On Dec. 12, 2012, the Indiana Supreme Court decided four cases involving the tort prejudgment interest statutes: Kosarko v. Padula, 979 N.E.2d 144; Inman v. State Farm Mutual Automobile Insurance Co.,—N.E.2d—; Alsheik v. Guerrero, 979 N.E.2d 141; and Wisner v. Laney,—N.E.2d at—. These decisions clarified many questions regarding the TPIS, but also left several issues undecided.
Overview of the TPIS
The TPIS allow a plaintiff in a civil action arising out of tortious conduct to recover prejudgment interest if the plaintiff makes a settlement offer that complies with the TPIS’ requirements. See Ind. Code §§ 34-1-4-1 through -6. The TPIS allow defendants to avoid prejudgment interest by making their own qualified settlement offer. See Ind. Code § 34-51-4-5.
Qualified settlement offers
For a plaintiff’s settlement offer to qualify, it must meet explicit statutory requirements. See Ind. Code § 34-51-4-6. If a plaintiff fails to make an offer that meets these requirements, a trial court cannot award prejudgment interest. See Alsheik, 979 N.E.2d at 154. The Indiana Supreme Court explained that the better practice is for parties to cite the TPIS in the letter, include the 60-day settlement window, and note the possibility of prejudgment interests. See id. at 155. However, although courts generally require strict compliance with prejudgment interest statutes, see Anthony E. Rothschild, Prejudgment Interests: Survey and Suggestion, 77 Nw. U. L. Rev. 192 (1982), and although statutes in derogation of the common law are strictly construed, see Bartrom v. Adjustment Bureau, Inc., 618 N.E.2d 1, 10 (Ind. 1993), both the Wisner and Alsheik decisions applied a relaxed standard and found that although offers did not strictly track the statutory language, the offers met a “minimum threshold” for compliance.
Discretionary nature of prejudgment interest award
Some debate had occurred over whether a trial court could deny prejudgment interest if a plaintiff had issued a qualified settlement offer. It is now clear that trial courts have this discretion. See Alsheik, 979 N.E.2d at 155. Trial courts need not offer any explanation for decisions denying prejudgment interest. See Inman. However, if a trial court gives reasons for denying a request for prejudgment interest and the reasons are improper, an appellate court will reverse the award. See id.
The TPIS’ effect on the common law
Indiana common law allowed parties to recover prejudgment interest in tort actions. See N.Y., C. & St. L. Ry. Co. v. Roper, 176 Ind. 497, 96 N.E. 468 (1911). Although the TPIS are thus somewhat consistent with the common law, our Supreme Court has concluded that the TPIS abrogate common-law prejudgment interest rules. See Kosarko, 979 N.E.2d at 148-49. Although the common law no longer applies (because trial courts have virtually unlimited discretion in awarding or declining to award prejudgment interest), Indiana common-law decisions that are not inconsistent with the TPIS may still have some persuasive effect with trial courts regarding their discretionary decisions.
A new approach to statutory interpretation?
The TPIS require that qualified settlement offers must be made: “within one (1) year after a claim is filed in the court, or any longer period determined by the court to be necessary upon a showing of good cause.” Ind. Code § 34-51-4-6. The Wisner and Alsheik courts’ interpretation of this timing requirement may signal a subtle shift in the court’s approach to statutory interpretation.
In Wisner, the plaintiff filed suit in November 2002, sent the settlement letter in April 2005, dismissed the complaint in 2006, and refiled the complaint in August 2007. The court held the letter was untimely but suggested that if the plaintiff had sent a second letter within one year of refiling, the letter would have complied with the TPIS. This suggestion seems contrary to the TPIS’ requirement that a plaintiff make an offer “within one year after filing.” Further, it is difficult to see how allowing parties to resurrect waived claims for prejudgment interest furthers the TPIS’ purpose of encouraging prompt claim resolution. See Inman.
In Alsheik, the plaintiff filed the lawsuit in May 2002, dismissed the suit in January 2003, sent the settlement letter in April 2003, and refiled a complaint in February 2006. Citing the purpose of the TPIS, the court concluded that settlement offers sent before a claim is filed in court fulfill the TPIS’ requirement that a settlement offer must be extended “within one year after a claim is filed in the court.” See Wisner. The court thereby essentially interpreted the statute either as saying “before one (1) year after a claim is filed in the court” or discounting the term “after.” The court explained: “We believe this interpretation is broader and more in line with the Legislature’s intent to facilitate and encourage settlement of claims amicably without legal recourse, but also to give real meaning and effect to the prejudgment interest statute.” Wisner; see Alsheik, 979 N.E.2d at 155.
The Supreme Court’s rules for statutory interpretation are well established. “If a statute is unambiguous, we may not interpret it, but must give the statute its clear and plain meaning.” Elmer Buchta Trucking, Inc. v. Stanley, 744 N.E.2d 939, 942 (Ind. 2001) (emphasis added). “It is only when the language of the statute or ordinance is ambiguous that the courts should search for legislative intent.” Ott v. Johnson, 262 Ind. 548, 552, 319 N.E.2d 622, 624 (1974). Neither the Wisner nor Alsheik court stated that the TPIS’ timing provision was ambiguous or explained the ambiguity.
The court would not be the first to find ambiguous a timing requirement including the word after following the word within. See Young v. Waldrop, 109 P.2d 59, 60 (Mont. 1941). But the greater weight of authority holds that such language is not ambiguous. See People Holding Co. v. Brey, 173 A. 233, 234-35 (Conn. 1934) (holding appraisal made four days before time for redemption expired failed to comply with statute requiring the appraisal to be made “within ten days after the time limited for redemption shall have expired”); Scribner v. Sachs, 164 N.E.2d 481, 484 (Ill. 1960); Hulegaard v. Garrett, 446 P.2d 975, 977 (Or. 1968) (holding document filed before a notice of appeal failed to meet the statutory requirement that document be filed “within five days after the notice of appeal is given or filed”); State v. Dyches, 28 Tex. 535, 538 (1866) (“The use of the term ‘after conviction’ excludes the idea that it was intended that he should do so at any time before conviction.”); American Hous. Found. v. Calhoun County Appraisal Dist., 198 S.W.3d 816, 819 (Tex. App. 2006) (“Moreover, an interpretation of the statute that makes the phrase ‘constructed after December 31, 2001’ mean constructed before or after December 31, 2001, is grossly contrary to the ordinary meaning of the word ‘after.’”), review denied; see also Formal Opinion Vermont Attorney General #2008-01 (explaining that a proposed interpretation that “expands [constitutional language] to include adjournments ‘before the presentation’ of a bill as well as adjournments ‘within three days after the presentation’” must fail because “the plain meaning of ‘after’ does not include ‘before’”); Silva v. Maplewood Care Ctr., 582 N.W.2d 566, 570 (Minn. 1998) (Tomljanovich, J., dissenting with Stringer, J.) (“Surely the word ‘after’ is not ambiguous.”); State v. Scott, 15 S.E. 405, 406 (Va. 1892) (“[I]t is impossible for us to construe the word ‘after’ as if it had been written ‘before.’”).
Whether these decisions signal the new Supreme Court’s willingness to look at the Legislature’s intent without finding a statute to be ambiguous, or whether the court simply found the statute ambiguous and declined to explain the ambiguity remains to be seen.
Can UM/UIM carriers explicitly exclude coverage for prejudgment interest?
In Inman, the court held that the TPIS apply to UM and UIM claims and that a prejudgment interest award can exceed UM/UIM policy limits. The Inman court based its conclusion on TPIS’ failure to state that UM/UIM carriers may exclude coverage for prejudgment interest. Indiana statutes regarding punitive damages make no mention of whether insurance companies can exclude coverage, see Ind. Code §§ 34-51-3-0.2 through -6, and it is well established that insurance policies may permissibly exclude coverage for punitive damages, see, e.g., Crabtree ex rel. Kemp v. Estate of Crabtree, 837 N.E.2d 135, 139-40 (Ind. 2005). In fact, the Court of Appeals and Supreme Court have recognized that public policy considerations weigh against insurance coverage for punitive damages in the UM/UIM context. See Shuamber v. Henderson, 563 N.E.2d 1314, 1317 (Ind. Ct. App. 1990), adopted in relevant part, 579 N.E.2d 452 (Ind. 1991).
The Inman court also correctly recognized that the TPIS do not permit insurance companies to exclude coverage for prejudgment interest. But no provision of the TPIS precludes insurance companies from excluding coverage for prejudgment interest. The General Assembly has demonstrated that when it wishes to require or preclude certain provisions in insurance policies, it will do so explicitly. See, e.g., Ind. Code § 27-7-5-2 (requiring insurance companies to provide UM and UIM coverage unless insured rejects coverage in writing); Ind. Code § 27-1-13-7 (requiring certain casualty insurance policies to provide coverage even in the event of the insolvency or bankruptcy of the insured entity); Ind. Code § 27-8-14.7-4 (requiring insurers to provide coverage for prostate screening).
The Inman court recognized that one jurisdiction, Georgia, has held that UM/UIM insurance companies have no duty to pay prejudgment interest that exceeds policy limits. The Inman court noted that the Georgia court offered no analysis for its position and declined to adopt its holding. However, several other decisions not cited by the Supreme Court reached the same conclusion as the Georgia court. See USAA v. Parker, 200 P.3d 350 (Colo. 2009); Trask v. Auto. Ins. Co., 736 A.2d 237, 239 (Me. 1999); Ricke v. Progressive Specialty Ins. Co., 577 N.W.2d 512 (Minn. Ct. App. 1998), review denied; Baxley v Nationwide Mut. Ins. Co., 430 S.E.2d 895 (N.C. 1993); Carney v State Farm Mut. Auto. Ins. Co., 877 P2d 1113 (Okla. 1994). These decisions, unlike the Georgia decision, included thoughtful analyses explaining that policy limits are bargained-for contractual terms and should not be ignored.
The natural reaction of insurance companies would be to include language in their policies specifically precluding coverage for prejudgment interest. Public policy would seem to favor giving consumers the option to reject certain coverage in exchange for lower premiums. See, e.g., Green v. Great Am. Ins. Co., 516 SW.2d 739, 740 (Tex. Civ. App. 1974). The Inman court suggested that insurance companies cannot include such terms in policies by stating, “it is not within the parties’ power to contractually preclude a prejudgment interest award made under the TPIS.” The Inman court, however, addressed only a general coverage limit, not an explicit exclusion. Therefore, although Inman will undoubtedly present a substantial hurdle for a party arguing that an exclusion of coverage for prejudgment interest is permissible, this issue remains open.
Can liability insurance companies exclude coverage for prejudgment interest?
Inman did not address the issue of whether an insurance company must provide coverage for prejudgment interest awarded against its insured if the prejudgment interest exceeds policy limits. The strong majority rule is that insurance companies have no duty to provide such coverage. See Lessard v. Milwaukee Ins. Co., 514 N.W.2d 556, 559 (Minn.1994); Buckhannon-Upshur County Airport Auth. v. R & R Coal Contracting, Inc., 413 S.E.2d 404, 410-11 (W. Va. 1991) (collecting cases). Although the Inman decision seems to suggest that the Indiana Supreme Court might reject this majority rule, the court made no explicit statement on the issue.
At what point in a case must a plaintiff formally request prejudgment interest?
The TPIS are silent on the timing of a plaintiff’s formal request for prejudgment interest. Significant authority from other jurisdictions indicates that a plaintiff must make this request before a judgment is entered in the complaint or pretrial order. See, e.g., First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 572 (7th Cir. 2009); Uphoff v. Elegant Bath, Ltd., 176 F.3d 399, 409-10 (7th Cir. 1999); Landstar Ranger, Inc. v. Parth Enters., Inc., 725 F. Supp. 2d 916, 923 (C.D. Cal. 2010); Rowland v. Magna Millikin Bank of Decatur, N.A., 812 F. Supp. 875, 881 (C.D. Ill. 1992); McLaurin v. Old S. Life Ins. Co., 334 So. 2d 361, 362 (Miss. 1976); Gonzales v. Lockwood Lumber Co., 668 S.W.2d 813, 815 (Tex. App. 1984). Until the Supreme Court explicitly addresses this issue, it makes sense for defendants to argue that plaintiffs who have failed to request prejudgment interest before trial have waived their right to prejudgment interest.
Although this article focused on questions created and unanswered by the Supreme Court, the court’s recent decisions have provided significant clarity regarding prejudgment interest claims. Although litigation over the issues discussed above will undoubtedly occur, the Supreme Court has eliminated many open issues regarding the TPIS and has provided guidance for parties and trial courts faced with TPIS claims.•
Mr. William Ramsey is a member of DTCI and an associate in Murphy Ice & Koeneman, Fort Wayne. Firm partners, Edward Murphy and Heidi Koeneman, served as defense counsel in Wisner v. Laney. The opinions expressed in this article are those of the author.