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December 18, 2017

COA: Insurers may not limit liability for judgment interest without express policy language

An insurer is free to limit the risk it assumes contractually, but where a policy does not specifically limit liability for judgment interest, the insurer is responsible for that judgment interest calculated based on the policy limit, said the Court of Appeals in Estate of Hunt, et al. v. Drielick, Nos. 333630, 333631, 333632. 
MCL 600.6013 provides for interest on a money judgment recovered in a civil action “calculated on the entire amount of the money judgment, including attorney fees and other costs.”  The insurer in Drielick argued that it could not be liable under MCL 600.6013 for prejudgment interest in excess of the policy limits because the terms of the policy did not obligate it to do so.  Because MCL 600.6013 is remedial, however, it must be liberally construed in favor of the insured.  Thus, where a clause limiting judgment interest liability was silent as to pre-judgment interest, the insurer must pay pre-judgment interest to the insured—even where the combined value of the judgment and interest exceeds the policy limit.
Where an insurance policy unambiguously limits the insurer’s liability for interest, however, the plain language of the policy controls.  The policy in Drielick limited post-judgment interest to suits the insurer defends, and the insurer did not defend its insured here.  The trial court found that the insurer had breached its duty to defend its insured and thus negated the provision in the policy that limited the payment of judgment interest to suits in which it had assumed the defense.  The Court of Appeals noted that the purpose of awarding post-judgment interest in suits an insurer defends is to protect insureds when the insurer assumes a defense and thus controls the timing of any payment to the insured.  Where an insurer does not take such control—and where, as here, the insured does not allege the insurer breached a duty to defend—the insurer is free to contractually limit its liability for post-judgment interest.
The court also addressed the policy’s leasing clause.  The leasing clause barred coverage for automobiles used in the business of anyone who had been given possession and use of an automobile for a specified period in return for the payment of rent.  The trial court had found that there was no lease agreement as contemplated by the policy.  The Court of Appeals noted that whether a leasing clause excludes coverage does not depend on the existence of a written lease, and after a holistic review of the facts showed that there was no lease formed as contemplated by the policy, the court held that the leasing clause did not exclude coverage in this case.

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