The Time-Money Continuum

Let us also assume that at the end of this period, the insurance companies have been unsuccessful in their asserted defenses, grow weary of the litigation process and agree to settle the claim by paying the full $100 million. This would seem to be a good day for the policyholder. What might be less evident is that it also may be a good day for the insurers paying the $100 million, which loops back to the concept that time is money.

The reason this may be a good day for the insurers is mathematical. In this example, if the insurers had paid the $100 million the day the claim was presented, they would have had, collectively, a negative balance sheet impact of $100 million on that day. If, however, they waited a little more than seven years to pay, as in this example, and earned 10% per year during the entire period on the $100 million they delayed paying, that $100 million, with compounding interest, would be have grown to $200 million by the date when the $100 million ultimately was paid on the claim. In other words, the insurers in this example would have earned enough on the $100 million over the intervening period to pay the claim in its entirety.

Of course, the opportunity to achieve this result would have come at some cost to the insurers, including costs for the internal resources dedicated to the coverage suit and for attorneys' fees and other litigation expenses incurred in the defense of that suit, all of which could be significant. Also, the insurers in this example would have taken some risk, because, even though the math is straightforward, the equation assumes a 10% annual investment performance, which would not have been guaranteed at the outset. On the other hand, the insurers also could have achieved a better than 10% annual investment performance, could have achieved a better-than-anticipated outcome on their coverage defenses, and, regardless, for more than seven years would have had the full use of the premiums paid for the policies.

In this example, the casualty or liability insurers, in effect, applied an annuity or life insurance model to a casualty or liability insurance claim, using investment performance on the amounts used eventually to pay and fully fund the claim. Casualty and liability policies, however, are not annuities or life insurance policies. They are sold on the promise, implicit in the policies and explicit in marketing efforts, of protection ' of prompt payment to, or on behalf of, policyholders when covered losses take place or covered liabilities occur. An insurer's failure to treat a casualty or liability policy as such may benefit the insurer, but it does so at considerable cost to the policyholder, which, in the above example, also incurs substantial litigation costs and is paid more than seven years late, in inflation-diminished dollars, after having lost its own opportunity for investment returns on the $100 million that was due.

The law of many jurisdictions, however, to the benefit of policyholders, also recognizes this time value of money and operates to protect policyholders that are forced to wait for payment on their claims. Discussed below are several recent cases, from various jurisdictions, that recognized this value and compensated the policyholders involved, in the form of prejudgment interest, for their loss of it. As some of these cases demonstrate, prejudgment interest amounts can be extremely large compared to claim size. Accordingly, insurers' exposures for prejudgment interest should be regarded as real and meaningful, by both insurers and policyholders, as the parties value claims for purposes of attempting to settle them.

California

In Acacia Research Corp. v. National Fire Insur. Co. of Pittsburgh, PA, No. SACV 05-501 PSG (MLGx), 2008 WL 4179206 (C.D. Cal. Feb. 8, 2008), a corporate officer and his current employer, who were insured under a Directors, Officers and Corporate Liability Insurance Policy, were sued by the officer's former company, which alleged that he stole certain technology and brought it to his new employer, which then obtained patents on the technology. The former employer filed suit, asserting 14 causes of action, and lengthy and expensive litigation ensued.

The officer and his new company made a claim under their policy, which required the insurer to pay defense costs and to indemnify covered claims up to a limit of $10 million in excess of a self-insured retention of $150,000. The insurer was slow to process the claim, and the policyholders retained counsel to defend the suit. Over the course of nearly three years, the insurer transferred responsibility for the claim among five different claims employees. The insurer received a number of communications from the policyholders to which it did not respond. For three months, no claims employee was assigned to the claim, and for certain periods, some as long as 15 months, the insurer did nothing to process the claim. Id. at *4-5. Finally, after three years, the insurer sent a coverage denial, asserting various bases for denial, all of which were rejected, ultimately, by the court in the coverage case.

In the interim, the insured officer and his new company were forced to defend the underlying case at considerable expense, incurring approximately $1.8 million in defense costs. Ultimately, the policyholders were unable to fund and sustain the underlying litigation further without assistance from their insurer and were forced to settle. Although the settlement agreement acknowledged that the corporate policyholder was the owner of the technology and had all rights, title and interest in the patents, that policyholder, nonetheless, agreed in settlement to make cash payments and issue stock to the underlying plaintiff and also agreed to make certain royalty payments to the plaintiff. In all, the value of the agreed settlement consideration exceeded $21 million.

In the coverage case, the court determined certain issues upon cross-motions for summary judgment and the remaining issues at trial, ultimately finding in favor of the policyholders and awarding them approximately $21.4 million as the cost the underlying settlement. The court awarded judgment in excess of the $10 million policy limits because it found the insurer to have acted in bad faith. The court also awarded over $3.5 million in attorneys' fees and costs. Significantly, the court further awarded more than $10.2 million in prejudgment interest under California Civil Code '3287(a), which provides: “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover is vested in him upon a particular day, is entitled also to recover interest thereon from that day ' .” After quoting the statute, the court held as follows: “Here, the amount of damages is certain because the amount of the ' settlement and Plaintiff's defense costs can be certainly ascertained. Therefore, the court finds it appropriate to grant Plaintiff's request for an award of 10% prejudgment interest on its damages. Cal. Civ. Proc. Code ' 685.010(a); Cal. Const. art. XV, ' 1.” Id. at *17.

Ohio

In Goodrich Corporation v. Commercial Union Insur. Co., No. CV 1999-02-0410 (Ohio C.P. Jan. 4, 2007), aff'd in part and rev'd in part, Nos. 23585, 23586, 2008 WL 2581579 (Ohio App. June 30, 2008), a policyholder sued various excess insurers for defense and remediation costs arising from environmental conditions at a former manufacturing site. The policyholder gave notice of the claim to its insurers in 1989, settled with its primary insurer in 1995, and first initiated litigation against its excess insurers in 1997. After various rulings on summary judgment motions and an appeal to and a remand from the state's intermediate appellate court, the case was tried in December 2005 and January 2006, resulting in a judgment in favor of the policyholder against Commercial Union Insurance Company and a group of nine London Market Insurance Companies for defense and remediation costs of $22 million in excess of underlying primary policy limits. Judgment also was rendered in favor of the policyholder for attorneys' fees and expenses incurred in prosecuting the coverage case and for declaratory judgment for future defense and remediation costs.

After the jury phase of the trial, but before entering judgment, the trial court held a hearing on the awardable amount of coverage case attorneys' fees and litigation expenses and prejudgment interest. Ultimately, it determined that the policyholder's right to prejudgment interest accrued against Commercial Union on June 30, 1995, the date of the policyholder's settlement with the underlying primary insurer, and it entered judgment on Jan. 4, 2007, for the $22 million penetration into Commercial Union's coverage determined by the jury, plus prejudgment interest through May 25, 2006, of more than $20.4 million. The trial court also awarded per diem interest of $3,616 upon the $22 million, to run from May 26, 2006, through the date of judgment satisfaction. The trial court further found the amount of coverage case attorneys' fees and litigation expenses recoverable from Commercial Union to be slightly in excess of $12 million, and it awarded prejudgment interest on this amount for more than $3.2 million through May 25, 2006, plus per diem interest thereafter of $1,978 until the date of satisfaction. As against Commercial Union, therefore, the trial court awarded prejudgment interest, upon defense, remediation, and coverage case litigation expenses, of more than $23.6 million, plus per diem interest of $5,594, which would compute to $2.04 million per year, from the date through which interest initially was computed until the date of judgment satisfaction.

The trial court also held that the London Market Companies were jointly and severally liable with Commercial Union for 88% of the coverage case attorneys' fees and expenses and for corresponding prejudgment interest. The trial court, however, did not award prejudgment interest against the London Market Companies on their several exposures for the $22 million the jury found to have penetrated into their coverages.

Upon appeal, the court affirmed the prejudgment interest award in favor of the policyholder and against Commercial Union. Upon the policyholder's cross-appeal against the London Market Companies, the court reversed the trial court's failure to award prejudgment interest against the London Market Companies on the covered remediation and defense costs, and it remanded the case to the trial court for determination of the appropriate accrual date for such prejudgment interest. The court stated: “Goodrich makes a purely legal argument here. It maintains that, given the jury had found a breach of contract by the London Market Insurers, the court had no discretion not to award prejudgment interest, as it was required by R.C. 1343.03(A) to do so. This court agrees.” Id. at *10. The court cited a number of other Ohio appellate court decisions that described prejudgment interest as being non-discretionary and mandatory in Ohio. The court went on to state:
“[T]he trial court had no discretion to deny Goodrich's request for prejudgment interest against [the London Market Companies]. Its only decision was to determine when the interest would begin to run ' .” Id. The insurers sought review of these prejudgment interest determinations in the Supreme Court of Ohio, but that court declined further review. Goodrich v. Commercial Union Insur. Co., 120 Ohio St.3d 1453 (Dec. 31, 2008).

Other Jurisdictions

Other jurisdictions recently have confirmed the right of prevailing policyholders to recover prejudgment interest from their breaching insurers, although on amounts smaller than those at issue in the California and Ohio cases discussed above. For instance, in Salerno v. Auto Owners Insur. Co., No. 8:04-cv-1056-T-24 MAP, 2007 WL 852199 (M.D. Fla. Jan. 25, 2007), a federal trial court applying Florida law awarded $473,000 in pre-judgment interest upon a coverage award of $2.4 million in an automobile liability insurance coverage case.

In Feit v. Great West Life and Annuity Insur. Co., 460 F.Supp.2d 646 (D. N.J. 2006), a federal trial court applying New Jersey law awarded $188,000 in prejudgment interest upon a $1 million accidental death benefit judgment, stating: “Under New Jersey law, an award of prejudgment interest is compensatory because it indemnifies the 'claimant for the loss of what the moneys due him would presumably have earned if payment had not been delayed.” Id. at 647 (citing Busik v. Levine, 63 N.J. 351 (1973)). That award was later nullified, in effect, when the trial court granted a motion made under Rule 50(b) of the Federal Rules of Civil Procedure, finding that there was insufficient evidence of accidental death. The Third Circuit, on appeal, agreed that there was insufficient evidence to support the accidental death benefit judgment, rendering moot the prejudgment interest award upon such judgment, but it articulated no criticism of the prejudgment interest analysis. Feit v. Great West Life and Annuity Insur. Co., 271 Fed. Appx. 246 (3rd Cir. 2008).

In KV Pharmaceutical Co. v. National Union Fire Insur. Co. of Pittsburgh, PA, No. 4:05CV270 CDP, 2006 WL 1153825 (W.D. Mo. 2006), a federal court applying Missouri law awarded prejudgment interest of $522,000 on a $3.5 million judgment upon verdict against an excess insurer in a business tort coverage case. Citing both equitable principles and Mo. Rev. Stat. ' 408.020, the court rejected the insurer's argument that the amount due was unliquidated until the verdict and, therefore, no prejudgment interest was awardable. The court awarded prejudgment interest at the rate of 9% from the date the policyholder settled the underlying claim for an amount that resulted in a $3.5 million penetration into the excess insurance layer. The court noted: “Missouri case law addresses the concern that 'unless prejudgment interest is available, compensation will be inadequate and defendants will have an incentive to prolong litigation to take advantage of the time value of money.'” Id. at *2 (citing Nordaway Valley Bank v. Continental Casualty Co., 916 F.2d 1362, 1368 (8th Cir. 1990)).

Conclusion

The cases discussed above are taken from a small sampling of jurisdictions, but they demonstrate the potentially substantial impact prejudgment interest can have upon claim value in jurisdictions that permit or mandate that it be awarded. In the hypothetical case discussed in this article, if the $100 million claim had been adjudicated in a jurisdiction where prejudgment interest was awardable at a 10% compound interest rate, and if the full amount of the claim had been due on the date it was presented, the policyholder receiving its settlement payment of $100 million did not receive 100 cents on the dollar. It received 50 cents. If it did not take this mathematical reality into account when negotiating its settlement, failing to work from a claim amount of $200 million, inclusive of interest, rather than $100 million, it negotiated from an inaccurate and artificially low starting point, perhaps settling for too little.

Paul A. Rose is a partner and Amanda M. Leffler is an associate in the Akron, OH, office of Brouse McDowell, where they regularly represent policyholders in insurance coverage disputes. They also were among the counsel for Goodrich Corporation in the case mentioned in this article.

Everyone has heard that time is money, but it may be that no industry understands this concept as well or as thoroughly as the insurance industry. To be profitable, annuities must be sold at a price that, given expected investment performance on the premiums, will more than sustain the income streams promised in the annuity contracts. Life insurance premiums must, given the investment performance expected on the premiums and the mortality experience expected for the pool of insured persons, more than support the expected payments to beneficiaries. Liability and casualty insurance premiums must, given the investment performance expected on the premiums, be more than adequate to pay expected claims. The “more than” concept in all these examples is the key to the profitability of these products for insurers. In short, insurance involves a lot of math.

Insurance companies, accordingly, employ large numbers of accountants, actuaries, economists and others with mathematical training, and they understand the time-money continuum in the way that theoretical physicists understand the interchangeability of time and space. Insurers also understand that, consistent with the very nature of insurance, claims are inevitable. Although the impact of time on money is fundamental to the operation and viability of the insurance industry, and although the inevitability of claims is a given in the industry, it is not always evident that insurers appropriately account to their policyholders for the time value of money when valuing and paying casualty or liability claims, or that policyholders insist that they do so.

Consider this example. A policyholder suffers or incurs a casualty or liability loss of $100 million and presents the claim to its insurers. The insurers raise a number of coverage defenses that will be time consuming to litigate but have limited inherent merit, and litigation ensues. As is the case with many insurance coverage suits, the case proceeds slowly. Some coverage cases, of course, are litigated to conclusion in a year or two. More commonly, they take two to five, or even five to 10, years. Not uncommonly, particularly for large, complex coverage cases, they can proceed at a pace that can best be described as “tectonic,” taking 10 to 20 years, or even more, involving many determinations on motion, multiple trials and retrials, and several trips through the appellate court system. For purposes of this example, let us assume that the litigation proceeds at a comparatively brisk pace for a case of this size and takes a little more than seven years.

Let us also assume that at the end of this period, the insurance companies have been unsuccessful in their asserted defenses, grow weary of the litigation process and agree to settle the claim by paying the full $100 million. This would seem to be a good day for the policyholder. What might be less evident is that it also may be a good day for the insurers paying the $100 million, which loops back to the concept that time is money.

The reason this may be a good day for the insurers is mathematical. In this example, if the insurers had paid the $100 million the day the claim was presented, they would have had, collectively, a negative balance sheet impact of $100 million on that day. If, however, they waited a little more than seven years to pay, as in this example, and earned 10% per year during the entire period on the $100 million they delayed paying, that $100 million, with compounding interest, would be have grown to $200 million by the date when the $100 million ultimately was paid on the claim. In other words, the insurers in this example would have earned enough on the $100 million over the intervening period to pay the claim in its entirety.

Of course, the opportunity to achieve this result would have come at some cost to the insurers, including costs for the internal resources dedicated to the coverage suit and for attorneys' fees and other litigation expenses incurred in the defense of that suit, all of which could be significant. Also, the insurers in this example would have taken some risk, because, even though the math is straightforward, the equation assumes a 10% annual investment performance, which would not have been guaranteed at the outset. On the other hand, the insurers also could have achieved a better than 10% annual investment performance, could have achieved a better-than-anticipated outcome on their coverage defenses, and, regardless, for more than seven years would have had the full use of the premiums paid for the policies.

In this example, the casualty or liability insurers, in effect, applied an annuity or life insurance model to a casualty or liability insurance claim, using investment performance on the amounts used eventually to pay and fully fund the claim. Casualty and liability policies, however, are not annuities or life insurance policies. They are sold on the promise, implicit in the policies and explicit in marketing efforts, of protection ' of prompt payment to, or on behalf of, policyholders when covered losses take place or covered liabilities occur. An insurer's failure to treat a casualty or liability policy as such may benefit the insurer, but it does so at considerable cost to the policyholder, which, in the above example, also incurs substantial litigation costs and is paid more than seven years late, in inflation-diminished dollars, after having lost its own opportunity for investment returns on the $100 million that was due.

The law of many jurisdictions, however, to the benefit of policyholders, also recognizes this time value of money and operates to protect policyholders that are forced to wait for payment on their claims. Discussed below are several recent cases, from various jurisdictions, that recognized this value and compensated the policyholders involved, in the form of prejudgment interest, for their loss of it. As some of these cases demonstrate, prejudgment interest amounts can be extremely large compared to claim size. Accordingly, insurers' exposures for prejudgment interest should be regarded as real and meaningful, by both insurers and policyholders, as the parties value claims for purposes of attempting to settle them.

California

In Acacia Research Corp. v. National Fire Insur. Co. of Pittsburgh, PA, No. SACV 05-501 PSG (MLGx), 2008 WL 4179206 (C.D. Cal. Feb. 8, 2008), a corporate officer and his current employer, who were insured under a Directors, Officers and Corporate Liability Insurance Policy, were sued by the officer's former company, which alleged that he stole certain technology and brought it to his new employer, which then obtained patents on the technology. The former employer filed suit, asserting 14 causes of action, and lengthy and expensive litigation ensued.

The officer and his new company made a claim under their policy, which required the insurer to pay defense costs and to indemnify covered claims up to a limit of $10 million in excess of a self-insured retention of $150,000. The insurer was slow to process the claim, and the policyholders retained counsel to defend the suit. Over the course of nearly three years, the insurer transferred responsibility for the claim among five different claims employees. The insurer received a number of communications from the policyholders to which it did not respond. For three months, no claims employee was assigned to the claim, and for certain periods, some as long as 15 months, the insurer did nothing to process the claim. Id. at *4-5. Finally, after three years, the insurer sent a coverage denial, asserting various bases for denial, all of which were rejected, ultimately, by the court in the coverage case.

In the interim, the insured officer and his new company were forced to defend the underlying case at considerable expense, incurring approximately $1.8 million in defense costs. Ultimately, the policyholders were unable to fund and sustain the underlying litigation further without assistance from their insurer and were forced to settle. Although the settlement agreement acknowledged that the corporate policyholder was the owner of the technology and had all rights, title and interest in the patents, that policyholder, nonetheless, agreed in settlement to make cash payments and issue stock to the underlying plaintiff and also agreed to make certain royalty payments to the plaintiff. In all, the value of the agreed settlement consideration exceeded $21 million.

In the coverage case, the court determined certain issues upon cross-motions for summary judgment and the remaining issues at trial, ultimately finding in favor of the policyholders and awarding them approximately $21.4 million as the cost the underlying settlement. The court awarded judgment in excess of the $10 million policy limits because it found the insurer to have acted in bad faith. The court also awarded over $3.5 million in attorneys' fees and costs. Significantly, the court further awarded more than $10.2 million in prejudgment interest under California Civil Code '3287(a), which provides: “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover is vested in him upon a particular day, is entitled also to recover interest thereon from that day ' .” After quoting the statute, the court held as follows: “Here, the amount of damages is certain because the amount of the ' settlement and Plaintiff's defense costs can be certainly ascertained. Therefore, the court finds it appropriate to grant Plaintiff's request for an award of 10% prejudgment interest on its damages. Cal. Civ. Proc. Code ' 685.010(a); Cal. Const. art. XV, ' 1.” Id. at *17.

Ohio

In Goodrich Corporation v. Commercial Union Insur. Co., No. CV 1999-02-0410 (Ohio C.P. Jan. 4, 2007), aff'd in part and rev'd in part, Nos. 23585, 23586, 2008 WL 2581579 (Ohio App. June 30, 2008), a policyholder sued various excess insurers for defense and remediation costs arising from environmental conditions at a former manufacturing site. The policyholder gave notice of the claim to its insurers in 1989, settled with its primary insurer in 1995, and first initiated litigation against its excess insurers in 1997. After various rulings on summary judgment motions and an appeal to and a remand from the state's intermediate appellate court, the case was tried in December 2005 and January 2006, resulting in a judgment in favor of the policyholder against Commercial Union Insurance Company and a group of nine London Market Insurance Companies for defense and remediation costs of $22 million in excess of underlying primary policy limits. Judgment also was rendered in favor of the policyholder for attorneys' fees and expenses incurred in prosecuting the coverage case and for declaratory judgment for future defense and remediation costs.

After the jury phase of the trial, but before entering judgment, the trial court held a hearing on the awardable amount of coverage case attorneys' fees and litigation expenses and prejudgment interest. Ultimately, it determined that the policyholder's right to prejudgment interest accrued against Commercial Union on June 30, 1995, the date of the policyholder's settlement with the underlying primary insurer, and it entered judgment on Jan. 4, 2007, for the $22 million penetration into Commercial Union's coverage determined by the jury, plus prejudgment interest through May 25, 2006, of more than $20.4 million. The trial court also awarded per diem interest of $3,616 upon the $22 million, to run from May 26, 2006, through the date of judgment satisfaction. The trial court further found the amount of coverage case attorneys' fees and litigation expenses recoverable from Commercial Union to be slightly in excess of $12 million, and it awarded prejudgment interest on this amount for more than $3.2 million through May 25, 2006, plus per diem interest thereafter of $1,978 until the date of satisfaction. As against Commercial Union, therefore, the trial court awarded prejudgment interest, upon defense, remediation, and coverage case litigation expenses, of more than $23.6 million, plus per diem interest of $5,594, which would compute to $2.04 million per year, from the date through which interest initially was computed until the date of judgment satisfaction.

The trial court also held that the London Market Companies were jointly and severally liable with Commercial Union for 88% of the coverage case attorneys' fees and expenses and for corresponding prejudgment interest. The trial court, however, did not award prejudgment interest against the London Market Companies on their several exposures for the $22 million the jury found to have penetrated into their coverages.

Upon appeal, the court affirmed the prejudgment interest award in favor of the policyholder and against Commercial Union. Upon the policyholder's cross-appeal against the London Market Companies, the court reversed the trial court's failure to award prejudgment interest against the London Market Companies on the covered remediation and defense costs, and it remanded the case to the trial court for determination of the appropriate accrual date for such prejudgment interest. The court stated: “Goodrich makes a purely legal argument here. It maintains that, given the jury had found a breach of contract by the London Market Insurers, the court had no discretion not to award prejudgment interest, as it was required by R.C. 1343.03(A) to do so. This court agrees.” Id. at *10. The court cited a number of other Ohio appellate court decisions that described prejudgment interest as being non-discretionary and mandatory in Ohio. The court went on to state:
“[T]he trial court had no discretion to deny Goodrich's request for prejudgment interest against [the London Market Companies]. Its only decision was to determine when the interest would begin to run ' .” Id. The insurers sought review of these prejudgment interest determinations in the Supreme Court of Ohio, but that court declined further review. Goodrich v. Commercial Union Insur. Co. , 120 Ohio St.3d 1453 (Dec. 31, 2008).

Other Jurisdictions

Other jurisdictions recently have confirmed the right of prevailing policyholders to recover prejudgment interest from their breaching insurers, although on amounts smaller than those at issue in the California and Ohio cases discussed above. For instance, in Salerno v. Auto Owners Insur. Co., No. 8:04-cv-1056-T-24 MAP, 2007 WL 852199 (M.D. Fla. Jan. 25, 2007), a federal trial court applying Florida law awarded $473,000 in pre-judgment interest upon a coverage award of $2.4 million in an automobile liability insurance coverage case.

In Feit v. Great West Life and Annuity Insur. Co. , 460 F.Supp.2d 646 (D. N.J. 2006), a federal trial court applying New Jersey law awarded $188,000 in prejudgment interest upon a $1 million accidental death benefit judgment, stating: “Under New Jersey law, an award of prejudgment interest is compensatory because it indemnifies the 'claimant for the loss of what the moneys due him would presumably have earned if payment had not been delayed.” Id. at 647 (citing Busik v. Levine , 63 N.J. 351 (1973)). That award was later nullified, in effect, when the trial court granted a motion made under Rule 50(b) of the Federal Rules of Civil Procedure, finding that there was insufficient evidence of accidental death. The Third Circuit, on appeal, agreed that there was insufficient evidence to support the accidental death benefit judgment, rendering moot the prejudgment interest award upon such judgment, but it articulated no criticism of the prejudgment interest analysis. Feit v. Great West Life and Annuity Insur. Co. , 271 Fed. Appx. 246 (3rd Cir. 2008).

In KV Pharmaceutical Co. v. National Union Fire Insur. Co. of Pittsburgh, PA, No. 4:05CV270 CDP, 2006 WL 1153825 (W.D. Mo. 2006), a federal court applying Missouri law awarded prejudgment interest of $522,000 on a $3.5 million judgment upon verdict against an excess insurer in a business tort coverage case. Citing both equitable principles and Mo. Rev. Stat. ' 408.020, the court rejected the insurer's argument that the amount due was unliquidated until the verdict and, therefore, no prejudgment interest was awardable. The court awarded prejudgment interest at the rate of 9% from the date the policyholder settled the underlying claim for an amount that resulted in a $3.5 million penetration into the excess insurance layer. The court noted: “Missouri case law addresses the concern that 'unless prejudgment interest is available, compensation will be inadequate and defendants will have an incentive to prolong litigation to take advantage of the time value of money.'” Id. at *2 (citing Nordaway Valley Bank v. Continental Casualty Co. , 916 F.2d 1362, 1368 (8th Cir. 1990)).

Conclusion

The cases discussed above are taken from a small sampling of jurisdictions, but they demonstrate the potentially substantial impact prejudgment interest can have upon claim value in jurisdictions that permit or mandate that it be awarded. In the hypothetical case discussed in this article, if the $100 million claim had been adjudicated in a jurisdiction where prejudgment interest was awardable at a 10% compound interest rate, and if the full amount of the claim had been due on the date it was presented, the policyholder receiving its settlement payment of $100 million did not receive 100 cents on the dollar. It received 50 cents. If it did not take this mathematical reality into account when negotiating its settlement, failing to work from a claim amount of $200 million, inclusive of interest, rather than $100 million, it negotiated from an inaccurate and artificially low starting point, perhaps settling for too little.

Paul A. Rose is a partner and Amanda M. Leffler is an associate in the Akron, OH, office of Brouse McDowell, where they regularly represent policyholders in insurance coverage disputes. They also were among the counsel for Goodrich Corporation in the case mentioned in this article.