Understand the CGL Policy Post-Judgment Interest Provision
Brent Cooper | March 10, 2017
As part of our ongoing series on obscure provisions of the commercial general liability (CGL) policy, this article examines clause 1.g in the "Supplementary Payments" provisions, which focuses on the right of the insured to recover post-judgment interest on the amount of any judgment. The clause exists to protect the insured from liability for additional interest and/or costs incurred because of the insurer's actions. 1
This series deals with provisions of the CGL policy that are not well known by practitioners and that are all too frequently overlooked. The first article dealt with the declaration warranty provisions contained in Condition 6. The last article addressed the "Supplementary Payments" provision that applies to Coverage A and Coverage B and that allows insureds to be compensated for assisting in the investigation and defense of the claim or case.
Supplementary Payments Clause 1.g.
Clause 1.g. in the "Supplementary Payments" provision of the current Insurance Services Office, Inc. (ISO), form sets forth the following.
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We will pay, with respect to any claim we investigate or settle, or any "suit" against an insured we defend:
g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.
These payments will not reduce the limits of insurance.
This is a very important provision to insureds for several reasons. The insurer under this provision owes post-judgment interest on the entire judgment until it is paid, offered to pay, or deposited in court the amount covered by the policy. This means that if the judgment were $10 million and the policy limits were only $1 million, the insurer would owe all of the post-judgment interest on the entire $10 million until it has paid, offered to pay, or deposited in court the covered portion of the judgment. The second important feature is that the interest is included in the supplementary payments and would be in addition to the limits of liability of the policy. In some cases, the post-judgment interest under the policy could exceed the $1 million limit of liability. This is a very important feature.
Avoiding Paying Post-Judgment Interest
How does the CGL insurer stop the obligation for post-judgment interest? There are three ways. The first is to actually pay the covered damages. This would generally have to be in the form of a settlement. This could be problematic if the judgment far exceeds the policy limits. In those cases, the insured will not want the policy limits to be paid to the plaintiff without receiving a full release. Otherwise, the insurer would be funding the continuation of the case against its insured.
A second way to stop the running of the post-judgment interest is to offer to pay the portion of the judgment covered by the policy. There is very little case law on this point. Generally, it would involve the insurer providing written notice to the insured of its willingness to pay that part of the judgment covered by the policy plus any applicable post-judgment interest.
A third alternative to stop the accrual of post-judgment interest is to deposit the amount in the court. This would be in the nature of an interpleader. The insurer in that case would not be paying the money to the plaintiff so the concern about funding the plaintiff's case would not be there. The insurer would interplead the applicable amount into the registry of the court. Again, the amount would have to include not only the covered damages but also any accrued post-judgment interest.
Any of these three actions would stop the accrual of post-judgment interest under the supplementary payments section of the policy.
Case Law on the Post-Judgment Interest Provision
We will consider some of the very few cases focusing on this provision.
Norby Constr., Inc. v. American Safety Indem., Co.
A California district court held that liability under the supplementary payment provision 1.g. arises only when the insurer owes a duty to defend in the first place. Nordby Constr., Inc. v. American Safety Indem. Co., No. 14-CV-04074-LHK, 2015 WL 1737654 at *13-14 (N.D. Cal. 2015). In Nordby, the general contractor sought indemnity against its subcontractor's insurer based on the fact that the subcontractor named it as an additional insured under the policy. Specifically, the general contractor argued that the supplemental payments coverage of the policy included coverage for fees, costs, and interest and triggered a duty to defend the general contractor as a contractual indemnitee. The insurer countered that the general contractor's claims under the supplemental payments coverage provision fail as a matter of law because the insurer, among other things, did not defend its insured, the subcontractor, in the underlying litigation for a construction defect and that the general contractor could not satisfy the conditions for coverage as a contractual indemnitee.
The Nordby court noted that the actual provision of defense is of no concern for purposes of determining the insurer's post-judgment interest obligation. Rather, what gives rise to the insurer's post-judgment interest obligation is the insurer's duty to defend the insured. Ultimately, however, the court held that the insurer owed no duty to defend to its insured and to the general contractor. Consequently, the insurer owed no post-judgment interest.
World Harvest Church v. Grange Mut. Cas. Co.
In a similar vein, the Ohio Supreme Court held that the insurer owed no post-judgment interest to its insured based on the CGL policy exclusion that precluded coverage for physical and sexual abuse "by anyone of any person while in the care, custody, or control of the insured" in World Harvest Church v. Grange Mut. Cas. Co., 148 Ohio St. 3d 11, 68 N.E.3d 738 (2016). Under the facts of Harvest Church, the insured daycare center attempted to argue that the exclusion was inapplicable given that the allegations in the underlying suit raised the insured's vicarious and not its direct liability for the abuse of a toddler committed by one of the insured's employees. The Harvest Church court rejected the insured's argument, stating that the exclusion's language did not limit its scope to bodily injury claims arising from direct liability.
To successfully argue that the exclusion failed to apply, the court observed, the insured should have shown that its employee did not act within the scope of his employment when he abused the toddler while the toddler was in the insured's care, custody, and control. Falling short of that argument, the insured failed to show that coverage existed and thus was not entitled to post-judgment interest under clause 1.d. of the supplementary payment provisions.
More Complex Case Law on the Post-Judgment Interest Provision
While the above cases illustrate the run-of-the-mill legal issues that arise in connection with clause 1.g., the following cases add some complexity to the topic.
Deciding whether the primary or the excess insurer was liable for post-judgment interest, a Missouri district court held that post-judgment interest that accrued after the primary insurer paid post-judgment interest was to be assessed against the excess insurer. Fireman's Fund Ins. Co. v. Illinois Nat'l Ins. Co., No. 3:12-CV-657-CWR-FKB, 2015 WL 1198079, at *5 (S.D. Miss. 2015). The Fireman's Fund court explained that the plain reading of both policies compelled a conclusion that the excess insurer's liability for post-judgment interest arose once the primary insurer "offered to pay" such interest. In other words, the tender of the primary insurer's policy limits constituted an "offer to pay" under the terms of its policy, with the effect of relieving the primary insurer of an obligation to pay post-judgment interest.
Another interesting case interpreting clause 1.d. came out of Illinois and focused on determining whether the insurer had a duty to indemnify the insured and its assignee in a class action lawsuit based on the violation of the federal Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C. § 227 et seq. In First Mercury Ins. Co. v. Nationwide Sec. Servs., Inc., 54 N.E.3d 323 (Ill. App. Ct. 1st Dist. 2016), the insured, a private detective agency, faxed to some 3,671 individuals with whom it had no preexisting business relationship an unsolicited advertisement in violation of the TCPA, an action that was determined to constitute "property damage" and an invasion of privacy under the implicated insurance policies. The First Mercury court of appeals held that the policies' exclusion prohibiting penalties and damages that are multiple of compensatory damages barred coverage for any doubling of the $500 statutory award. As such, the insurer could owe no post-judgment interest obligation. The court additionally observed that the insurer could not be liable for such an interest based on the fact that, under the TCPA, no insurer can be liable for post-judgment interest related to a class action settlement.
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