Metropolitan Property and Cas. v. Barry

• Decision Date: 03 March 2006
• Docket Number: No. 2003-478-Appeal.,2003-478-Appeal.
• Parties: METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY v. Colin BARRY.
• Court: Rhode Island Supreme Court

Page 915

892 A.2d 915

METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY v. Colin BARRY.

No. 2003-478-Appeal.

Supreme Court of Rhode Island.

March 3, 2006.

Kevin M. Cain, Esq., for Plaintiff.

Steven M. Ballin, Esq., for Defendant.

Present: WILLIAMS, C.J., GOLDBERG, FLAHERTY, SUTTELL, and ROBINSON, JJ.

OPINION

Justice GOLDBERG, for the Court.

In this case we address, hopefully for the last time, the appropriate calculation formula for prejudgment interest in an uninsured/underinsured motorist (UM) arbitration award. On November 9, 2005, the defendant-insured, Colin Barry (insured or defendant), came before the Supreme Court on appeal from a Superior Court judgment that confirmed an arbitration award of $49,125 in damages and a separate award of $8,351 in prejudgment interest against the plaintiff, Metropolitan Property and Casualty Insurance Company (plaintiff or Metropolitan), his UM insurance carrier. For the reasons set forth herein, we vacate the judgment of the Superior Court and remand for further proceedings in accordance with this opinion.

Facts and Travel

On November 8, 1998, defendant was injured in a motor vehicle collision with an underinsured driver (tortfeasor). The tortfeasor was insured by Liberty Mutual Insurance Company (Liberty Mutual) for $50,000. On February 7, 2001, Metropolitan authorized defendant to accept a settlement offer from Liberty Mutual for the limits of the tortfeasor's policy. The parties agreed to arbitrate the UM claim, and a three-member arbitration panel issued two separate awards. The first award set total damages at $99,125. Next, the total damages amount was modified to reflect the $50,000 payment made by Liberty Mutual, therefore yielding a net award of $49,125 against Metropolitan, exclusive of prejudgment interest. The panel's second award of $8,351 reflected the prejudgment interest on the net award, from April 25, 2001, the agreed-upon date that Metropolitan denied the UM claim, to October 15, 2002, the date of the arbitrator's award.

Metropolitan then sought confirmation of both awards in the Superior Court. The defendant filed a cross-petition seeking modification of the prejudgment interest award. The Superior Court granted Metropolitan's petition, confirmed both awards and denied defendant's cross-petition to modify the prejudgment interest award. The defendant appealed.

The case initially was assigned to the Court's summary calendar by a single justice of this Court. The parties were directed to appear and show cause why the issues should not summarily be decided. After oral argument, we issued an order declaring that cause had been shown and directed the case to proceed to full briefing and argument. Metropolitan Property and Casualty Insurance Co. v. Barry, 857 A.2d 761 (R.I.2004) (mem.). This Court also requested the parties and any interested amici curiae¹ to address the following issues:

"(1) Is it possible for arbitrators and for reviewing courts to apply the interest-calculation formula outlined in Merrill v. Trenn, 706 A.2d 1305, 1313 (R.I. 1998) to UM cases such as the one at bar and to other UM cases of the kind that this Court faced in Geremia v. Allstate Insurance Co., 798 A.2d 939, 941 (R.I.2002), yet still, "`[i]n those cases, [have] prejudgment interest at the statutory rate * * * begin to accrue on the date that the UM carrier denies the claim or fails to pay the same within a reasonable period after receiving notice from the claimant thereof?'" Geremia, 798 A.2d at 941. In other words, is it possible to harmonize Geremia, and the case of Liberty Mutual Insurance Co. v. Tavarez, 797 A.2d 480, 487 (R.I.2002), with the calculation of prejudgment interest that this Court prescribed in Merrill, 706 A.2d at 1313, and in Metropolitan Property & Casualty Insurance Co. v. Tanasio, 703 A.2d 1102, 1104 (R.I. 1997)? If so, how? If not, how should the interest-calculation formula outlined in Merrill be applied in UM cases such as the case at bar? As it was in Tanasio, as modified by Geremia, or by some other method?

"(2) Notwithstanding Merrill, Geremia, [Liberty Mutual Insurance Co. v. Tavarez, 797 A.2d 480 (R.I.2002) (Tavarez II)], and Tanasio, what is the fairest and best way to calculate prejudgment interest in cases such as this in which the tortfeasor's carrier pays the policy limits in settlement of the tort claim before the insured claimants own UM insurer denies his or her contractual claim for UM benefits because of the need to arbitrate or litigate a dispute over the total amount of damages suffered by the injured party?

"(3) Does an injured party's claim for UM benefits over and above any amount received from the tortfeasor or the tortfeasor's insurer include the amount of prejudgment interest (beginning on the date of the injury) that accrued on the underlying claim for damages against the tortfeasor(s) through the date of any settlement with the tortfeasor(s)? Does it also include the underlying claim for damages itself, less any payment received from the tortfeasor and/or the tortfeasor's insurer, see Tanasio, 703 A.2d at 1104, with interest accruing on this net damages claim from the date that the UM carrier either denies the claim or should have granted it? See Geremia, 798 A.2d at 941." Barry, 857 A.2d at 761-62.

We shall now address these questions and attempt to resolve, once and for all, these complex issues.

Standard of Review

Generally, "the role of the judiciary in the arbitration process is `extremely limited.'" Aponik v. Lauricella, 844 A.2d 698, 703 (R.I.2004) (quoting Purvis Systems, Inc. v. American Systems Corp., 788 A.2d 1112, 1114 (R.I.2002)). This Court will overturn an arbitration award "only if the award was `irrational' or if the arbitrator[s] manifestly disregarded the law." Id. However, in passing on an appeal from a judgment confirming or vacating an arbitration award, this Court is not without authority to make such orders "as the rights of the parties and the ends of justice require." G.L.1956 § 10-3-19. Because of the numerous UM arbitration cases that come before this Court concerning prejudgment interest in the uninsured/underinsured motorist context and the inconsistent results in those cases, we deem the issue presented in this case — when and how prejudgment interest should be added to an arbitration award — to provide an appropriate occasion to issue such an order.²

The Byzantine nature of our jurisprudence in this important area of the law causes us to depart from what is our general practice with respect to arbitration awards, so that we can fashion a uniform rule that is in line with our oft-cited holding that the award of prejudgment interest is a ministerial act to be performed by the clerk without judicial intervention. Barbato v. Paul Revere Life Insurance Co., 794 A.2d 470, 471-72 (R.I.2002).

Prejudgment interest is a creature of the Legislature. General Laws 1956 § 9-21-10 provides in pertinent part:

"Interest in civil actions. — (a) 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 percent (12%) per annum thereon from the date the cause of action accrued, which shall be included in the judgment entered therein. Post-judgment interest shall be calculated at the rate of twelve percent (12%) per annum and accrue on both the principal amount of the judgment and the prejudgment interest entered therein. This section shall not apply until entry of judgment or to any contractual obligation where the interest is already provided." (Emphases added.)

This Court previously has declared that prejudgment interest "is not an element of damages but is purely statutory, peremptorily added to the award by the clerk." Barbato, 794 A.2d at 472 (citing DiMeo v. Philbin, 502 A.2d 825, 826 (R.I. 1986)). The dual purpose of prejudgment interest is to encourage early settlement of claims and to compensate an injured plaintiff for delay in receiving compensation to which he or she may be entitled. Martin v. Lumbermen's Mutual Casualty Co., 559 A.2d 1028, 1031 (R.I.1989).

This Court previously has declared that it is not the function of the Superior Court to add interest to an arbitration award at the time the award is confirmed. See Paola v. Commercial Union Assurance Companies, 461 A.2d 935, 937 (R.I.1983) ("Rhode Island statutory law limits a Superior Court justice's role concerning arbitration to either vacating or confirming the award."). However, we also have held that "arbitrators should add prejudgment interest to their awards unless the parties specifically provide otherwise by agreement." Id. We previously have recognized that arbitrators are vested with broad discretion to award prejudgment interest to an award; however, we are mindful that § 9-21-10 provides that prejudgment interest shall be added to the amount of damages in "any civil action in which a verdict is rendered or a decision made for pecuniary damages * * *." (Emphasis added). We now declare that it is mandatory that prejudgment interest be added to arbitration awards in accordance with this decision.

Questions concerning prejudgment interest in the arbitration context and the manner and method of its computation have given rise to numerous appeals to this Court. What should be a ministerial act, peremptorily added to the award, has become anything but simple and straightforward in the arbitration context. Consequently, we are of the opinion that a uniform and mandatory formula for the computation of prejudgment interest in arbitration cases is long overdue. In the absence of a contractual provision that precludes or limits prejudgment interest in an arbitration award, prejudgment interest shall be awarded by the arbitrators in accordance with this opinion.

Analysis

I

Prior History of Prejudgment interest Computation

Before discussing the correct computation of prejudgment...