Martin v. Champion Ins. Co.

• Decision Date: 30 June 1995
• Citation: 656 So.2d 991
• Parties: 95-0030 La
• Court: Louisiana Supreme Court

Page 991

656 So.2d 991

95-0030 La. 6/30/95

Mary Jane Jeffreys MARTIN v. CHAMPION INSURANCE COMPANY, et al. (State Farm Mutual Automobile Insurance Company).

No. 95-C-0030.

Supreme Court of Louisiana.

June 30, 1995.

Henry Gerard Terhoeve, Mathews, Atkinson, Guglielmo, Marks & Day, Baton Rouge; for applicant.

Rick A. Caballero, Donald Wayne Price, Due, Caballero, Price & Guidry, Baton Rouge; for respondent.

[95-0030 La. 1] LOTTINGER, Justice Pro Tem. ¹

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff, Mary Jane Jeffreys Martin, was injured in an automobile accident. Prior to trial, plaintiff settled with the tortfeasor and its insurer, Champion Insurance Company (Champion), for the $10,000 policy limit, dismissing them from the suit. Plaintiff also accepted a $5,000 unconditional tender from her uninsured motorist (UM) carrier, State Farm Mutual Automobile Insurance Company. The matter proceeded to trial and a jury returned a verdict awarding plaintiff a total of $170,600 for the injuries which she sustained in the accident. The trial court accordingly rendered judgment in favor of plaintiff and against State Farm for $95,000 (the jury's verdict of $170,600 less a credit of $75,600, which credit represents the $10,000 settlement with the tortfeasor's insurer, the $5,000 tender from State Farm and $60,600, the amount by which the verdict exceeds State Farm's policy limits of $100,000.) The judgment further ordered State [95-0030 La. 2] Farm to pay judicial interest on the entire amount of the verdict, $170,600, from date of judicial demand until the date of its unconditional tender and on $155,600 ² from the date of tender until paid.

State Farm did not appeal/dispute that it was liable for $95,000 in principal, nor that it was liable to pay interest on that amount from the date of judicial demand. State Farm did appeal the award of interest on amounts beyond the principal of $95,000.

On January 26, 1994, the court of appeal reversed the trial court in part, holding that State Farm was not liable for interest on any amount beyond the $95,000 it owed in principal. On rehearing, the court of appeal reversed itself and entered an opinion affirming the trial court. Martin v. Champion Insurance Company, 92-1557 (La.App. 1st Cir. 12/15/94); 649 So.2d 20.

State Farm filed for a writ of certiorari with this Court, contending that both the court of appeal and the trial court erred with respect to the award of legal interest. This court granted the writ on the relevant issues. Martin v. Champion Insurance, 95-0030 (La. 3/17/95); 651 So.2d 256.

(1) Is a UM carrier liable for legal interest on amounts in excess of its policy limits?

(2) Is a UM carrier liable for legal interest on amounts paid by the tortfeasor's insurer?

(3) Is a UM carrier liable for legal interest on amounts it unconditionally tendered to the plaintiff prior to trial?

I

A. APPLICATION OF LA.R.S. 22:1406

The primary dispute between the parties concerns whether State Farm is liable for interest on damages in excess of its UM policy limits. The issue presented here is whether, in the absence [95-0030 La. 3] of a valid written waiver, a supplemental payment provision contained in the liability portion of an automobile insurance policy applies to a UM claim.

The liability section of plaintiff's State Farm policy contains a supplemental payment provision which states in pertinent part:

In addition to the limits of liability, we will pay for an insured any costs listed below resulting from such accident.

....

2. Interest on all damages owed by an insured as the result of a judgment until we pay, offer or deposit in court the amount due under this coverage.

La.R.S. 22:1406(D) requires that an insurance policy provide UM coverage "in not less than the limits of bodily injury liability provided by the policy ... however, the coverage required under this Subsection shall not be applicable where any insured named in the policy shall reject in writing, as provided herein, the coverage or select lower limits." The purpose of this statute is to promote full recovery for innocent accident victims by making UM coverage available for their benefit. Tugwell v. State Farm Ins. Co., 609 So.2d 195, 197 (La.1992). This statute mandates that, in the absence of a valid written rejection or selection of lower limits, UM coverage is equal to the amount of liability coverage. Tugwell, 609 So.2d at 198; Henson v. Safeco Insurance Companies, 585 So.2d 534, 540 (La.1991).

When a liability insurer is held liable, it pays on behalf of its insured not only the principal policy limits, but also any additional benefits provided for in the supplemental payment provisions. Thus, the actual liability coverage provided under the contract is the policy limits together with the benefits contained in the supplemental payment provisions. Because section 1406 requires, in the absence of a valid written waiver, UM coverage equal to liability coverage, it follows that "equal" UM coverage includes the policy limits as well as the benefits [95-0030 La. 4] contained in the supplemental payment provisions.

It is well settled that an insurer has the right to limit liability and impose conditions or restrictions under a policy provided such limitations do not conflict with statutory provisions or public policy. Reynolds v. Select Properties, Ltd., 93-1480 (La. 4/11/94), 634 So.2d 1180, 1183; Louisiana Insurance Guaranty Association v. Interstate Fire & Casualty Company, 93-0911 (La. 1/14/95); 630 So.2d 759. Because the UM statute allows an insured to reject UM coverage or select lower limits, an insurer may, without violating the statutory requirement, obtain a waiver limiting the application of supplemental payment provisions to liability claims. In the absence of a valid waiver, the supplemental payment provisions apply to UM claims by virtue of the statutory mandate contained in La.R.S. 22:1406 which establishes equal liability and UM coverage. In the present case, plaintiff did not execute a waiver. Nevertheless, State Farm contends that the quoted supplemental payment provision cannot, by its literal terms, apply to plaintiff's UM claim. State Farm notes that there is no "insured who owes any damages" as the result of a judgment; the only obligor is State Farm, the insurer.

Application of a supplemental payment provision to a UM claim arises under La.R.S. 22:1406 and not by virtue of contract. The fact that a provision would not, by its literal terms, apply to the UM claim is irrelevant. When a supplemental payment provision requires payment of interest in a liability suit, La.R.S. 22:1406 requires that such interest also be paid in a suit by an insured under its UM coverage. To hold otherwise, would effectively reduce the amount of UM coverage below the liability coverage in direct contravention of the express mandate of La.R.S. 22:1406. Thus, despite the use of the word "insured" in the quoted provision, we conclude that according to La.R.S. 22:1406, the interest benefit provided for in the liability context, must also be provided in the UM context.

We conclude that any provision of an insurance policy [95-0030 La. 5] which enhances the liability coverage to the benefit of the insured must be included within the ambit of the UM coverage unless there is a valid written rejection or selection of lower limits.

B. INTERPRETATION OF THE SUPPLEMENTARY PAYMENT PROVISION

Having determined that the supplementary payment provision applies to plaintiff's UM claim, we must now look to the specific wording of the provision to determine whether State Farm owes interest on that portion of the judgment in excess of its policy limits.

Under La.R.S. 13:4203 all liability and UM carriers owe interest on their policy limits from the date of judicial demand. Ainsworth v. Government Employees Insurance Company, 433 So.2d 709, 709 (La.1983) (holding UM carrier for legal interest on policy limits from date of judicial demand); Soprano v. State Farm Mutual Automobile Insurance Company, 246 La. 524, 165 So.2d 308 (La.1964) (holding liability insurer liable for legal interest on policy limits from date of judicial demand); LeBlanc v. New Amsterdam Casualty Co., 202 La. 857, 13 So.2d 245 (La.1943) (holding liability insurer liable for legal interest on policy limits from date of judicial demand). ³ Any policy provision which attempts to limit an insurer's liability for legal interest on the policy limits contravenes the public policy of La.R.S. 13:4203 and cannot be enforced. Soprano, 165 So.2d at 314. See also Hebert, 388 So.2d at 412; Doty, 186 So.2d at 335.

While section 13:4203 prohibits an insurer from reducing its liability for interest on its policy limits, that section does not prohibit insurers from lowering, excluding or extending their [95-0030 La. 6] interest liability on amounts in excess of their policy limits. Limiting interest obligations for excess judgments does not violate the public policy of section 13:4203 which mandates legal interest on the policy limits from the date of judicial demand.

Insurers utilize supplemental payment provisions to outline their obligations with regard to interest. Thus, to determine an insurer's interest obligation on an excess judgment, we must refer to the supplemental payment provisions contained in the insurance contract.

1. LIABILITY CASES

In determining liability insurers' interest obligations on excess judgments, the courts of appeal interpreted various supplemental payment provisions.

Appellate courts frequently cite Doty v. Central Mutual Insurance Company when addressing this issue. There, the third circuit determined that according to La.R.S. 13:4203 the liability insurer was liable for interest on its policy limits from the date of judicial demand. Doty, 186 So.2d at 335-36. The court then referred to the supplemental payment provisions to determine the insurer's interest obligation on sums in excess of its policy limits. Under the...