What is the obligation of an insured to pay interest on a judgment which exceeds their policy? Can a carrier be forced to pay more than their policy limits based on the mandatory provisions regarding the payment of interest found in Insurance Department regulation11 NYCRR 60-1.1?
See Friedman v. Progressive Direct Ins. Co., 100 A.D.3d 591, 592, 953 N.Y.S.2d 293, 294-95 (2012) from the Appellate Division Second Department in a case where the Progressive Insured defaulted in the underlying action and Progressive tendered its minimum policy. "Contrary to the defendant's contention, it was required to pay interest on the $25,000 which accrued since the entry of the underlying judgment (see Dingle v. Prudential Prop. & Cas. Ins. Co., 85 N.Y.2d 657, 660, 628 N.Y.S.2d 15, 651 N.E.2d 883; Shnarch v. Empire Mut. Ins. Co., 144 A.D.2d 795, 796, 535 N.Y.S.2d 180 11 NYCRR 60-1.1[b]). Further, since the evidence indicated that the defendant had notice of the underlying action, and an opportunity to defend its insured, the defendant cannot claim that it was absolved from paying interest because it had no opportunity to defend (cf. Alejandro v. Liberty Mut. Ins. Co., 84 A.D.3d 1132, 1133, 924 N.Y.S.2d 124)."
What happens when the defendant posts a bond for the amount of their policy? This question is answered by New York's Civil Practice Law and Procedure statute.
New York CPLR § 5519 (7) (b) provides in part:
(b) Stay in action defended by insurer. If an appeal is taken from a judgment or order entered against an insured in an action which is defended by an insurance corporation, or other insurer, on behalf of the insured under a policy of insurance the limit of liability of which is less than the amount of said judgment or order, all proceedings to enforce the judgment or order to the extent of the policy coverage shall be stayed pending the appeal, and no action shall be commenced or maintained against the insurer for payment under the policy pending the appeal, where the insurer:
1. files with the clerk of the court in which the judgment or order was entered a sworn statement of one of its officers, describing the nature of the policy and the amount of coverage together with a written undertaking that if the judgment or order appealed from, or any part of it, is affirmed, or the appeal is dismissed, the insurer shall pay the amount directed to be paid by the judgment or order, or the part of it as to which the judgment or order is affirmed, to the extent of the limit of liability in the policy, plus interest and costs;
2. serves a copy of such sworn statement and undertaking upon the judgment creditor or his attorney; and
3. delivers or mails to the insured at the latest address of the insured appearing upon the records of the insurer, written notice that the enforcement of such judgment or order, to the extent that the amount it directs to be paid exceeds the limit of liability in the policy, is not stayed in respect to the insured. A stay of enforcement of the balance of the amount of the judgment or order may be imposed by giving an undertaking, as provided in paragraph two of subdivision (a), in an amount equal to that balance.
Subdivision (b) governs a stay of enforcement in a tort action defended by the defendant-tortfeasor's liability insurer and won by the plaintiff at trial level. It applies when the judgment exceeds the amount of the policy. An insurer invoking subdivision (b) waives any defenses it might have had against its insured on the policy.
See Lancer Ins. Co. v. Sunrise Removal Inc., 2010 WL 532387 (Sup.Ct., Nassau County; Jan. 22, 2010), modified and affirmed in 78 A.D.3d 1128, 914 N.Y.S.2d 174 (2d Dep't, Nov. 30, 2010). Lancer involved a personal injury action. Defendant's insurance policy with its insurer was for $100,000. Defendant offered it all but it was rejected, and the trial then produced a verdict and judgment of some $776,000. Lancer holds that if the $100,000 had been unconditionally tendered, it would apparently have sufficed to relieve the insurer of interest on the judgment, but the court held that an outright tender was not made here, just a mere "offer of settlement", and that, holds the court, is insufficient. The result is that the insurer is liable not only for its policy limit of $100,000, but also for interest on the entire judgment covering the period until the $100,000 coverage is paid.
The Court, in Lancer (supra), found the terms of the insurance policy "more generous" than the law requires. Insurance Department Regulation 11 NYCRR 60-1.1(b), requires the insurer to pay interest, however, the insurer is not required to pay on the whole of the judgment. The policy involved in Lancer speaks of interest "on the full amount of any judgment", which resulted in the decision described above.
With regard to the whether the insurer's offer to settle did or did not constitute a "tender," the court in Lancer elaborates by explaining that:
"[a]n offer to settle pursuant to the policy limits is not an unconditional tender of payment and is insufficient to stop the accrual of interest on the judgment. So there is yet another lesson for insurers. If the insured faces great liability because of the injuries inflicted by it on the injured person and the insurer is prepared to throw in the whole policy, the insurer should throw it in with an unequivocal tender of the face amount of the policy."
The court cites several cases to similar effect. One worth noting from the Appellate Division is Levit v. Allstate Ins. Co., 308 A.D.2d 475 (2d Dep't, 2003) in which Allstate's payment of $750,000.00, which was in excess of its $500,000.00 policy limit, was not sufficient to satisfy Allstate's entire obligation after an excess verdict of $6,436,052.80. The Court held further that Allstate's offers to settle the action was not unconditional, and consequently did not satisfy the definition of tender required by the insurance regulation (citied cases omitted). However, Allstate's placement of $750,000.00 in escrow subsequent to the entry of judgment satisfied the definition of payment within the meaning of the policy (Id. 477).