United States District Court, E.D. New York
September 4, 2004.
NEW ENGLAND INSURANCE CO., Plaintiff,
HEALTHCARE UNDERWRITERS MUTUAL INSURANCE COMPANY f/k/a HOSPITAL UNDERWRITERS MUTUAL INSURANCE COMPANY AND HOSPITAL UNDERWRITERS MUTUAL INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
In what may be a novel ruling, the Court must determine the
date from which prejudgment interest is computed pursuant to New
York Civil Practice Law and Rules ("N.Y.C.P.L.R.") § 5001 in an
insurance "bad faith" action when the underlying medical
malpractice action was settled and no judgment was entered.
On December 20, 2000, a jury returned a verdict in favor of the
plaintiff New England Insurance Company ("New England" or the
"plaintiff") and against the defendant Healthcare Underwriters
Mutual Insurance Company ("Healthcare" or the "defendant") based
on its "bad faith" refusal to settle a medical malpractice case
against the insured of the defendant and the plaintiff. Damages
were stipulated at $1,100,000.
On June 26, 2001, the Court set aside the jury verdict in favor
of the plaintiff and granted the defendant's motion for judgment
as a matter of law. See New England Ins. Co. v. Healthcare
Underwiters Mut. Ins., 146 F.Supp. 2d 280 (E.D.N.Y. 2001). On
July 8, 2002, the Second Circuit reversed the entry of judgment
in favor of the defendant and instructed the Court to enter
judgment in favor of the plaintiff in accordance with the jury's
verdict. See New England Ins. Co. v. Healthcare Underwriters
Mutual Ins. Co., 295 F.3d 232, 249 n. 30 (2d Cir. 2002). In a
footnote, the Second Circuit further instructed the Court
to award to New England prejudgment interest at the
New York State rate of 9% from December 20, 2000 (the
date of the [federal] jury verdict) to June 29, 2001
(the date of the [federal] judgment in favor of
Healthcare). The district court is instructed to
award postjudgment interest at the federal rate
Id. at 249 n. 30 (2d Cir. 2002). In accordance with this
directive, by Order dated October 5, 2002, the Court ordered that
judgment be entered in favor of the plaintiff and against the
defendant in the sum of $1,100,000 with prejudgment interest at
the rate of 9% from December 20, 2000 to June 29, 2001 and with
postjudgment interest at the rate of 3.46% from June 30, 2001
until the defendant pays the judgment together with costs in the
sum of $15,206.12.
The Court did not award interest for the period of time
preceding the federal jury verdict. On December 15, 2003, the
Second Circuit vacated the October 5, 2002 judgment because the
Court did not award "interest for the period between the
state-court jury verdict or settlement and the federal-court jury
verdict." New England Ins. Co. v. Healthcare Underwriters Mut.
Ins. Co., 352 F.3d 599, 602 (2d Cir. 2003). As such, the Second
Circuit remanded the action to the Court "to grant the plaintiff,
in addition to the jury award and post-JMOL interest, an
appropriate award of interest for the period preceding the
federal JMOL under New York State law." Id. at 601.
Thereafter the parties each submitted proposed judgments
purportedly in accordance with the Second Circuit's mandate.
These proposed judgments are identical in every respect except
with regard to the date at which the prejudgment interest should
commence. In particular, the plaintiff contends that it is
entitled to interest from September 1, 1992, the date of the
verdict in the underlying malpractice action, to December 20,
2000, the date of the federal jury verdict. On the other hand,
the defendant argues that the plaintiff is entitled to
prejudgment interest from April 14, 1993, the date of the
settlement agreement in the underlying malpractice action and
plaintiff's payment of $1.1 million to the insured, to December
Prejudgment interest is a matter of substantive New York law.
Terwilliger v. Terwilliger, 206 F.3d 240, 249 (2d Cir. 2000).
Prejudgment interest "shall be computed from the earliest
ascertainable date the cause of action existed. . . ."
N.Y.C.P.L.R. § 5001(b). In this regard, in insurance "bad faith"
actions, pre-judgment interest runs "from the date of the
underlying judgment to the date of the verdict in the bad faith
action." DiBlasi v. Aetna, 147 A.D.2d 93, 100, 542 N.Y.S.2d 187
(2d Dep't 1989) (citing N.Y.C.P.L.R. § 5003). Such is the case
because in insurance "bad faith" cases "liability is imposed by a
judgment entered against insured because it is not until that
date that liability in excess of the policy limits is imposed on
the insured." 2B Carmody-Wait 2d § 13:228 (2004) (citing Roldan
v. Allstate Ins. Co., 149 A.D.2d 20, 544 N.Y.S.2d 359 (2d Dep't
Relying on DiBlasi, the plaintiff argues that because no tort
judgment was entered due to the settlement of the underlying
state court case it should receive prejudgment interest from
September 1, 1992 because its cause of action accrued "at the
moment that the underlying verdict . . . in the Weinstock case
was reached, which wrongfully exposed New England to liability
due to [the defendant's] bad faith conduct." Letter from Krinick
to Court of 1/27/04 at 1. The Court disagrees and notes that the
plaintiff fails to cite any authority for its proposition that
the verdict in the underlying malpractice case, that was
subsequently settled without the entry of a judgment, was
equivalent to a judgment.
As stated above, a cause of action for an insurance "bad faith"
case accrues when "liability" is imposed on the insured, namely
when the excess judgment against the insurer is entered. See
Henegan, et al. v. Merchants Mut. Ins. Co., 31 A.D.2d 12, 13,
294 N.Y.S.2d 547 (1st Dep't 1968) ("Reason as well as economic
fact dictates that the mere existence of an excess final judgment
causes harm to the judgment debtor. The judgment increases his
debts, it damages his credit, it subjects his property to the
lien of the ubiquitous judgment."); see also New York Pattern
Jury Instructions Civil, PJI § 4:67 (2003) ("Damage is an
essential of the action, but damage results from the judgment in
excess of the policy limit, which increases the insured's debts,
impairs his credit and subjects his property to the lien of the
judgment." (citations omitted)). Indeed, in an insurance "bad
[t]he plaintiff is entitled to interest for its loss
of the ascertained sum. The recoverable interest runs
from the fixed date on which the plaintiff can be
shown to have first lost the use of its money. From
that date to the date of the plaintiff's judgment is
the period over which prejudgment interest operates:
The basic consideration is that the defendant had the
use, and the plaintiff has not, of the amount in
question; and the interest factor simply covers the
value of the sum awarded for the prejudgment period
during which the defendant had the benefit of monies
to which the plaintiff is found to have been earlier
Litig. & Prev. Ins. Bad Faith 2d § 13:11 (2004) (internal
quotations and citations omitted).
Thus, In a case, such as this, where no judgment was entered
because of a settlement, "liability" was imposed on April 14,
1993, the date the settlement obligated the plaintiff to pay $1.1
million in excess coverage which the plaintiff paid that day.
Again, the Court notes that the September 1, 1992 jury verdict,
without a following judgment, did not obligate the plaintiff to
pay any money. Because the plaintiff's cause of action accrued on
April 14, 1993, pursuant to C.P.L.R. § 5001(b), prejudgment
interest must be calculated from April 14, 1993.
The Court's decision that pre-judgment interest runs from April
14, 1993, the date of the state court settlement and the date
that the plaintiff actually paid the $1.1 million, is supported
by the "long-standing recognition that the purpose of awarding
interest is to make an aggrieved party whole." Spodek v. Park
Property v. Park Property Development Assocs., 96 N.Y.2d 577,
581, 733 N.Y.S.2d 674 (2001) (quoting Prager v. New Jersey Fid.
& Plate Glass Ins. Co., 245 N.Y. 1, 5-6, 156 N.E. 76 (Cardozo,
C.J.) (1927) ("While the dispute as to value was going on, the
defendant had the benefit of the money, and the plaintiff was
without it. Interest must be added if we are to make the
plaintiff whole. . . .")); Lesjac Realty Corp. v. Mulhauser,
43 Misc.2d 439, 251 N.Y.S.2d 62 (1964) (the award of interest is
founded solely on theory that there has been a deprivation of use
of money or its equivalent, and that unless interest be added,
the party aggrieved is not made whole.). Similarly, the Second
Circuit has stated that "[t]he purpose of a prejudgment interest
award . . . is to compensate a plaintiff for the loss of use of
money. . . ." Chandler v. Bombardier, Inc., 44 F.3d 80, 83 (2d
Until April 14, 1993, the plaintiff enjoyed the use of the $1.1
million and presumably used the money to its benefit. To allow
the plaintiff to again benefit by collecting interest on the $1.1
million from September 1, 1992 to April 14, 1993, when it had
full use of this money, would be contrary to law and to the
underlying policy of pre-judgment interest. Accordingly, as
stated above, the Court will award prejudgment interest at the
rate of 9% from April 14, 1993 to December 20, 2000, in addition
to the other interest awards.
Based on the foregoing it is hereby
ORDERED, that the Clerk of the Court enter judgment in favor
of plaintiff, New England Insurance Co., and against defendant,
Healthcare Underwriters Mutual Insurance Company f/k/a Hospital
Underwriters Mutual Insurances Company and Hospital Underwriters
Mutual Insurance Company, in the sum of $1,100,000.00, plus
pre-judgment interest at the rate of 9% from April 14, 1993 to
December 20, 2000 in the amount of $761,350.69, plus pre-judgment
interest at the rate of 9% from December 20, 2000 to June 29,
2001 in the amount of $51,805.48, for a total sum of
$1,913,156.17, plus post-judgment interest at the rate of 3.46%
from June 30, 2001 until the defendant pays the judgment, plus
costs in the sum of $16,737.32.
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