Royal College Shop, Inc. v. Northern Ins. Co. of N.Y.

• Decision Date: 01 February 1990
• Docket Number: Nos. 88-1584,88-1620,s. 88-1584
• Citation: 895 F.2d 670
• Parties: ROYAL COLLEGE SHOP, INC., a Kansas Corporation, and Thomas H. Black, Plaintiffs-Appellants, Cross-Appellees, v. NORTHERN INSURANCE CO. OF N.Y., Defendant-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 670

895 F.2d 670

ROYAL COLLEGE SHOP, INC., a Kansas Corporation, and Thomas H. Black, Plaintiffs-Appellants, Cross-Appellees, v. NORTHERN INSURANCE CO. OF N.Y., Defendant-Appellees, Cross-Appellants.

Nos. 88-1584, 88-1620.

United States Court of Appeals Tenth Circuit.

Feb. 1, 1990.

John W. Lungstrum (Scott J. Bloch with him on the briefs) of Stevens, Brand, Lungstrum, Golden & Winter, Lawrence, Kan., for plaintiffs-appellants, cross-appellees.

Glenn McCann (Theresa Shean Hall with him on the briefs) of Knipmeyer, McCann, Smith, Manz & Gotfredson, Kansas City, Mo., for defendant-appellees, cross-appellants.

Before LOGAN, EBEL and BARRETT, Circuit Judges.

BARRETT, Senior Circuit Judge.

Plaintiffs, Royal College Shop, Inc., (Royal College) and Thomas H. Black (Black), the owner of Royal College, appeal from an order of the district court denying their motion for assessment of prejudgment interest on insurance proceeds which plaintiffs were awarded after a jury trial. Defendant, Northern Insurance Company of New York (Northern), cross-appeals from an order of the district court denying Northern's motions for remittitur, a new trial, or judgment notwithstanding the verdict. Plaintiffs invoked jurisdiction of the district court pursuant to 28 U.S.C. Sec. 1332 on the basis of diversity of citizenship.

FACTS

On February 3, 1982, Black and Royal College suffered a fire loss that closed Royal College, a landmark shoe store in the downtown retail area of Lawrence, Kansas. Royal College had been owned by Black's father from 1933 until 1966 when it was transferred to Black. The store was incorporated as a Subchapter S corporation and Black was the sole shareholder.

The fire in 1982, as well as smoke and water incident to the fire, destroyed a substantial portion of the building in which Black had a partial interest. Personal property owned by Black and Royal College inventory were also destroyed.

Plaintiffs timely filed a Proof of Loss with Northern, the company that insured the building, personal property, and inventory. Northern also insured the plaintiffs against loss of earnings resulting from the interruption of business. The policy limits were: $190,000 for damage to the building; $35,000 for damage to personal property; $165,000 for damage to the inventory; and $90,000 for loss of earnings. Northern refused to pay on plaintiffs' claim. This refusal resulted in the permanent closure of Royal College. On October 14, 1982, plaintiffs filed this lawsuit against Northern to recover the value of the lost business.

Immediately after the fire, the Douglas County Fire Investigation Unit began its examination of the fire scene to determine the cause and origin of the fire. Based on this investigation, the officer in charge of the Unit concluded that the fire had been intentionally set.

On October 14, 1982, criminal arson charges were filed against Black by the Douglas County, Kansas, district attorney in connection with the February 3, 1982, fire at Royal College. Black's trial, which commenced on May 2, 1984, ended in his conviction by a jury. This conviction was reversed by the Kansas Court of Appeals in December, 1985. A second arson trial commenced on May 28, 1986, which resulted in a hung jury. Thereafter, on July 23, 1986, the State of Kansas voluntarily dismissed This proceeding had been stayed on July 10, 1985, pending the outcome of the arson charges against Black. After the arson charges were dismissed, the district judge lifted the stay on August 18, 1986. The trial in the present action commenced on October 1, 1987.

with prejudice the criminal charges against Black.

In their proof of loss and at trial, plaintiffs claimed an inventory loss of $165,000 ($156,200.39 after plaintiffs received a salvage credit), $90,000 in loss of earnings, and $288,150 for the loss of business. Plaintiff Black further claimed the amounts of $24,749.44 for damage to his one-quarter interest in the building and $35,000 for loss or damage to personal property. These latter two amounts were stipulated to by the parties. On October 16, 1987, the jury returned a verdict in favor of plaintiffs for the following amounts: $24,749.44 for damage to the building; $35,000 for loss or damage to personal property; $100,000 for loss or damage to inventory; $60,000 for loss of earnings; and $175,000 in consequential damages for loss of the business as a going concern.

Plaintiffs moved post-trial for assessment of prejudgment interest on the amounts stated above. Northern filed a motion for judgment notwithstanding the verdict or in the alternative, a new trial, or in the alternative, for remittitur. These motions were denied. This appeal and cross-appeal followed. We affirm in part, reverse in part, and remand.

Plaintiffs do not assert that they are entitled to prejudgment interest on the amount awarded for the loss of the business as a going concern. They seek prejudgment interest only on the amount of the jury verdict attributable to damages recovered under the insurance policy.

This was a diversity action arising out of a fire insurance contract to be performed under Kansas law. Therefore, the law of the State of Kansas governs. Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

ISSUES ON APPEAL

Plaintiffs, Royal College and Black, put forth the following issues on appeal:

I. Whether the district court erred in failing to assess prejudgment interest from the time of the suit, when the amount of plaintiffs' loss under the insurance policy was fairly ascertainable.

II. Whether the district court abused its discretion in failing to award prejudgment interest in order to make plaintiffs whole on moneys wrongfully withheld by Northern for over five years.

I.

In resolving the first issue, the district court stated that "[p]laintiffs' claim upon the insurance policy in the instant case was not liquidated. The amount due plaintiffs under the policy, among other issues, was hotly contested. Therefore, under the general rule, plaintiffs' motion [for prejudgment interest] should be denied." (R., Suppl. Vol. I, Doc. 91 at p. 1). (Citations omitted). However, only a portion of plaintiffs' claims under the insurance policy were hotly contested or disputed. Northern stipulated to the loss or damage sustained by the building and the personal property.

The general rule of law in Kansas is that prejudgment interest is allowable on liquidated claims. Plains Resources, Inc. v. Gable, 235 Kan. 580, 682 P.2d 653 (1984) "A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain, or when the same become definitely ascertainable by mathematical computation." Id. 682 P.2d at 657. See Also Frank v. Bloom, 634 F.2d 1245 (10th Cir.1980). According to Kan.Stat.Ann. Sec. 16-201 (1980) "Creditors shall be allowed to receive interest at the rate of ten percent per annum, when no other rate of interest is agreed upon, for any money after it becomes due; for money lent or money due on settlement of account, from the day of liquidating the account and ascertaining the balance...." (Emphasis added). Therefore, if a claim is liquidated The first question is whether the amounts claimed under the insurance contract were fixed, certain and ascertainable. Black submitted a Proof of Loss on May 11, 1982, for $24,749.44 for Black's one-quarter interest in the building, and $35,000 for loss or damage to Black's personal property. Thereafter, Northern and plaintiffs stipulated to these exact losses. Because these two claims were not in dispute, the amount due was ascertainable. Thus, we hold that the district court erred in failing to award prejudgment interest on these two claims. The foregoing amounts were not only fixed, certain, and ascertainable, they were not even in dispute.

                prejudgment interest must be awarded.  In The Matter of Midland Industries, Inc., 237 Kan. 867, 703 P.2d 840, 842 (1985) ("Where an amount is due upon contract, either expressed or implied, and there is no uncertainty as to the amount which is due or the date on which it becomes due the creditor is entitled to recover interest from the due date.")    (Emphasis added).  See Also Delano v. Kitch, 663 F.2d 990, 1001 (10th Cir.1981)
                

Our next inquiry must focus on the date the above amounts became fixed and certain. Plaintiffs contend that the damages to the personal property and the building were fixed and certain on May 11, 1982, the date on which payment was due under the policy, but in no event later than October 14, 1982, the day this lawsuit was filed. However, on the day that this lawsuit was filed, criminal arson charges were brought against Black concerning the fire at Royal College. Because of these arson charges, Northern refused to pay under the insurance contract. This refusal was based on Northern's belief that if Black should be convicted of criminal arson, Northern would not be liable for any amounts under the insurance contract. Northern therefore argues that an award of prejudgment interest, if any, should commence not on May 11, 1982, or October 14, 1982, but rather on July 23, 1986, when the charges against Black were dismissed.

We recognize that under Kansas law "[s]trong principles of public policy deny the insured the right to recover when he intentionally sets on fire property covered by the insurance contract." Neises v. Solomon State Bank, 236 Kan. 767, 696 P.2d 372, 378 (1985). However, the insurance contract between plaintiffs and Northern did not abrogate Northern's obligation to pay under the policy if the insured was charged with setting fire to the insured premises, nor did it provide for a delay in the payment of the proceeds should the insured be accused of or charged with setting fire to the insured premises. The courts will not make a contract of insurance, but will only enforce the intent of the parties as manifested by the writing. Farmers Alliance Mut. Ins. Co. v. Bakke, 619...