Opinion
Civil Action No. 00-11911-DPW.
October 18, 2004
MEMORANDUM AND ORDER
On August 23, 2004, judgment was entered in this insurance coverage dispute for plaintiff insured, Glen Dash, against defendant insured, Chicago Insurance Company, in the amount of $1,000,000 plus prejudgment interest. The judgment was calculated using $844,550.93 in defense costs and $578,327.09 in indemnity costs, subject to a $1,000,000 insurance policy limit.
For purposes of resolving the present Motion to Amend Judgment, it is unnecessary to recount the entire factual background of this case. The relevant facts can be found in my August 23, 2004 Memorandum and Order. Dash v. Chicago Ins. Co., No. 00-11911-DPW, 2004 WL 1932760, at *1-5 (D. Mass. Aug. 23, 2004).
There are several distinct elements to the prejudgment interests involved in this case. Prejudgment interest, as referenced in the judgment, was contemplated running essentially from when plaintiff made the payments on the defense costs ("defense cost prejudgment interest") and on the settlement amount ("indemnity cost prejudgment interest") that make up the basic award in this case. The plaintiff has now, through the instant motion to amend judgment, further refined the kinds of prejudgment interest at issue in this case by contending that the indemnity costs settlement amount itself included prejudgment interest ("underlying award prejudgment interest") imposed under state law on the liability award against the insured.
On September 1, 2004 Dash filed a motion to amend judgment, arguing that the policy limit does not apply to the prejudgment interest portion of the indemnity costs. He requests that judgment be entered in the amount of $1,167,714.09 plus additional prejudgment interest in order properly to recognize the prejudgment interest I found in the August 23, 2004 Memorandum and Order to have been an element of the indemnity costs.
For the reasons stated below, I find that the underlying award prejudgment interest element of the indemnity costs are exempted from the policy limit by the applicable Federal Risk Retention Act Nationwide Amendatory Endorsement ("the Endorsement"). I conclude, however, the amount of underlying award prejudgment interest included in the indemnity costs recoverable should be calculated based on the amount Chicago is actually required by the judgment to indemnify Dash — $155,449.07 — and not on the entire indemnity reflected in the settlement amount. Consequently, I will enter an amended judgment to that extent.
I. Procedural Posture
Dash moved to amend judgment pursuant to Fed.R.Civ.P. 52(b). A Rule 52(b) motion is meant "to correct, clarify, or amplify the findings [and] is not meant to provide an avenue for relitigating issues on which the moving party did not prevail at trial." 9 Moore's Federal Practice § 52.60.
Rule 52(b) provides:
On a party's motion . . . the court may amend its findings — or make additional findings — and may amend the judgment accordingly. The motion may accompany a motion for a new trial under Rule 59. When findings of fact are made in actions tried without a jury, the sufficiency of the evidence supporting the findings may be later questioned whether or not in the district court the party raising the question objected to the findings, moved to amend them, or moved for partial findings.
A court may also grant a motion to amend judgment pursuant to Fed.R.Civ.P. 59(e). See Project Strategies Corp. v. National Communications Corp., No. 94 CV 4925, 1997 WL 67517, at *1 (E.D.N.Y. Jan. 31, 1997) ("A motion pursuant to Rule 52(b) and 59(e) may properly seek to correct manifest errors of law or fact or to present newly discovered evidence.") (citing Wallace v. Brown, 485 F. Supp. 77, 78 (S.D.N.Y. 1979)). As with motions under 52(b), "Rule 59(e) motions are 'aimed at reconsideration, not initial consideration.'" F.D.I.C. v. World Univ. Inc., 978 F.2d 10, 16 (1st Cir. 1992) (quoting Harley-Davidson Motor Co., Inc. v. Bank of New England, 897 F.2d 611, 616 (1st Cir. 1990)).
Arguably, the motion could in addition be treated as one under Rule 60(a). Fed.R.Civ.P. 60(a) provides in pertinent part:
Clerical mistakes in judgments, orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time of its own initiative or on the motion of any party and after such notice, if any, as the court orders . . .
Rule 60(a) motions "must seek to conform the written judgment to the judgment actually rendered by the court; it cannot seek to alter the substantive rights of the parties." Dudley v. Penn-America Ins. Co., 313 F.3d 662, 671 (2d Cir. 2002) (Sotomayor, J., concurring).
Because the question before me is whether the Endorsement excludes a portion of the prejudgment interest — a question that extends beyond mere ministerial calculation — Rules 52(b) and 59(e) are the more appropriate tools.
In the final analysis,"[t]he decision to grant or deny a motion to amend or enlarge the findings is within the discretion of the trial court." 9 Moore's Federal Practice § 52.60. Exercising that discretion to amplify my findings and conclusions, I will address the parties' arguments regarding the application of the Endorsement language and its effect on the proper calculation of the judgment.
I note that briefing of the question of prejudgment interest by the parties in connection with the trial was somewhat cursory and did not develop the several complexities of the issues. As a consequence I did not initially have the benefit of their fully considered views on the subject.
II. Discussion
A. Waiver
Before turning to the question of whether the policy limit applies to prejudgment interest, I must first address Chicago's argument that underlying award prejudgment interest made up no portion of the indemnity costs in this case. If valid, this argument would mean the Endorsement text regarding prejudgment interest would be inapplicable.
After the jury trial in the underlying action, Dash was found liable for $3,060,693.94, including prejudgment interest. Of that amount, $1,042,245.40 constituted his liability for legal malpractice. Dash ultimately settled the case for $1,700,000.00 and, based on the percentage of malpractice liability to total liability in the jury award, I found that $578,327.09 of the settlement reflected his malpractice liability, including prejudgment interest.
The method of calculation here and in the following pages is as follows: Dash was found liable by the jury for a total of $3,060,693.94, including prejudgment interest, of which $1,042,245.40 represented his legal malpractice liability. His malpractice liability, thereby, represented approximately 34% of his total liability. The malpractice award was comprised of $740,000 in liability and $302,245.40 in prejudgment interest. It follows, therefore, that prejudgment interest made up approximately 29% of the liability related award.
Dash later settled for $1,700,000.00. Applying the ratio of malpractice liability to total liability, I found in my August 23 Memorandum and Order that $578,327.09 of the settlement represents the malpractice plus interest award. Applying the interest to liability ratio above, the interest portion of the $578,327.09 comes out to $167,714.86. The base liability amount therefore is $410,612.23.
With that said, the ultimate calculation of the malpractice plus interest portion of the settlement amount has no effect on the judgment I will enter herein. The only relevant calculation will be the interest calculated on $155,449.07 in indemnity costs which could be applied against the policy in light of the policy limits.
Chicago contends that, as part of the settlement, prejudgment interest was waived, pointing to the deposition testimony of Evan Slavitt, counsel to Dash. (See Def.'s Opp. to Pl.'s Mot. to Amend J., at 2). The relevant exchange reads as follows:
Mr. Grossbaum: Q. . . . But it's my understanding that the settlement was for the full amount of the verdict. Is that —
Mr. Miller: With interest. Not for the whole — what the judgment was.
Mr. Grossbaum: No. Just the verdict?
Mr. Miller: As I recall, I think it was for what the jury awarded.
. . .
Mr. Grossbaum: So the discount as you recall that you received — I mean your client received — was he managed to escape the obligation, or avoid the obligation of paying any interest that was awarded?
Mr. Slavitt: I think so.
(Ex. O to Def.'s Supplement to the Facts Disputed by the Parties, excerpt from 10/21/03 Slavitt Dep., pp 97-98).
This testimony is far from a clear indication of waiver. The fair reading of the exchange is that the settlement permitted Dash to avoid the continued running of interest, not that he was avoiding allocation of interest already accrued. Without more, there is no basis to question that the settlement amount was full satisfaction of the various elements of the award in "date of settlement" dollars, including prejudgment interest. On a motion to amend judgment, where it is inappropriate to reconsider findings that do not rise to "manifest errors of law or fact," I decline to adopt Chicago's newly minted waiver argument. Accordingly, the following discussion is based on my prior finding that the allocated share of underlying award prejudgment interest was reflected in the indemnity costs.
I noted in the August 23, 2004 Memorandum and Order that the precise liability cost prejudgment interest on the judgment could not be assessed at that point. See Dash, 2004 WL 1932760, at *14 ("Because the actual date (or dates) Dash paid out the $1.7 million settlement amount is not in the record, I cannot here make a final determination as to the exact prejudgment interest amount.").
B. The Application of the Policy Limit to Prejudgment Interest Award in this Action
Dash argues that the prejudgment interest portion of the indemnity costs in the underlying action is exempted from the policy limit, focusing on the following language from the Federal Risk Retention Act Nationwide Amendatory Endorsement, Short Form-Form A:
III. Prejudgment interest, where payable under this policy, will be in addition to the limits of liability stated in the declarations.
Dash also takes issue with my finding that calculating prejudgment interest "for the legal malpractice jury verdict . . . would double count the prejudgment interest for the legal malpractice award since the $578,327.09 figure was derived using total judgment amounts, which include prejudgment interest."Dash, 2004 WL 1932760, at *12 n. 30. This is a misreading of that footnote insofar as it implies that one may not receive interest on the indemnity award. The fair and proper reading is that once the $578,327.09 was calculated, it would not be warranted to add prejudgment interest from the underlying action to that amount in order to come to the proper indemnity amount in the case before me. As reflected in that footnote and reiterated by Dash in his motion, the indemnity costs already contained prejudgment interest from the underlying action ("the underlying award prejudgment interest"). More importantly, "just as Dash is entitled to prejudgment interest for defense costs, he can recover prejudgment interest on the indemnity amount running from the time of payment of the settlement with Intertek." Id. at *14. What remains is the question of the amount on which such interest should be calculated, consistent with both the Endorsement and the policy limit.
In a footnote to a passage stating that no interest rate was provided in the policy for prejudgment interest, I noted the Endorsement by observing that:
The only mention of prejudgment interest in the Policy is in an endorsement which states that "prejudgment interest, where payable under this policy, will be in addition to the limits of liability stated in the declarations." (citation omitted).Dash, 2004 WL 1932760, at *11 n. 28.
For the sake of completeness, it should be noted that there is another part of the policy that relates to postjudgment interest. "Claim Expenses" are defined in the original policy as:
(b) All costs taxed against the Insured in suits or proceedings and all interest on the entire amount of any judgment therein which accrues after entry of the judgment and before the Company has paid or tendered or deposited, whether in court or otherwise, but only as respects that part of the judgment which does not exceed the limit of the Company's liability thereof. . . .
(Ex. D to Pl.'s Mot. for Partial Summ. J.) (emphasis omitted).
In this case, one might argue that such interest is the prejudgment interest on the judgment I will ultimately render. Since such "claim expenses" are included in the limit of liability according to the policy declarations, Chicago might contend that all such interest is consumed by the limit. That is not a proper reading of the text. The fairest reading of the language is that it refers to interest accruing between the underlying judgment and date of payment. The interest that will be calculated in this action will be from the time Chicagoshould have paid — the date of payment in a circumstance where the insurer has not breached — until the date of judgment in this case.
(Attach. to Pl.'s Mot. to Amend J.).
In my August 23 Memorandum and Order, I cited this passage in another context, see Dash v. Chicago Ins. Co., No. 00-11911-DPW, 2004 WL 1932760, at *11 n. 28 (D. Mass Aug. 23, 2004), but did not address its impact on the ultimate judgment amount. It is appropriate to do so now.
Chicago does not contend that the Endorsement is not binding in the event prejudgment interest is found to be part of the indemnity. Instead, as discussed above, it argues that the indemnity costs did not include interest. Since that argument was effectively resolved against Chicago in the August 23, 2004 Memorandum and Order and has again been rejected in this Memorandum, I expressly find here that in light of the Endorsement, which adds terms to the policy that "supercede any similar terms which may be contained therein," (see Attach. to Pl.'s Mot. to Amend J.), prejudgment interest should be calculated "in addition to the limits of liability stated in the declarations." (Id.)
Additionally, Chicago argues that Dash is not entitled to prejudgment interest on fees and costs he did not pay. This issue was raised by Chicago before my August 23 ruling and was fully addressed there:
Chicago argues that the defense cost amount should be offset by $482,630.22, the amount that Dash was reimbursed by Curtis-Straus for legal fees, costs, and expert fees in the Intertek litigation. While awarding Dash the full amount of defense costs here admittedly would, at least in the short term, amount to a partial double recovery for Dash, the appropriateness of such a windfall is not properly implicated in this case. This case concerns only the dispute between Dash and Chicago, and on that score, I have concluded that Dash is entitled to full reimbursement for his defense costs. Attempting to recalibrate the defense cost amount by factoring in Curtis-Straus's payment to Dash is unwarranted given that Curtis-Straus is not a party to this litigation, and moreover, it would be inappropriate given the absence of details concerning the payment in the trial record.Dash, 2004 WL 1932760, at *11 (footnotes omitted). Recalibrating defense costs is no more appropriate now than when judgment was entered. Therefore, to the extent Chicago's arguments rely on offsetting their responsibility to indemnify Dash by the amount Curtis-Straus paid, they are once again rejected.
That does not end the inquiry. Chicago contends that if prejudgment interest is found to constitute part of the indemnity costs, the Endorsement exempts only that prejudgment interest resulting from amounts covered by the policy limit. On this point, Chicago is correct.
To resolve that issue, the order in which the indemnity costs and defense costs are considered becomes important. If the indemnity costs are counted against the limit first, Dash would be correct in his assertion that he is due a judgment equaling the policy limit plus the total prejudgment interest on the indemnity costs, which in his estimation would represent $410,612.23 of indemnity costs (exempting the interest pursuant to the Endorsement) plus $844,550.93 of defense costs, subject to the policy limit. The exempted interest on the indemnity would then be added to the limit, resulting in a judgment in this case of $1,167,714.86.
But that is not the proper approach. Rather, defense costs should be deducted from the policy limit first because they were antecedent to the indemnity costs. Prejudgment interest is to be calculated on sums that Dash "was obliged to commit which [he] should not have been obliged to commit." Sterilite Corp. v. Continental Casualty Corp., 397 Mass. 837, 842 (1986) (addressing the question of the appropriate dates from which interest should be calculated). Dash expended $844,550.93 on defense costs that he should not have. After doing so, he had $155,449.07 remaining on his policy to cover any resulting judgment. Consequently, of the indemnity costs, only the $155,449.07 represents sums he "should not have been obliged to commit." That is the amount Chicago wrongfully retained in its coffers from the time of settlement to the judgment in this case. Therefore, that amount — $155,449.07 — is the only portion of the indemnity costs on which prejudgment interest should be calculated for purposes of applying the dictates of the Endorsement.
This conclusion is consistent with the language of the Endorsement, which excludes only that interest "payable under this policy." Otherwise, an insurer could be potentially responsible for interest on amounts they never had a responsibility to pay. For instance, an insurer could provide a defense (or later be found responsible for doing so) that cost more than $1,000,000. At that point, there would remain no further obligation (except prejudgment interest on the $1,000,000.00 in defense costs that had accrued). Yet, if Dash's interpretation of the Endorsement were accepted, prejudgment interest on an indemnity award for which the insurer had no responsibility could then be added to the policy limit. This cannot be what was contemplated by the language in the Endorsement.
Accordingly, I find that defense costs are to be subtracted from the policy limit first because they accrued first. The insurance policy makes clear that if the defense costs outrun the liability limit, Chicago's duties would cease: "In no event shall the Company be obligated to pay Damages or Claim Expenses or to defend, or continue to defend, any suit after the applicable limit of the Company's liability has been exhausted by payments of judgments, settlements, Damages or Claim Expenses, as applicable." (Ex. D to Pl.'s Mot. for Partial Summ. J. (emphases omitted)). As a consequence, after payment of defense costs in this case, Chicago — if it had not breached its duty — would have been responsible for the remaining $155,449.07 on the policy limit. Prejudgment interest of $45,079.37 may then be excluded from the policy limit, resulting in a total judgment of $1,045,079.37.
Chicago claims the interest amount should equal $54,407.18. The actual amount should be $45,079.37. Interest is calculated by determining the percentage interest represented in the original jury award as to legal malpractice and applying that to the indemnity costs for which Chicago is responsible. The total legal malpractice award was $1,042,245.40, of which $302,245.40 was interest. (Dash was found liable for legal malpractice by the jury in the amount of $740,000 before interest). Interest therefore constituted approximately 29% of the award. As a result, Chicago owes, in addition to its policy limit, 29% of $155,449.07, or $45,079.37. (To arrive at $45,079.37, the exact percentage, extended to 32 decimals, was used.)
Calculating underlying award prejudgment interest in this amount does not double count prejudgment interest from the underlying judgment. At the time Dash paid his settlement, he was entitled to $155,499.07 in indemnity costs plus $45,079.37 in interest on the same. He was wrongfully deprived of (and Chicago wrongfully retained) $200,528.44, plus the $844,550.93 in defense costs. Chicago therefore owes Dash interest on $1,045,079.37 — the money they retained but was rightfully Dash's pursuant to the terms of the insurance policy.
The method of calculating interest on the defense costs was detailed in my August 23 opinion and shall remain the same.See Dash, 2004 WL 1932760, at *11 ("I conclude that under § 6C Dash is entitled to the twelve percent prejudgment rate applied to the amounts and dates of actual payments."). Although the parties have apparently not yet undertaken the exercise, I continue to believe it "unlikely that there will be any dispute as to the amounts of payments Dash made for defense costs or the dates on which he made them." Id. at *11 n. 29.
III. CONCLUSION
For the reasons set forth more fully above, an amended judgment shall enter for Dash reflecting $844,550.93 in defense costs and $410,612.23 in indemnity costs, subject to the $1,000,000 policy limit. Factoring in the underlying award prejudgment interest amount on $155,449.07 (the portion of indemnity costs for which Chicago was responsible), the total judgment for Dash is $1,045,079.37, plus prejudgment interest pursuant to Mass Gen. Laws ch. 231, § 6C calculated in accordance with Note 29 of the August 23, 2004 Memorandum and Order.