Matich v. Modern Research Corp.

Decision Date07 March 1988
Docket NumberNo. 77702,77702
Citation420 N.W.2d 67,430 Mich. 1
PartiesSteven P. MATICH, Plaintiff-Appellee, Cross Appellant and Cross Appellee, v. MODERN RESEARCH CORPORATION, A Michigan Corporation, Not Participating, Canadian Universal Insurance Company, Ltd., Defendant-Appellee, Cross Appellant and Cross Appellee, and Insurance Company of North America, Defendant-Appellant and Cross Appellee. 430 Mich. 1, 420 N.W.2d 67
CourtMichigan Supreme Court

Zeff and Zeff & Materna by Michael T. Materna, Gromek, Bendure & Thomas by Nancy L. Bosh, Neal C. Villhauer, Detroit, for plaintiff-appellee, cross-appellant and cross appellee.

Rutledge, Manion, Rabaut, Terry & Thomas, P.C. by Christopher L. Terry, Detroit, for defendant-appellee, cross appellee and cross appellant.

James N. Martin, Stuart A. Fraser, Mt. Clemens, for defendant-appellant, Ins. Co. of North America.

MacArthur, Cheatham, Acker & Smith, P.C. by James G. Gross, Detroit, for amici curiae.

GRIFFIN, Justice.

In the products liability action which underlies this appeal the jury's award substantially exceeded the combined policy limits of the defendant's primary and excess liability insurance carriers. The issues now before us relate solely to liability for interest on the judgment. We are required to examine the extent of the obligation of, and the relative responsibilities as between, the two insurance carriers for prejudgment and postjudgment interest. Our review affirms the decision of the Court of Appeals.


With supplementation as provided in the course of our discussion, we adopt the statement of facts set forth in the opinion of the Court of Appeals:

"Plaintiff brought a products liability action against defendant Modern Research Corporation (Modern) which, after a jury trial, resulted in a May 20, 1983, judgment in the amount of $2,250,000. Canadian Universal Insurance Company (Canadian) was Modern's primary insurer under a policy with a liability limit of $300,000. An excess liability policy was written by the Insurance Company of North America (INA), with a liability limit of $1,000,000. Canadian defended the suit on behalf of Modern at trial and, other than being apprised of the suit, INA did not actively participate in the defense. Following the entry of judgment, Modern moved for new trial, remittitur, and judgment notwithstanding the verdict.

"During the pendency of Modern's posttrial motions, the parties engaged in settlement negotiations which culminated in an agreement, the terms of which were placed on the record on November 18, 1983. The agreement proposed to discharge Modern from any liability on the judgment and add Canadian and INA as parties defendant in the action. Further, the defendant insurers agreed to pay the full sum of their respective policy limits. Any disagreement over the insurers' respective liability for interest on the judgment would be litigated in circuit court.

"After several versions of a proposed settlement order were exchanged by counsel for the plaintiff and the two insurance carriers, a consent judgment drafted by plaintiff's counsel[ 1] was agreed upon and entered by the court on February 27, 1984. Thereupon, Canadian paid plaintiff $508,044.81, representing its $300,000 policy limit, $43,928.25 in costs, and postcomplaint/prejudgment interest on its policy limit and interest on the entire judgment from the date of entry until July 8, 1983, when Canadian allegedly tendered the amount of its policy limit to INA. On the same date, INA paid plaintiff its $1,000,000 policy limit.

"Both carriers then filed motions for satisfaction of judgment, and plaintiff responded with a motion to determine liability for interest on the judgment. Plaintiff asked the trial court to award him prejudgment interest on the excess over the $300,000 policy limit of Canadian; postjudgment interest on the entire judgment amount between July 8, 1983, the date plaintiff and Canadian asserted that Canadian actually tendered its policy limit to INA, and February 27, 1984, the date the consent judgment was entered by the trial court; and interest on the unpaid balance of the judgment accruing since February 27, 1984.

"After oral arguments were heard on the motions, the trial court ruled that Canadian had paid all interest for which it was liable under its policy with the insured and Michigan law and was thus entitled to a satisfaction of judgment. As to INA, the court ruled that that defendant was not required to pay any prejudgment interest but was liable for postjudgment interest on the $1,000,000 policy limit from July 8, 1983, to February 27, 1984." 146 Mich.App. 813, 817-818, 381 N.W.2d 834 (1985).

Affirming in part and reversing in part, the Court of Appeals determined that each carrier was responsible for prejudgment interest only on its policy limits; that the obligation of INA, the excess carrier, for prejudgment interest was not relieved because Canadian, the primary carrier, controlled the underlying litigation; and that, in addition to postjudgment interest on its policy limits, each carrier was liable on a pro-rata basis for postjudgment interest on the amount by which the judgment exceeded the combined policy limits. We granted leave to appeal. 425 Mich. 871 (1986).


Absent a statutory or contractual obligation, it was the rule at common law that a judgment did not bear interest. 2 In Michigan a statutory basis for allowing postjudgment interest has been in place for many years; 3 however, there was no statutory provision for prejudgment interest until 1965. Since then, interest on a money judgment has been allowed by statute, M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013, "from the date of filing the complaint" to "the date of satisfaction of the judgment." 4 See Ballog v. Knight Newspapers, Inc., 381 Mich. 527, 164 N.W.2d 19 (1969).

Although a prevailing party is entitled by statute to judgment interest, the question "who ultimately pays?" has stirred considerable controversy in situations where the defendant has liability insurance, but the insurance contract does not expressly place responsibility for interest upon the insurer, or where the judgment amount plus interest exceeds the policy limits. 5

We are required in this case to address questions of first impression including a dispute between the primary and excess insurance carriers concerning prejudgment interest. Purchase by an insured of two insurance policies establishes contractual rights and obligations as between the insured and each of the insurers. However, there being no privity of contract, such a purchase does not create a contractual relationship between the two carriers.

In dealing with differences which inevitably arise between primary and excess carriers, courts have been forced to look beyond contract law to public policy considerations and principles of equity to determine respective rights and liabilities as between two carriers. 6 At the same time, a court must harmonize the relationship between the two insurers with the responsibilities which each insurer owes to the insured.

As one commentator has counseled:

"It is important in such instances to be certain that the court does not become confused and succeed in exonerating both companies. Each should retain its legal liability; if any question arises as to which should pay, that can be settled between them by agreement or by litigation. It should not diminish the rights either of the insured or of the victim." 8A Appleman, Insurance Law & Practice, Sec. 4894.25, p. 103.

In the instant case the tripartite relationship which otherwise would exist is affected by the fact that the insured (Modern), the primary carrier (Canadian), and the excess carrier (INA) joined with plaintiff in approving and subscribing to a consent judgment which was entered by the trial court. The consent judgment served to resolve all differences among the parties except those relating to plaintiff's entitlement to judgment interest.

Each of the courts below based its decision in part upon the construction of language in the consent judgment, which reads in pertinent part:

"IT IS FURTHER HEREBY ORDERED that Canadian Universal Insurance Company, Ltd., and Insurance Company of North America, shall pay to the said Steven P. Matich, and his attorneys, Zeff and Zeff, interest owed if any, on the amount of their policy limits from the date of filing of the Complaint in this action until the date of Judgment, along with interest owed, if any, on the entire amount of Judgment ($2,250,000.00) from the date of entry of said Judgment until the date of payment of said insurer's policy limits, under the terms of its insurance policy or otherwise to be paid by such insurance carrier under the laws of the State of Michigan; it being ordered and understood between the parties that the alleged liability of Canadian Universal Insurance Company, Ltd., and Insurance Company of North America for any interest claimed owing on the Judgment by either carrier shall be litigated in this action before the Honorable James A. Hathaway and it is further understood between the parties and ordered that neither the Canadian Universal Insurance Company, Ltd., nor the Insurance Company of North America shall be relieved of its liability to the Plaintiff for the payment of such interest by reason of the release of Modern Research Corporation from liability under the Judgment." (Emphasis supplied.)

In this appeal, the plaintiff maintains that the italicized language, when read in light of the record of hearings held by the trial court, "makes crystal clear that ... any and all questions relating to liability of either insurer for any interest ... would be litigated" and resolved "under the terms of [the] insurance polic[ies] or ... under the laws of the State of Michigan...." As plaintiff points out, in commenting upon the meaning of the consent judgment language, counsel for Canadian, the primary insurer, at the ...

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