Bowen v. Farmers Ins. Exchange

Decision Date02 May 1996
Docket NumberNo. 95CA0141,95CA0141
PartiesJanice Bailey BOWEN, Plaintiff-Appellant, v. FARMERS INSURANCE EXCHANGE, Defendant-Appellee. . IV
CourtColorado Court of Appeals

Nicholas W. Goluba, Jr., Glenwood Springs, for Plaintiff-Appellant.

Elder & Phillips, P.C., Mark R. Luff, Grand Junction, for Defendant-Appellee.

Opinion by Judge KAPELKE.

In this action for recovery of underinsured motorist (UIM) benefits, plaintiff, Janice Bailey Bowen, challenges the amount of prejudgment interest that the trial court awarded in her favor and against defendant, Farmers Insurance Exchange (Farmers). We reverse and remand with directions.

On May 6, 1989, Bowen was injured in an automobile accident. On February 14, 1992, she made demand on Farmers for UIM benefits under the policy covering the car she was driving at the time of the accident. With Farmers' consent, Bowen settled her liability claim against the underinsured driver on August 5, 1993.

In December of 1993, Farmers stipulated as to the liability of the other driver and the amount of Bowen's damages. Thereafter, a dispute arose as to the amount of UIM benefits to which plaintiff was entitled.

Bowen brought this action against Farmers for breach of contract and declaratory judgment and sought prejudgment interest pursuant to § 5-12-102(1), C.R.S. (1992 Repl.Vol. 2). The trial court awarded Bowen prejudgment interest calculated from the date of the stipulation as to liability and damages.

In this appeal, Bowen contends that the trial court erred in awarding interest from the date of the stipulation rather than from the date of the accident. In the alternative, she argues that she was entitled to interest from the date Farmers should have informed her of the available coverage, or from the date she demanded payment of UIM benefits under the policy. We agree that the trial court erred in calculating prejudgment interest.

Section 5-12-102(1), which governs the award of prejudgment interest here, states, in pertinent part:

(a) When money or property has been wrongfully withheld, interest shall be an amount which fully recognizes the gain or benefit realized by the person withholding such money or property from the date of the wrongful withholding to the date of payment or to the date judgment is entered, whichever occurs first.

(b) Interest shall be at the rate of eight percent per annum ... for all moneys ... after they are wrongfully withheld or after they become due to the date of the payment or to the date judgment is entered, whichever occurs first. (emphasis added).

The purpose of § 5-12-102(1) is to discourage persons responsible for the settlement of claims from stalling or delaying payment until final settlement or judgment. Mesa Sand & Gravel Co. v. Landfill, Inc., 776 P.2d 362 (Colo.1989). The statute should be given a broad, liberal interpretation. Westfield Development Co. v. Rifle Investment Associates, 786 P.2d 1112 (Colo.1990).

Prejudgment interest is available under the statute from the time a claim accrues, and the prevailing party is not required to establish tortious conduct on the part of the losing party in order to recover. In an action on a contract, the non-breaching party is entitled to recover interest from the time of the breach. Mesa Sand & Gravel Co. v. Landfill Inc., supra.

Under the policy at issue here, UIM coverage was coextensive with uninsured motorist (UM) protection. The UM provision stated, in pertinent part:

We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured person....

Determination as to whether an insured person is legally entitled to recover damages or the amount of damages shall be made by agreement between the insured person and us. If no agreement is reached, the decision will be made by arbitration.

Based on the policy language, the trial court found that prejudgment interest did not begin to accrue until the date of the stipulation because benefits were not due until either an arbitration award had been entered or the parties had reached an agreement on liability and the amount of damages.

Interpretation of a contract, including an insurance contract, is a matter of law which an appellate court reviews de novo. Union Insurance Co. v. Houtz, 883 P.2d 1057 (Colo.1994). Here, we agree with plaintiff that the quoted policy provision concerning legal entitlement and the amount of damages merely prescribes how the insurer's obligation is to be determined and does not establish when the obligation arises.

We reject Farmers' contention that an agreement between the parties or a final arbitration decision was a condition precedent to Farmers' obligation to pay UIM benefits.

The above-quoted provision does not contain language specifying that the insurer has no liability to the insured unless or until an agreement has been reached or an arbitration proceeding completed. At a minimum, this provision is ambiguous to the extent that it can, as indicated, be read to establish only the method of determining the extent of the insurer's obligation, and not the effective date of such obligation.

Ambiguities in an insurance policy must be construed against the insurer. American Family Mutual Insurance Co. v. Johnson, 816 P.2d 952 (Colo.1991); Tepe v. Rocky Mountain Hospital, 893 P.2d 1323 (Colo.App.1994). Such a construction here leads us to reject Farmers' argument that it had no obligation to pay prejudgment interest before December 15, 1993, the date of the stipulation as to Farmers' liability and the amount of damages.

Farmers' interpretation of the policy, if adopted, would tend to encourage insurance companies to stall and delay in the payment of claims, thereby frustrating the purpose of the statute. See Mesa Sand & Gravel Co. v. Landfill, Inc., supra.

However, we also disagree with Bowen's primary contention that she was entitled to interest from the date of the accident. Her claim, as is evident from the complaint, is one for breach of contract. Under § 5-12-102(1)(b), C.R.S. (1992 Repl.Vol. 2), the non-breaching party is entitled to recover prejudgment interest from the date of the breach. Mesa Sand & Gravel v. Landfill, Inc., supra.

Since this is a suit on the policy, rather than a tort claim, the date of the accident is not relevant to the issue of determining prejudgment interest based on a wrongful withholding. Cf. State Farm Mutual Auto Insurance v. Springle, 870 P.2d 578 (Colo.App.1993) (rejecting contention that claim for UIM benefits accrued at time of accident for purposes of statute of limitations).

The breach of contract by Farmers consisted of its wrongful refusal or failure to pay following the demand made on behalf of Bowen. While the record indicates that Bowen made demand for payment under the policy on February 14, 1992, we are unable to ascertain the date of Farmers' subsequent refusal to pay.

Accordingly, we conclude that a remand is necessary for the trial court to determine the actual date of Farmers' breach by refusal to pay and also to make an award of prejudgment interest under § 5-12-102(1) from that date.

The judgment is therefore reversed, and the cause is remanded for further proceedings in accordance with this opinion.

MARQUEZ, J., concurs.

BRIGGS, J., dissents.

Judge BRIGGS dissenting.

In my view, the trial court's ruling should be affirmed. I therefore respectfully dissent.

As an initial matter, the record on appeal is insufficient to warrant reversal of the trial court's ruling.

An insurance policy is a contract and should be construed in accordance with general principles of contractual interpretation. Wota v. Blue Cross & Blue Shield, 831 P.2d 1307 (Colo.1992). Thus, like any other contract, the provisions of an insurance contract should not be...

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