Recovery for Pre-Judgment Interest
This action arose out of an automobile accident in which Lucinda Sue Scott, Brenda Kay Mabe, Kimberly Hope Mabe, and Heather Dora Mabe were riding in a vehicle driven by Carolyn Mabe Scott (collectively the Mabes and the Scotts), when the vehicle was struck head-on by a truck driven by Robert Leonard Gregory (Gregory).
After the Mabes and Scotts filed complaints against Gregory, Nationwide Mutual Insurance Company (Nationwide) filed an interpleader declaratory judgment action and named the Mabes and Scotts as defendants. Nationwide tendered its $300,000.00 policy limits to the court and sought an order from the court stating that Nationwide had met its obligation under the policy. At the Superior Court of Stokes County, the court found that Plaintiff Nationwide was liable to the injured parties for prejudgment interest, in excess of the agreed upon policy limit of $300,000.00. Prejudgment interest is interest that accrues from the date of the injury until a judgment is entered by the court. Plaintiff Nationwide appealed, and the Court of Appeals reversed the trial court’s determination granting prejudgment interest, holding that the limit of Nationwide’s liability for damages included prejudgment interest, and thus they could not be held liable for amounts over the agreed upon amount of $300,000.00 in the policy. The defendant Mabe appealed that order to the Supreme Court of North Carolina.
The Mabes and the Scotts were all severely injured by the collision with Gregory’s vehicle, and all filed complaints against Gregory and his mother, Mary Elizabeth Wilson, who held the title for the truck involved. The complaints alleged that Gregory was operating the vehicle in a negligent manner, while intoxicated, and with the permission of his mother under the family purpose doctrine.
Mary Elizabeth Wilson had an insurance policy with Nationwide which provided coverage of $100,000.00 per person and $300,000.00 per accident. Nationwide entered a consent judgment with the parties as to the distribution of the $300,000.00, and the trial court was left to decide the issue of prejudgment interest. The trial court found that Nationwide was liable for prejudgment interest, from the date the complaint was filed up to the date of the judgment. In particular, this would make Nationwide liable for amounts in excess of the agreed upon limits in the policy.
The governing of prejudgment interest in North Carolina is provided by N.C. Gen. Stat. § 24-5, which states, “In an action other than contract, the portion of money judgment designated by the fact finder as compensatory damages bears interest from the date the action is instituted until the judgment is satisfied. Interest on an award in an action other than contract shall be at the legal rate.” N.C.G.S. § 24-5(b) (1991).
The North Carolina Supreme Court has held that when a statute is applicable to the terms of a policy of insurance, the provisions of that statute become terms of the policy to the same extent as if they were written in it. Further, if the terms of the policy conflict with the statute, the provisions of the statute hold related to prejudgment interest. Baxley v. Nationwide Mut. Ins. Co., 334 N.C. 1, 6 (1993). However, the Court has also held that the prejudgment interest statute is not contained as part of the Financial Responsibility Act, and thus is not required to be written into every liability policy. Moreover, without statutory authority, the insurer’s obligation to pay interest in addition to its policy limits is governed by the language of the policy.
The relevant provision of the applicable amended Nationwide Liability Coverage Policy stated:
“A. The first paragraph of the Insuring Agreement is replaced by the following: We will pay damages for bodily injury or property damages for which any insured becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the insured. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted. We have no duty to defend any suit or settle any claim for bodily injury or property damage not covered under this policy.
B. Section 3 of the Supplementary Payments provision is replaced by the following: In addition to our limit of liability, we will pay on behalf of an insured: all costs taxed against the insured and interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage.
C. The first sentence of the Limit of Liability provision is replaced by the following: The limit of liability shown in the Declarations for each person for Bodily Injury Liability is our maximum limit of liability for all damages for bodily injury, including damages for care, loss of services or death sustained by any one person in any one auto accident.”
Thus, the Supreme Court, in reading the agreement between the parties, found that the clause which expressly included prejudgment as damages controlled the determination of whether prejudgment interest may be payable in excess of the policy limits.
The Supreme Court of North Carolina ultimately upheld the ruling of the Court of Appeals, and ruled that it was correct to limit Nationwide’s responsibility to pay any prejudgment interest up to its $300,000.00, and that Nationwide could only have been liable for such interest in excess of the policy limits if there was a contractual obligation to pay it.
In this case, because Nationwide’s policy considered prejudgment interest to be included within the policy limits, and there was no recovery available to the Mabes and Scotts above the policy limits.