any deference to the district court, we do not think it necessary to discuss point-by-point defendant's attack on the district court opinion. The only question is whether the ultimate conclusion of the district court should be affirmed. We are not concerned with the route taken by the court in reaching its result.

We start our analysis with a determination of the purpose of the rejected-settlement-offer statute, Sec. 27-7-2.2. Although the construction of this statute is one of first impression, the purpose of the prejudgment interest statute, Sec. 9-21-10, has been articulated by the Rhode Island Supreme Court. In Martin v. Lumbermen's Mutual Casualty, 559 A.2d 1028 (R.I.1989), the Rhode Island Supreme Court held that the prejudgment interest did not apply to condemnation cases. In the course of its opinion it stated:

Statutes that award prejudgment interest generally serve the dual purposes of encouraging the early settlement of claims, Pray v. Narragansett Improvement Co., 434 A.2d 923, 930 (R.I.1981), and compensating plaintiffs for waiting for recompense to which they were legally entitled, Dennis v. Rhode Island Hosp. Trust Nat'l Bank, 744 F.2d 893, 901 (1st Cir.1984).

Martin, 559 A.2d at 1031; see also Isserlis v. Director of Public Works, 111 R.I. 164, 300 A.2d 273, 274 (1973) (clear purpose of such legislation was to accelerate settlement of tort cases). We have echoed this finding of settlement purpose. Roy v. Star Chopper Co., 584 F.2d 1124, 1135 (1st Cir.1978) ("The Rhode Island prejudgment statute was enacted to promote the expeditious settlement of claims.").

We think it plain from its terms that the rejected-settlement-offer statute has the same purpose as the prejudgment interest statute--to...