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Insurance Law

Prejudgment Interest: It’s Not Discretionary! Insurers Should Pay Up

By Jill Berkeley, Partner, Neal, Gerber & Eisenberg LLP

Who has not heard in the first round of mediation, insurers say, “prejudgment interest and extracontractual damages are off the table.” That’s just wrong. In the last three months alone, policyholders have won prejudgment interest awards in two U.S. courts of appeal, a federal district court in the N.D. of California, and by a jury in Minnesota, as a matter of right, holding insurers liable to pay as damages in addition to policy limits.

In Amera-Seiki Corp. v Cincinnati Ins. Co., No. 12-2739 (8th Cir. 07/23/2013), 2013 U.S. App. LEXIS 14893, [enhanced version available to subscribers], a case I wrote about last month, the Eighth Circuit court of Appeals affirmed an award for pre-judgment interest under Iowa law, holding that the entire damage for which recovery is demanded was complete at a definite time before the action was begun, even though the precise amount of those damages was fixed at a later time.

In Olin Corp. v. Century Indem. Co., No. 11-4579 (2nd Cir. 6/18/2013), 2013 U.S. App. LEXIS 12710, [enhanced version available to subscribers], the Second Circuit Court of Appeals affirmed an award that included prejudgment interest on 100% of unpaid defense costs owed by the insurer.

In National Union Fire Ins. Co. of Pittsburgh, PA v. Seagate Tech., Inc., No. C-04-01593 (U.S. Dist. Ct., N.D. Cal. 6/21/13), 2013 U.S. Dist. LEXIS 89242, [enhanced version available to subscribers],, the district court acknowledged that under California law, prejudgment interest must be granted as a matter of right and was not subject to waiver.

In UnitedHealth Group, Inc. v. Starr Excess Liability Ins. Int’l. Ltd., No. 05-cv-1289 (6/28/13), a Minnesota federal jury found Starr liable for prejudgment interest on its entire $50 million disability policy limit, increasing the award to $65 million.

Prejudgment interest is as much an element of damages that insurers face as covered claims for defense and settlement. That puts exposure above limits at risk and should be recognized as legitimately owed as part of settlement discussions. Insurers that believe paying policy limits in settlements are not a compromise are ignoring the reality that they face paying more than their limits, even without any evidence of vexatious refusal to pay penalties.

Read additional articles on legal developments that affect policyholders at the Policyholder Insurance Law Blog

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