Travelers Ins. Co. v. Transport Ins. Co.

• Decision Date: 03 May 1988
• Docket Number: No. 87-1478,87-1478
• Citation: 846 F.2d 1048
• Parties: The TRAVELERS INSURANCE COMPANY, Plaintiff-Appellee, v. TRANSPORT INSURANCE COMPANY, Defendant-Third-Party Plaintiff-Appellee, v. Federal Insurance Company, Third-Party Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1048

846 F.2d 1048

The TRAVELERS INSURANCE COMPANY, Plaintiff-Appellee, v. TRANSPORT INSURANCE COMPANY, Defendant-Third-Party Plaintiff-Appellee, v. Federal Insurance Company, Third-Party Defendant-Appellant.

No. 87-1478.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 23, 1987.

Decided April 28, 1988.

As Amended May 3, 1988.

James W. Riley, Jr., Callahan & Riley, Indianapolis, Ind., for FIC.

Robert M. Edwards, Jr., Jones, Obenchain, Ford, Pankow & Lewis, South Bend, Ind., for Travelers Ins.

John E. Doran, Doran, Manion, Boynton, Kamm & Esmont, South Bend, Ind., for Transport Ins.

Before HARLINGTON WOOD, Jr., COFFEY and RIPPLE, Circuit Judges.

COFFEY, Circuit Judge.

In a diversity of citizenship jurisdiction suit, Federal Insurance Company appeals the district court's decision ordering Federal to pay prejudgment interest of 8% and post-judgment interest of 12% on a sum of money that Federal and Travelers Insurance Company owed to Transport Insurance Company for settlement of a disputed claim. We reverse and remand.

I.

On August 28, 1982, Flanigan Tires, Inc. entered into a "trip lease" agreement with Commercial Lovelace Motor Freight, Inc. whereby Flanigan Tires would lease its truck to Commercial Lovelace to transport a load of tin cans from West Chicago, Illinois to Columbus Grove, Ohio. Clinton J. Flanigan, the chairman and sole shareholder of Flanigan Tires, picked up the load the next day. While Flanigan was driving his company's truck en route through Starke County, Indiana, he made a left turn in front of an automobile causing the automobile to collide with the Flanigan truck. Robert Spriggs, a passenger in the automobile, was killed and his son, Eric, was injured in the accident.

On January 12, 1983, Eric Spriggs and the estate of Robert Spriggs brought suit against Mr. Flanigan, Flanigan Tires, and Commercial Lovelace in the United States District Court for the Northern District of Indiana, alleging negligence on Flanigan's part in the operation of the tractor-trailer unit. At the time of the accident, Mr. Flanigan and Flanigan Tires were insured for motor vehicle liability up to a limit of $500,000 per accident under a policy issued by Travelers Insurance Company, and carried an excess liability policy issued by Federal Insurance Company with a limit of $1,000,000. Transport Insurance Company covered Commercial Lovelace's motor vehicle liability up to a limit of $5,000,000.

On September 22, 1983, Travelers filed a declaratory judgment action in the Circuit Court of St. Joseph County, Indiana, naming Transport as the defendant and seeking a determination as to which policy provided primary coverage under Indiana law. Transport removed the suit to the United States District Court for the Northern District of Indiana and joined Federal as a third-party defendant.

Because counsel for Travelers and Transport were concerned that the jury might return a large verdict in favor of the Spriggs in their claims against Mr. Flanigan, Flanigan Tires, and Commercial Lovelace, they determined that it was in the best interest of both companies to settle the Spriggs' claims for $785,415.00 on April 29, 1984. Under the oral agreement, not reduced to writing, Travelers and Transport each contributed an equal sum of $392,707.50 to the settlement package.

After exhaustive briefing and argument by the respective parties, the district court entered an order in the declaratory judgment action on January 29, 1985. The court held that under Indiana law, Travelers' $500,000 policy afforded primary coverage on the underlying loss, Federal's $1,000,000 excess liability policy applied after exhaustion of Travelers' policy, and Transport's $5,000,000 policy applied after exhaustion of Travelers and Federal's policies. The district court entered judgment in accordance with its order on January 30, 1985. On appeal, this Court affirmed the district court's decision on April 3, 1986, and a request for rehearing was denied on July 17, 1986. See Travelers Insurance Co. v. Transport Insurance Co., 787 F.2d 1133 (7th Cir.1986).

On October 14, 1986, Transport filed its Petition for Further Relief in the district court, requesting a specific monetary judgment against Travelers and Federal. In this petition, Transport alleged:

"On July 22, 1986, the undersigned, as attorney of record for Transport Insurance Company, made a written demand upon attorneys of record for Travelers/Federal for reimbursement of Transport's contribution to the settlement of the Spriggs' case, together with interest thereon. Subsequently, Travelers Insurance Company advised that due to the settlement of a claim of the driver of the Spriggs' vehicle, against Commercial Lovelace, Flanigan and Flanigan Tire Company, Inc., the net proceeds of its insurance available for reimbursement of Transport was in the sum of Eighty Four Thousand Two Hundred Forty Five and no/100 ($84,245.00) Dollars.

On August 15, 1986, Travelers Insurance Company's counsel forwarded to the undersigned counsel Travelers' voucher payable to Transport in the sum of Eighty Four Thousand Two Hundred Forty Five and no/100 ($84,245.00) Dollars, which voucher was returned to Travelers' attorney. On August 20, 1986, Travelers' counsel paid said sum of Eighty Four Thousand Two Hundred Forty Five and no/100 ($84,245.00) Dollars into the Clerk of this Court, and obtained the Clerk's receipt No. 6737, disclosing said payment, a photocopy of which is attached hereto, made a part hereof, and marked as Exhibit 'A'. On September 4, 1986, Federal Insurance Company's counsel forwarded to the undersigned, Chubb Group of Insurance Company's voucher in the sum of Three Hundred Eight Thousand Four Hundred Sixty Two and 50/100 ($308,462.50) dollars which voucher Transport refused to accept, and returned to Federal's attorney. A copy of Federal Insurance Company's attorney's letter is attached hereto, made a part hereof, and marked as Exhibit 'B'."

Neither copy of Transport's written demand to Travelers or Federal was included with Transport's petition, and the petition fails to explain Transport's reasoning in rejecting the tendered drafts from Travelers and Transport. The petition contained a request for prejudgment interest at the Indiana statutory rate of 8% from August 29, 1982, the day the underlying action was settled, and post-judgment interest at a rate of 12% from January 29, 1985, the date the district court decided the issue of primary coverage in the declaratory action.

After answering the petition, Federal filed a request for production of documents to Transport and Travelers, seeking the complete claim files concerning the Spriggs accident and Transport's entire underwriting file pertaining to its Commercial Lovelace insurance coverage. Both Travelers and Transport objected to Federal's discovery request on the grounds that the requested documents were "irrelevant and immaterial to any issue in this cause and will not lead to the discovery of relevant or material evidence and is further burdensome and oppressive."

The district court held a hearing on December 12, 1986 where there was a general discussion of Transport's theory of recovering interest on the funds that Federal and Travelers owed. In addition, counsel for Transport and Travelers stated that they had never discussed the issue of interest when each agreed to pay half of the settlement agreement, and further informed the court that the oral agreement had not been reduced to writing. After hearing the arguments, the district court stayed all discovery, stating, "I don't see any need for it yet. I am going to try to deal with the pleadings in terms of the arguments that you have presented and make a ruling in writing and then see where we go from there...."

In an attempt to clarify its position on the issue of interest, Federal filed a supplemental brief on January 15, 1987 in response to the oral argument of December 12. One of the points which Federal stressed was that if it owed any interest to Transport, the interest should be calculated on $308,462.50 (the amount that Federal owed to Transport), and not $391,707.50 (the sum that Travelers and Federal owed to Transport). Federal also argued that it should not have to pay Transport any prejudgment interest prior to the date of August 15, 1986, the day Travelers tendered its draft to Transport in the amount of $84,245.00, because the liability of Federal, as an excess insurer, arose only after the limits of Travelers' primary policy were exhausted. Federal claimed that it owed Transport no post-judgment interest because Indiana law provides for interest on judgments for money, and no judgment for money had yet been entered, only a declaration of rights.

On February 18, 1987, the district court issued its order directing Travelers to pay Transport $84,245.00 and Federal to pay Transport $308,462.50. The district court also concluded that under Indiana law, Transport was entitled to prejudgment interest at a rate of 8% and post-judgment interest at a rate of 12% on the sum of $392,707.50. The court ordered Federal to pay all of the prejudgment interest from the day the underlying action was settled, April 29, 1984, until the day before the district court decided the issue of primary coverage in the declaratory action, January 28, 1985. The district court also ordered Federal to pay all post-judgment interest from January 29, 1985 until the date of payment.

II.

Initially, we address Federal's arguments concerning the district court's decision to award Transport prejudgment interest from April 29, 1984 to January 28, 1985. In diversity actions such as this case, a federal court must look to state law to determine the propriety of prejudgment interest on a recovery. Simmons, Inc. v. Pinkerton's, Inc., 762 F.2d 591, 607 (7th Cir.1985). In Simmons, this Court noted:

"Under Indiana law, prejudgment interest is proper when damages are ascertainable in...