Fratus v. Republic Western Ins. Co.

• Decision Date: 09 January 1998
• Docket Number: 97-1955,Nos. 97-1876,s. 97-1876
• Citation: 147 F.3d 25
• Parties: Joseph J. FRATUS, et al., Plaintiffs, Appellees, v. REPUBLIC WESTERN INSURANCE COMPANY, Defendant, Appellant. Joseph J. FRATUS, et al., Plaintiffs, Appellants, v. REPUBLIC WESTERN INSURANCE COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 25

147 F.3d 25

Joseph J. FRATUS, et al., Plaintiffs, Appellees, v. REPUBLIC WESTERN INSURANCE COMPANY, Defendant, Appellant.

Joseph J. FRATUS, et al., Plaintiffs, Appellants, v. REPUBLIC WESTERN INSURANCE COMPANY, Defendant, Appellee.

Nos. 97-1876, 97-1955.

United States Court of Appeals, First Circuit.

Heard Jan. 9, 1998.

Decided June 23, 1998.

Robert A. Sherman, with whom Joseph E. Boyland, Peter F. Carr II, Ross A. Keene and Eckert Seamans Cherin & Mellott, LLC were on brief, for appellant Republic Western Insurance Company.

Fred T. Polacek, with whom Rodio & Ursillo, Ltd. was on brief, for appellees Joseph J. Fratus, et al.

Before TORRUELLA, Chief Judge, ALDRICH, Senior Circuit Judge, and BOUDIN, Circuit Judge.

TORRUELLA, Chief Judge.

In a personal injury suit stemming from a tragic accident involving Joseph Fratus, a jury previously awarded him, his wife, Stephanie Fratus, and his daughter, Carissa Fratus (collectively, "Fratus family" or "plaintiffs") over three million dollars. Republic Western Insurance Company ("Republic")--defendant in the current action--defended that suit and was liable for at least $25,000 of that judgment under a policy which indisputably applied to the accident in question. Nonetheless, for almost six years, Republic paid plaintiffs nothing. During that time, over one million dollars in interest had accrued on the entirety of the original verdict. The district court ruled that Republic was obligated, under either Massachusetts or Rhode Island law, to pay this interest in accordance with a policy it had issued. See Fratus v. Republic Western Ins. Co., 963 F.Supp. 113, 116-18 (D.R.I.1997). The district court also ruled that the insurance company was not liable for three million dollars of the principal judgment in the underlying case because three additional "umbrella" coverage policies ¹ did not apply to the defendants in that case. See id. at 119. Both parties appeal. We affirm in part, reverse, and remand in part.

BACKGROUND

On June 4, 1985, Joseph J. Fratus was rendered a paraplegic when a rented truck ran into him as he directed traffic at a construction site in Cranston, Rhode Island. The driver of the truck was Joseph Obert. Obert had rented the truck from U-Haul Truck Rental in Worcester, Massachusetts on behalf of his employer, American Drywall Company, Inc. ("Drywall"). At the time, Republic was insuring the truck under a number of different policies which had been purchased by U-Haul. While the scope of coverage in three of the policies is at issue in this case, it is not disputed that a fourth policy, Business Auto Policy No. RL-1000, provided limited coverage to Obert and Drywall for the accident.

When Fratus and his family sued Obert, Drywall, and U-Haul under various theories, Republic defended the suit. A jury returned verdicts totaling over three million dollars on December 12, 1988, and, two days later, judgments were entered accordingly. One question not addressed by the judgments was whether, as a matter of law, U-Haul was vicariously liable, and thus jointly and severally liable, in Rhode Island for the judgments against Obert and Drywall. On January 27, 1989, U-Haul moved to certify to the Rhode Island Supreme Court "[w]hether Rhode Island law imposes joint and several liability on any owner of a rental vehicle not registered or rented in, but negligently operated by the bailee thereof, on the public highways of the State of Rhode Island?" The motion was granted. On June 5, 1990, the Rhode Island Supreme Court concluded that U-Haul was not jointly and severally liable for Obert and Drywall's negligence. See Fratus v. Amerco, 575 A.2d 989, 993 (R.I.1990). On July 2, 1990, the district court entered judgments consistent with the Rhode Island Supreme Court's decision.

Republic never disputed that it was responsible for at least $25,000 of the judgment. According to insurance policy RL-1000, Republic was responsible for the minimum responsibility insurance coverage for the state in which the loss occurred, which, in Rhode Island, was $25,000. On October 20, 1994, nearly six years after the jury returned its verdict, and pursuant to a demand stemming from the present litigation, Republic finally tendered payment of the $25,000 to the plaintiffs. In the interim, however, well over one million dollars in interest had accumulated on the original judgments.

Plaintiffs brought this suit under the district court's diversity jurisdiction, arguing that, under the terms of one policy RL-1000, Republic was obligated to pay all of the interest which had accumulated on the original judgments. The district court agreed that, under either Massachusetts or Rhode Island law, Republic was obligated by the plain terms of its RL-1000 policy to pay the interest on the judgments, despite the fact that, with the passage of time, this obligation became one of a far greater magnitude than payment of the policy "limits." See Fratus, 963 F.Supp. at 116-118. Republic appeals this determination.

Plaintiffs also argued that Republic was bound, under the terms of three "umbrella" policies, RU-01000, RU-02000 and RU-03000, to pay three million dollars--the policy limits of those policies--of the original judgments against Obert and Drywall. The district court held that these umbrella policies did not apply to the accident because only U-Haul, and not Obert or Drywall, was insured under the policies. See id. at 119. Plaintiffs appeal this ruling, arguing that Obert was insured as a "permissive user" of the truck.

ANALYSIS

I. Choice of law

This case arises under federal diversity jurisdiction as set forth by 28 U.S.C. § 1332. Plaintiffs are Rhode Island residents and the defendant is a Michigan-based insurance company. In the district court, the parties disputed whether the law of Massachusetts--where the truck was rented--or Rhode Island--where the accident occurred--applied. However, the district court did not resolve the question in its opinion, concluding that "it makes no difference which law applies because the application of either state's law leads to the same conclusion." See, 963 F.Supp. at 116. Neither party specifically appeals this ruling, and we conclude that the district court acted within its discretion in bypassing the choice of law issue. A federal court sitting in diversity need not make a finding regarding which state's law is to be applied where the case's resolution would be identical under either state's law. See Pediatricians, Inc. v. Provident Life & Accident Ins. Co., 965 F.2d 1164, 1168 (1st Cir.1992); Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1092 (1st Cir.1989).

II. Interpreting RL-1000

According to Republic's RL-1000 insurance policy, which indisputably covered Obert, "[i]n addition to our limit of liability, we will pay for the insured ... [a]ll interest accruing after the entry of judgment in a suit we defend. Our duty to pay interest ends when we pay or tender our limit of liability" (emphasis in original). The insurance industry refers to this clause as a "standard interest clause." Republic does not dispute that it defended the underlying suit in this case. In that case, verdicts were delivered for the plaintiffs in the amount of $3,170,000 ($4,482,300 after computing pre-judgment interest). Judgments were entered on the verdicts on December 14, 1988. As of that date, RL-1000 obligated Republic to pay $25,000 to the plaintiffs. Nonetheless, Republic did not pay the plaintiffs any money until October 20, 1994. During the almost six years between the trial and Republic's tender of the policy limits, well over one million dollars in interest had accumulated on the original judgments.

Plaintiffs claim that Republic is bound by its contract terms to pay this interest, in spite of the fact that the limit of liability under the policy was only $25,000. Republic claims that it is, at most, obligated to pay interest on $25,000 of the judgment, since that is the limit of liability under the policy. Republic argues that the district court's decision produced the "absurd" result of requiring it to pay interest worth many times the policy limits.

This dispute does not merit much discussion. The contract terms could not be clearer. Republic agreed, in addition to its limit of liability, to pay "[a]ll interest accruing after the entry of judgment" (emphasis added) until the $25,000 was tendered. As the district court observed, "all interest" does not mean "partial interest." Republic essentially asks this court to ignore the plain terms of its own policy because, under circumstances like those in the present case, it At any time after judgments were entered in this case, Republic could have stopped the interest from accumulating by paying the Fratuses the $25,000 that they were owed. Republic's burden of adhering to its own contract was not onerous. Yet, to this date, no explanation has been offered for the delay in making the payment to which plaintiffs were entitled. ²

would be obligated to pay sums of interest that are grossly disproportionate to the policy limits. This argument is unavailing. Where the terms of a contract are clear and unambiguous, they must be applied as written. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 439 N.E.2d 234, 237 (1982); Factory Mut. Liability Ins. Co. of Am. v. Cooper, 106 R.I. 632, 262 A.2d 370, 372 (1970).

It may, at first, seem shocking to impose this immense obligation on Republic for a failure to deliver a relatively small sum to the plaintiffs. Yet, the clear majority of modern courts that have interpreted a standard interest clause under similar circumstances have concluded that the policies mean what they say. See In re Estate of Tichota, 191 Neb. 484, 215 N.W.2d 885, 886-87 (1974) (explaining that the modern trend and majority rule holds insurers liable for interest on the entire amount of the judgment); Weber v. Biddle, 4 Wash.App. 519, 483 P.2d 155, 161-62 (1971); 8A John...