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Hughes v. Harrelson and Progressive Insurance Co. (1/15/93), 844 P 2d 1106
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring typographical or other formal
errors to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501, in order
that corrections may be made prior to permanent
publication.
THE SUPREME COURT OF THE STATE OF ALASKA
ROBERT J. HUGHES, )
)
)
Petitioner, ) File No. S-4746
)
v. ) 4FA 90 892 CI
)
JULIE A. HARRELSON, and ) O P I N I O N
PROGRESSIVE INSURANCE CO. )
)
Respondents. ) [No. 3916, January 15, 1993]
________________________________)
Petition for Review from the Superior Court
of the State of Alaska, Fourth Judicial
District, Fairbanks, Jay Hodges, Judge.
Appearances: Joseph L. Paskvan, Hoppner,
Paskvan & Taylor, Fairbanks, for Petitioner.
Susan M. West, Robertson, Monagle & Eastaugh,
Anchorage, for Respondent Progressive
Insurance.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
MOORE, Justice, dissenting.
I. INTRODUCTION
Robert Hughes was injured when the motorcycle he was
driving collided with an automobile driven by Julie Harrelson.
Harrelson was insured under a policy issued by Progressive
Insurance Company (Progressive). The policy contained a $50,000
bodily injury liability limitation.
Harrelson admitted liability. Progressive extended a
"policy limits offer"of $50,000. In a motion for a statement of
law, Hughes sought a ruling that Harrelson's insurance policy and
two Alaska statutes, the Motor Vehicle Responsibility Act (AS
28.20.010-.640) and the Mandatory Motor Vehicle Insurance Act (AS
28.22.011-.321), require Progressive to pay prejudgment interest
even though the interest would exceed the $50,000 liability
limit. The superior court denied Hughes' motion.
We reverse.
II. DISCUSSION
We have previously stated that "[i]n order to hold the
insurer liable for [] prejudgment interest, the insurer must have
assumed such an obligation in the contract or, alternatively,
public policy must intervene and impose the obligation despite
the terms of the insurance contract." Guin v. Ha, 591 P.2d 1281,
1284 (Alaska 1979). We agree with Harrelson that nothing in
Progressive's insurance policy requires the payment of
prejudgment interest on the $50,000 liability coverage.1
However, two statutory provisions providing for minimum
automobile insurance coverage convince us that "public policy
must intervene and impose the obligation despite the terms of the
insurance contract."Id. Alaska Statute 28.20.440(b), a
section of Alaska's Motor Vehicle Responsibility Act, reads in
part:
(b) The owner's policy of liability
insurance must
. . . .
(2) insure the person named .
. . against loss from liability imposed
by law for damages arising out of the
ownership, maintenance, or use of the
vehicle . . ., subject to limits
exclusive of interests and costs, with
respect to each vehicle, as follows:
$50,000 because of bodily injury to or
death of one person in any one accident,
. . . .
(Emphasis added). Alaska Statute 28.22.101(d), a section of
Alaska's Mandatory Insurance Act, reads in part:
(d) A motor vehicle liability policy
must provide coverage in the United States or
Canada, subject to limits exclusive of
interest and costs, with respect to each
vehicle, as follows:
(1) $50,000 because of bodily
injury to or death of one person in one
accident, . . . .
(Emphasis added).
We are bound to construe statutory words and phrases
according to their common and approved usage. AS 01.10.040. The
phrase "exclusive of"is defined as "not taking into account."
Webster's Third International Dictionary 793 (1969). Thus, the
phrase "subject to limits exclusive of interests and costs"2
means that prejudgment interest should not be taken into account
when calculating the mandated minimum policy limit for bodily
injury or death.
To effectuate the language of the statutes, if the
policy limit is the statutory minimum, an insurer must pay
prejudgment interest in addition to the policy limit. See
Mellenberger v. Sweeney, 800 P.2d 747, 748-50 (Okla. Ct. App.
1990) (court held that insurer was required to pay prejudgment
interest in excess of the policy limits where statute required
automobile insurance policies provide $10,000 minimum bodily
injury coverage "exclusive of interest and costs"); Burton v.
Foret, 498 S.2d 706 (La. 1986); Denham v. Bedford, 287 N.W.2d 168
(Mich. 1980). In enacting the Motor Vehicle Responsibility Act
the legislature expressly declared its purpose:
The legislature is concerned over the
rising toll of motor vehicle accidents and
the suffering and loss inflicted by them.
The legislature determines that it is a
matter of grave concern that motorists be
financially responsible for their negligent
acts so that innocent victims of motor
vehicle accidents may be recompensed for the
injury and financial loss inflicted upon
them. The legislature finds and declares
that the public interest can best be served
by the requirements that the operator of a
motor vehicle involved in an accident respond
for damages and show proof of financial
ability to respond for damages in future
accidents as a prerequisite to the person's
exercise of the privilege of operating a
motor vehicle in the state.
AS 28.20.010 This intended purpose would be subverted if the
"innocent victim"is deprived of the prejudgment benefits of an
award. As we have previously noted, "money is worth less the
later it is received."Guin, 591 P.2d at 1290.
As we stated in Guin:
From the date of the injury, it is the
insurer who will have the use and benefit of
any sums, up to the policy limit, later found
to be owed to the injured party. Economic
fairness would suggest that the insurer be
held liable for prejudgment interest, without
regard to policy limits, as it has had the
use and benefit of funds during the period
for which the defendant insured is being held
liable.
Id. The issue in Guin was whether public policy dictated that we
ignore the provisions of a medical malpractice insurance contract
in order to require an insurer to pay prejudgment interest in
excess of the policy's limit. Id. at 1289-91. We found in Guin
that although "strong public policy arguments exist on either
side of the issue . . . no compelling reason [exists] to override
the provisions of the contract which the parties have entered
into."Id. at 1291.
There is a compelling reason to override the insurance
contract in this case. The crucial difference here is that
statutes mandate that automobile operators obtain a certain
amount of minimum insurance coverage and that insurers write
policies providing that minimum coverage. This is "sufficient
grounds for restructuring the contractual relationship between
insured and insurer." Id. at 1290. Thus, we hold that an
insurer must pay prejudgment interest on the minimum policy
limits established in AS 28.20.440(b) and AS 28.22.101(d).
The superior court's order denying Hughes' motion for a
statement of law is REVERSED and the case is REMANDED for further
proceedings consistent with this opinion.
MOORE, Justice, dissenting.
The court today ignores our long-standing analytical
distinction between prejudgment and postjudgment interest.
Prejudgment interest is an element of damages. Davis v. Chism,
513 P.2d 475, 481 (Alaska 1973). Postjudgment interest is "true"
interest. See Allstate Ins. Co. v. Allen, 797 P.2d 46, 49-50
(Colo. 1990). In the insurance context, our precedent for the
past thirteen years has dictated that because prejudgment
interest is an item of compensatory damages, it "falls within the
liability damage clause in the insurance contract and is subject
to the amount limitation contained therein." Guin v. Ha, 591
P.2d 1281, 1287 (Alaska 1979) (emphasis added). In fact, we
expressly stated that an "insurer is not liable for prejudgment
interest in excess of policy limits,"id. at 1282, adopting the
majority rule. See John A. Appleman, Insurance Law & Practice
4894.25 (Stephen Liebo ed., Supp. 1991).
"[W]e believe our legislature is presumed to be aware
of common law terms of art and the meaning such terms will carry
into the courtrooms of this state." Sears v. State, 713 P.2d
1218, 1219 (Alaska App. 1986). Nothing in AS 28.20.440(b)(2) or
AS 28.22.101(d) suggests the legislature intended to eliminate
the common law distinction between prejudgment and postjudgment
interest. Nothing in the statutes suggests the legislature
intended to remove the common law majority rule policy limit cap
on an insurer's liability for prejudgment interest. Rather, the
legislature's reason for including the "exclusive of interests"
language in the statutes was to recognize that the law or policy
provisions may require insurers to pay "true," postjudgment
interest.
The majority rule is that insurers are not liable for
prejudgment interest in excess of the policy limits. It is
highly doubtful that the Alaska legislature intended either the
Motor Vehicle Safety Responsibility Act of 1959, ch. 163 SLA
1959, or the Mandatory Automobile Insurance Act of 1989, ch. 108
SLA 1989, to alter this rule. Hughes points to no legislative
history in support of his legislative intent argument. The trial
court's ruling that Progressive need not indemnify Harrelson for
prejudgment interest in excess of policy limits should be
affirmed.
_______________________________
1. Harrelson's policy only provided for payment of post-
judgment interest. Under "Additional Payments," the policy
stated in part:
For an insured person, we will pay, in
addition to our limit of liability:
. . . .
2. Interest on damages
awarded in any suit we defend accruing
after judgment is entered and before we
have paid, offered to pay, or deposited
in court that portion of the judgment
which is not more than our limit of
liability.
2. We note that AS 28.20.440(b) uses the word "interests"
while "interest"is used in AS 28.22.101(d). This difference is
of no importance to our analysis. See AS 01.10.050(b) ("Words in
the singular number include the plural, and words in the plural
number include the singular.").
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