Wednesday, September 25, 2013

US District Court holds that bond coverage does not increase policy limit

Katie Graf won a lawsuit against a restaurant called Torcia.  Graf had alleged that she was injured at the restaurant.  The judgment was for $500,000 plus prejudgment interest of $111,124.26.

Graf attached the restaurant's liquor license in the amount of $115,000 to secure payment of the prejudgment interest.

Torcia requested that its insurer, Hospitality Mutual Insurance Company, pay the cost of the bond to discharge the attachment.  The Hospitality policy had a per person limit of $500,000, and defined "damages" as including prejudgment interest.  Hospitality asserted that the prejudgment interest was therefore outside the policy limit and declined to pay the bond. 

Under the policy Hospitality agreed to pay the cost of bonds to release attachments, "but only for bond amounts within the applicable limit of insurance." 

In Graf v. Hospitality Mutual Ins. Co., 2013 WL 3878691 (D. Mass.), the court held that the policy was susceptible to only one reasonable interpretation -- "that it did not require [Hospitality] to pay prejudgment interest directly or the cost of the bond." 

Torcia had assigned its rights against Hospitality to Graf in exchange for discharge of the attachment.  Graf argued that Hospitality should pay the cost of the bond because the amount of the bond itself was within the policy limit.  The court disagreed, holding that the bond was over the policy limit because Hospitality had already paid the policy limit.

Graf next argued that there was a separate $500,000 limit for bonds.  Reading the policy as a whole, the court disagreed. 

I dislike limits that includes prejudgment interest, just as I dislike limits that include attorney's fees.  Depending on the case, insurers and insurance defense counsel have anywhere between some and a  great deal of control over how long a case will take before resolution, just as they have between some and a great deal of control over attorney's fees.  The limits are, however, a reality.

The takeaway:  When choosing your policy limits, whether or not the limits include prejudgment interest is a factor you should consider.  It is not unusual for a case to take several years to get to trial.  At the prejudgment interest rate of 12 percent in Massachusetts, the verdict of a case that takes five years will be increased by 60 percent because of prejudgment interest. 

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