Court Ruling on Post-Judgment Interest in Liability Insurance
A Pennsylvania state court recently ruled that excess liability insurance policies must explicitly state that post-judgment interest is recoverable for policyholders to claim it. This decision underscores the critical need for policyholders to closely examine the defense and payment provisions in their insurance policies.
Background of the FedEx Case
The case involved Federal Express Corp. (FedEx) and its excess insurers following a 2011 automobile accident involving a FedEx driver, which resulted in a $165 million verdict against FedEx. FedEx pursued legal action against its excess insurers for refusing to cover over $200 million in post-judgment interest accrued during its appeal. The court analyzed the policy from National Union Fire Insurance Co. of Pittsburgh and concluded that the interest payment provisions were clear and enforceable as written.
The policy outlined two specific situations where interest obligations might exceed policy limits, neither of which occurred here. FedEx, not the insurers, appealed the judgment, and the insurers did not assume the defense. Consequently, the court sided with the insurers, stating that their obligations for post-judgment interest per the "Defense Provisions" and "Appeals" clause of the policies were not activated.
Interpretation of Insurance Policy Language
FedEx argued that the insuring agreement requiring the insurer to cover sums the insured was legally obligated to pay as damages should include interest. However, the court dismissed this claim, noting that the insuring agreement was explicitly subject to the policy's definition of "Loss." According to the policy, "Loss" included amounts paid as judgments or settlements and, in exceptional cases, defense expenses if noted in the Retained Limits. Since the relevant Retained Limits did not cover defense expenses, interest could not be classified as damages.
The court emphasized that the interpretation of an insurance policy must be based on the policy's language. This highlights the necessity for policyholders to review provisions at the time of purchase to confirm coverage for pre- and post-judgment interest.
Claims of Breach and Bad Faith
Additionally, the court examined FedEx’s claim that National Union breached the policy by not paying promptly, leading to more accrued interest. The policy required prompt payment once the amount of loss was established. The court determined that payment within seven days legally met this requirement, noting that the outcome might differ if the policy demanded "immediate" payment.
Interestingly, while the court ruled that National Union did not breach the policy, it retained FedEx's claims of promissory estoppel and statutory bad faith against National Union. These claims focused on alleged flaws in the insurer’s risk management and claim handling processes, including communications and conduct during settlement discussions and the appellate process.
This ruling reaffirmed that statutory bad faith under 42 Pa. C.S.A. § 8371 extends beyond just coverage denials. Since there were disputed material facts concerning National Union's conduct, both claims were left unresolved for trial, underscoring the notion that bad faith claims can sometimes proceed even if the coverage argument is unsuccessful.