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calculating prejudgment interest on a daily basis
Summary of this case from Mid-Continent Cas. Co. v. Petroleum Solutions, Inc.Opinion
Civil Action No. 5:02-CV-101-C.
July 15, 2003.
ORDER
On this date the Court considered the Motion for Entry of Judgment filed May 28, 2003, by Primrose Operating Company ("Primrose") and CADA Operating, Inc. ("CADA") (collectively "Plaintiffs"). National American Insurance Company's ("Defendant") Response to Plaintiffs' Motion for Entry of Judgment was filed June 13, 2003. Plaintiffs filed no reply. After considering all the relevant arguments and evidence, the Court GRANTS, to the extent more fully set forth below, Plaintiffs' Motion for Entry of Judgment.
DISCUSSION
On May 20, 2003, the jury rendered its verdict in this case in favor of Plaintiffs and against Defendant. Specifically, the jury found as follows:
1. Defendant breached its agreement with Primrose under the Primrose Policy when Defendant refused to provide Primrose with a defense in the underlying Senn litigation;
2. Defendant breached its agreement with CADA under the CADA Policy when Defendant refused to provide CADA with a defense in the underlying Senn litigation;
3. The sum of $183,741.78, not including interest, would fairly and reasonably compensate Primrose for the damages that resulted from Defendant's breach of the Primrose Policy;
4. The sum of $225,761.74, not including interest, would fairly and reasonably compensate CADA for the damages that resulted from Defendant's breach of the CADA policy;
5. Defendant failed to acknowledge receipt of Primrose's claim, failed to commence any investigation of the claim, and failed to request from Primrose all items, statements, and forms that Defendant reasonably believed, at that time, would be required from Primrose within 15 days after receipt of the notice of claim in violation of article 21.55, section 2 of the Texas Insurance Code; and
6. Defendant failed to notify Primrose within 15 business days of Defendant's acceptance or rejection of the claim in violation of article 21.55, section 3(a) of the Texas Insurance Code.
Primrose seeks judgment on the jury verdict of $183,741.78, plus statutory damages, prejudgment and postjudgment interest, attorneys' fees incurred through trial, and conditional attorneys' fees should Defendant unsuccessfully appeal this Court's judgment. CADA seeks judgment on the jury verdict of $225,761.74, prejudgment and postjudgment interest, attorneys' fees incurred through trial, and conditional attorneys' fees should Defendant unsuccessfully appeal this Court's judgment.
Primrose Statutory Damages
Because the jury found that Defendant violated article 21.55, sections 2 and 3(a), of the Texas Insurance Code, Primrose seeks $63,124.12 in statutory damages pursuant to article 21.55, section 6. Defendant asserts, however, that Primrose miscalculated the statutory damages. Specifically, Defendant argues that section 6 statutory damages must be calculated as a simple percentage, not compounded; that the statutory damages must be determined to have accrued as the attorneys' fees were earned, not from the date of Defendant's violation; and that prejudgment interest may not be assessed against the portion of the judgment comprised of statutory damages.
Article 21.55, section 2, provides, in pertinent part, that an insurer shall not later than the 15th day after receipt of notice of a claim . . .
1. acknowledge receipt of the claim;
2. commence any investigation of the claim; and
3. request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.
TEX. INS. CODE ANN. art. 21.55, § 2 (Vernon Supp. 2003).
Defendant does not dispute that it received Primrose's claim under the Primrose Policy on August 6, 200 1. Thus, for Defendant to have timely complied with article 21.55, section 2, Defendant must have acknowledged receipt of the claim, commenced any investigation of the claim, and requested from Primrose all required items, statements, and forms on or before August 21, 2001. The jury determined that Defendant failed to do so in violation of article 21.55, section 2.
Article 21.55, section 3(a) provides, in pertinent part, that an insurer shall
notify a claimant in writing of the acceptance or rejection of the claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer, in order to secure final proof of loss.Id. § 3(a).
The jury determined that Defendant violated article 21.55, section 3(a), because Defendant failed to notify Primrose of Defendant's acceptance or rejection of Primrose's claim within the statutory time limit.
Article 21.55, section 6 provides as follows:
Damages. Sec. 6. In all cases where a claim is made pursuant to a policy of insurance and the insurer liable therefor is not in compliance with the requirements of this article, such insurer shall be liable to pay the holder of the policy, or the beneficiary making a claim under the policy, in addition to the amount of the claim, 18 percent per annum of the amount of such claim as damages, together with reasonable attorney fees. If suit is filed, such attorney fees shall be taxed as part of the costs in the case.Id. § 6.
This Court agrees "the statute is simple and its language unambiguous" and interpretation of the statute must be consistent with its underlying purpose and the policies it promotes. Northwestern Nat'l County Mut. Ins. Co. v. Rodriguez, 18 S.W.3d 718, 721 (Tex.App.-San Antonio 2000, pet. denied); Dunn v. Southern Farm Bureau Cas. Ins., 991 S.W.2d 467, 474 (Tex.App.-Tyler 1999, pet. denied). The underlying purpose of article 21.55, section 6, is to "ensure prompt payment of insurance claims by penalizing the insurer when the insurer fails to follow the steps required by the article." J. C. Penney Life Ins. Co. v. Heinrich, 32 S.W.3d 280, 289 (Tex.App.-San Antonio 2000, pet. denied) (internal citation omitted). In addition, the statute provides that "[t]his article shall be liberally construed to promote its underlying purpose which is to obtain prompt payment of claims made pursuant to policies of insurance." TEX. INS. CODE ANN. art. 21.55, § 8.
It is well established in this Circuit that the penalty provisions of article 21.55, section 6, apply automatically if the insurer has been found liable for violations of any requirement of any section of article 21.55. Performance Autoplex II Ltd. v. Mid-Continent Cas. Co., 322 F.3d 847, 861 (5th Cir. 2003); St. Paul Reinsurance Co. v. Greenverg, 134 F.3d 1250, 1255 (5th Cir. 1998). See also Heinrich, 32 S.W.3d at 288 (finding that if the insurer fails to comply with any requirement of any section of article 21.55, the insurer is automatically liable for the statutory damages set forth in section 6); Mid-Century Ins. Co. of Tex. v. Barclay, 880 S.W.2d 807, 811-12 (Tex.App.-Austin 1994, writ denied) (finding that the "language of section 6 clearly and unambiguously dictates its application to the insurer that fails to comply with any of the requirements set forth in article 21.55") (emphasis in original). Additionally, there can be no question but that section 6's statutory penalties apply to claims made by an insured against a liability insurer for defense costs. E R Rubalcava Constr., Inc. v. Burlington Ins. Co., 148 F. Supp.2d 746, 750 (N.D. Tex. 2001).
Accordingly, because the jury found that Defendant was in violation of article 21.55, sections 2 and 3(a), this Court finds that Defendant is liable for section 6 damages, including the 18 percent per annum fee and reasonable attorneys' fees. Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 461 (5th Cir. 1997). However, the 18 percent penalty may not be compounded. Tex. Farmers Ins. Co. v. Cameron, 23 S.W.3d 386, 399 (Tex.App.-Dallas 2000, pet. denied) (finding that it would be impermissible for a court to conclude that the damages provision of article 21.55 contemplated annual compounding of the damages).
"Although the statute speaks of awarding eighteen percent of the claim as `damages,' it must mean exemplary damages, rather than actual damages, because the award is made without reference to any harm actually suffered by the insured." Cameron, 23 S.W.3d at 399. "Because the award is designed to penalize the insurer without reference to harm suffered by the insured or claimant, it is akin to exemplary damages, not actual damages." Heinrich, 32 S.W.3d at 289.
The import under Texas law is that "[p]rejudgment interest may not be assessed or recovered on an award of exemplary damages." TEX. Civ. PRAC. REM. CODE ANN. § 41.007 (Vernon 1997). See also Heinrich, 32 S.W.3d at 289 (finding that "[p]rejudgment interest may be awarded on actual damages, but it may not be assessed on an award of exemplary or punitive damages"); Cameron, 23 S.W.3d at 399 (concluding that the trial court erred in awarding prejudgment interest on article 21.55 damages).
Here, because the provisions of section 6 were triggered automatically when Defendant violated section 2 by failing to comply with its requirements on or before August 21, 2001, this Court finds that the date of accrual of Primrose's statutory damages is August 22, 2001. See Cater v. United Servs. Auto. Ass'n, 27 S.W.3d 81, 85 (Tex.App.-San Antonio 2000, no pet.) (determining that the accrual date used for calculating the statutory damages is the date upon which the insurer rejected the insured's claim). The total section 6 penalty can be correctly calculated by reducing the per year penalty to a per diem penalty and multiplying the per diem penalty by the number of days between Defendant's violation and the date of the judgment. See Cameron, 23 S.W.3d at 399.
Consequently, this Court finds that Defendant is liable to Primrose for section 6 statutory damages in the amount of $62,702.12 calculated as follows:
$183,741.78 × 18% $33,073.52 statutory damages/year
$33,073.52 ÷ 365 days/year $90.61 statutory damages/day
From and including 8/22/01 through and including 7/14/03 692 days
$90.61 × 692 days $62,702.12 statutory damages
Prejudgment Interest
Primrose requests $76,330.73 in prejudgment interest. This amount includes interest at the rate of 10 percent, compounded annually, from April 7, 2000, the date Defendant denied Primrose's request for coverage.
Defendant argues that Primrose miscalculated the amount of prejudgment interest because (1) prejudgment interest should be computed as simple interest; (2) prejudgment interest should be at the rate of 6 percent; and (3) prejudgment interest cannot be recovered on costs until those costs are actually incurred.
First, under Texas common law, "prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed." Johnson Higgins of Tex. v. Kenneco Energy, 962 S.W.2d 507, 531 (Tex. 1998). Although the exact date of Defendant's receipt of Primrose's claim is unknown, Defendant does not dispute that it denied Primrose's claim on October 7, 1999, or that Primrose's estimated accrual date of April 7, 2000, is the earlier of (1) 180 days after the date Defendant received Primrose's notice of claim or (2) March 12, 2002, the date Primrose filed suit.
Accordingly, this Court finds that Primrose's prejudgment interest on the damages found by the jury shall accrue as of April 7, 2000, and shall be computed through July 14, 2003. See TEX. FIN. CODE ANN. § 304.005 (providing that interest on a judgment begins on the day judgment is rendered).
Second, under Texas common law, prejudgment interest should be computed in accordance with the legislative policy which expressly provides that prejudgment interest shall be computed as simple interest. Johnson Higgins of Tex., 962 S.W.2d at 532. See TEX. FIN. CODE ANN. § 304.103 (providing that prejudgment interest is computed as simple interest).
Third, Texas law governs the rate of interest applicable to awards of prejudgment interest and provides that the prejudgment interest rate shall be the same as the postjudgment interest rate. See FSLIC v. Tex. Real Estate Counselors, Inc., 955 F.2d 261, 270 (5th Cir. 1992) (adopting statutory approach to prejudgment interest). See also TEX. FIN. CODE ANN. § 304.103 (providing that prejudgment interest rate is equal to the postjudgment interest rate). Relevant thereto, Texas law sets the minimum judgment rate of interest at ten percent. TEX. FIN. CODE ANN. § 304.003.
Nevertheless, although state law cannot supplant federal postjudgment interest law, 28 U.S.C. § 1961 (which may or may not at the time of judgment provide for postjudgment interest equal to or greater than ten percent), the Fifth Circuit was
not persuaded that the Texas legislature intended to limit the recipient of a damages award to a prejudgment interest rate of less than the ten percent statutory minimum simply because its case was tried in federal court. Accordingly, we hold that the district court did not abuse its discretion in setting the prejudgment interest rate at ten percent.Tex. Real Estate Counselors, Inc., 955 F.2d at 270.
Therefore, this Court concludes that Primrose is entitled to prejudgment interest at the rate often percent, computed as simple interest, from April 7, 2000, through July 14, 2003, calculated as follows:
$183,741.78 × 10% $18,374.18 prejudgment interest/year
$18,374.18 ÷ 365 days/year $50.34 prejudgment interest/day
From and including 4/7/00 through and including 7/14/03 1,194 days
$50.34 × 1,194 days $60,105.96 prejudgment interest
Postjudgment Interest
Postjudgment interest is governed by federal law. 28 U.S.C. § 1961. See also Tex. Real Estate Counselors, Inc., 955 F.2d at 270 (concluding that state law cannot supplant the federal postjudgment interest rate). Section 1961 provides that the postjudgment interest rate "shall be calculated from the date of the entry of the judgment, at a rate equal to the coupon issue yield equivalent . . . of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of judgment." 28 U.S.C. § 1961 (1994).
In addition, because article 21.55 of the Texas Insurance Code "requires that the trial court award as damages . . . eighteen percent per annum of the amount of the claim, . . . [t]he trial court should then calculate post-judgment interest on the total amount of damages." Barclay, 880 S.W.2d at 813 (emphasis in original).
Accordingly, the Court finds that Primrose is entitled to postjudgment interest at the rate of 1.08 percent, compounded annually until paid, on damages calculated as follows:
Damages awarded by jury $183,741.78
Section 6 damages 62,702.12
Prejudgment interest 60,105.96
TOTAL DAMAGES $306,549.86 CADA Prejudgment Interest
CADA seeks $58,935.56 in prejudgment interest on the jury verdict in its favor in the amount of $225,761.74. CADA's requested prejudgment interest amount includes interest at the rate of 10 percent, compounded annually, from December 28, 2000, the date Defendant denied CADA's request for coverage.
Defendant argues that CADA miscalculated the amount of prejudgment interest because (1) prejudgment interest should be computed as simple interest; (2) prejudgment interest should be at the rate of 6 percent; and (3) prejudgment interest cannot be recovered on costs until those costs are actually incurred.
As discussed above, "prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed." Johnson Higgins of Tex., 962 S.W.2d at 531. Although the exact date of Defendant's receipt of CADA's claim is unknown, Defendant does not dispute that it denied CADA's claim on June 28, 2000, or that CADA's estimated accrual date of December 28, 2000, is the earlier of (1) 180 days after the date Defendant received CADA's notice of claim or (2) March 12, 2002, the date CADA filed suit. Consequently, and consistent with the Court's reasoning set forth supra, this Court concludes that CADA is entitled to prejudgment interest at the rate often percent, computed as simple interest, from December 28, 2000, through July 14, 2003, calculated as follows:
$225,761.74 × 10% $22,576.17 prejudgment interest/year
$22,576.17 ÷ 365 days/year $61.85 prejudgment interest/day
From and including 12/28/00 through and including 7/14/03 929 days
$61.85 × 929 $57,458.65 prejudgment interest
Postjudgment Interest
Consistent with the Court's reasoning supra, this Court finds that CADA is entitled to postjudgment interest at the rate of 1.08 percent, compounded annually until paid, on damages calculated as follows:
Damages awarded by jury $225,761.74
Prejudgment interest 57,458.65
TOTAL DAMAGES $283,220.39 Attorneys' Fees Trial Court
Plaintiffs' attorneys seek the sum of $85,000 as and for reasonable legal fees and expenses in connection with prosecution of the instant action. Plaintiffs' legal team supports its request with contemporaneously compiled records of the nature of the work performed, who performed the work, how much time was spent on each individual task, and the rates charged for each person's time, together with lead counsel's affidavit detailing the time and labor required, the novelty and complexity of the issues, the skill required to properly litigate the issues, the scheduling priorities necessitated by the case, the attorneys' customary fees, and the ability of the attorneys involved, including each attorney's experience and reputation. See Riley v. City of Jackson, Miss., 99 F.3d 757, 760 (5th Cir. 1996) (citing factors set out in Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974)). Plaintiffs' attorneys' records also detail the direct and indirect expenses incurred in the case, including, but not limited to, long distance telephone charges, copying costs, fees for computerized legal research, witness fees, and travel expenses.
Defendant "do[es] not dispute that $85,000 is a reasonable fee for the work performed" by Plaintiffs' attorneys in this matter.
Consequently, after having considered each of the Johnson factors set forth supra, this Court finds that Plaintiffs' attorneys' shall be awarded $85,000 as and for reasonable attorneys' fees and expenses in this matter.
Appellate Courts
Plaintiffs' attorneys seek $40,000 as and for conditional attorneys' fees and expenses in connection with a possible appeal of this matter to the Fifth Circuit Court of Appeals and an additional $25,000 as and for conditional attorneys' fees and expenses should an appeal to the United States Supreme Court become necessary.
Defendant takes issue with the sums set forth by Plaintiffs' attorneys to cover conditional attorneys' fees on appeal. Defendant argues that, because the actual trial was of short duration, i.e., one-and-a-half days, the transcript will not be lengthy; thus, the time for reviewing the appellate record would be minimal. Moreover, because the vast majority of the legal issues have already been addressed, additional legal research would be limited.
This Court agrees that awards of reasonable attorneys' fees for appellate work are permitted for the prevailing party. Hanrahan v. Hampton, 446 U.S. 754, 756 (1980). However, while attorneys' fees for successful appellate efforts are permitted, they are certainly not allowed in advance of such services being rendered and before a judicial determination that plaintiffs are the prevailing parties on appeal and that the fees they incurred were reasonable. Alizadeh v. Safeway Stores, Inc., 910 F.2d 234, 238 n. 4 (5th Cir. 1990). Additionally, the Fifth Circuit has concluded that they "have the power to make an award for services rendered in this court." Heasley v. Comm'r of Internal Revenue, 967 F.2d 116, 125 (5th Cir. 1992). Consequently, this Court finds that an award of attorneys' fees in advance of appellate work performed is inappropriate. Therefore, this Court declines to award any appellate attorneys' fees to Plaintiffs' counsel.
CONCLUSION
After considering all the relevant arguments and evidence, the Court GRANTS Plaintiffs' Motion for Entry of Judgment to the extent set forth below:
1. that Primrose have judgment against Defendant on the jury verdict in the amount of $183,741.78;
2. that Primrose have judgment against Defendant in the amount of $62,702.12 as and for article 21.55, section 6, statutory damages;
3. that Primrose have judgment against Defendant in the amount of $60,105.96 as and for prejudgment interest;
4. that Primrose's judgment entered herein for total damages of $306,549.86 bear interest at the rate of 1.08 percent compounded annually until paid;
5. that CADA have judgment against Defendant on the jury verdict in the amount of $225,761.74;
6. that CADA have judgment against Defendant in the amount of $57,458.65 as and for prejudgment interest;
7. that CADA's judgment entered herein for total damages of $283,220.39 bear interest at the rate of 1.08 percent compounded annually until paid;
8. that Plaintiffs have judgment against Defendant in the amount of $85,000 as and for reasonable attorneys' fees and expenses; and
9. that Plaintiffs' judgment entered herein for attorneys' fees of $85,000 bear interest at the rate of 1.08 percent compounded annually until paid.
Judgment shall be entered in accordance with this order.
SO ORDERED