Watlington v. North Carolina Farm Bureau Mutual Insurance

ORR, Judge. The portions of the insurance policy giving rise to this controversy are as follows: Part A — Liability Coverage Insuring Agreement We will pay damages for bodily injury or property damage for which any insured becomes legally responsible because of an auto accident. Damages include prejudgment interest awarded against the insured.... In addition to our limit of liability, we will pay all defense costs we incur. *112 Supplementary Payments In addition to our limit of liability, we will pay on behalf of an insured: 3. All costs taxed against the insured and interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage. (Emphasis in original.) I. Prejudgment Interest Defendant assigns as error the trial court’s finding that the policy is ambiguous, as well as the trial court’s ensuing interpretation of the terms of the policy to exclude prejudgment interest from the stated limits of defendant’s liability under the policy. North Carolina’s Legislature has provided for prejudgment interest: “In an action other than contract, the portion of money judgment designated by the fact finder as compensatory damages bears interest from the date the action is instituted until the judgment is satisfied. Interest on an award in an action other than contract shall be at the legal rate.” N.C. Gen. Stat. § 24-5(b) (1991). There is no statutory provision mandating that insurance carriers pay prejudgment interest that exceeds the stated limit of liability under the terms of the insurance contract. Sproles v. Green, 329 N.C. 603, 612, 407 S.E.2d 497, 502 (1991). Furthermore, N.C.G.S. § 24-5 is not part of the Financial Responsibility Act and is not therefore written into every insurance policy. Baxley v. Nationwide Mut. Ins. Co., 334 N.C. 1, 6, 430 S.E.2d 895, 898 (1993). Accordingly, courts must look to the actual language in each insurance policy at issue to determine whether the insurance company is obligated to pay prejudgment interest in excess of its contractual limit of liability. The trial court found the language in the policy susceptible to more than one reasonable interpretation and therefore ambiguous. Our Supreme Court has explained that language in an insurance contract is ambiguous only if the language is “fairly and reasonably susceptible to either of the constructions for which the parties contend.” Wachovia Bank & Trust Co. v. Westchester Fire Ins. Co., 276 N.C. 348, 354, 172 S.E.2d 518, 522 (1970). Otherwise, the court is obligated *113 to enforce the contract as written and may not “under the guise of interpreting an ambiguous provision, remake the contract and impose liability upon the company which it did not assume and for which the policyholder did not pay.” Id. Plaintiffs assert that the language in the policy is ambiguous because 1) the policy defined “damages” to include prejudgment interest; 2) the policy stated that “in addition to our limit of liability, we will pay all defense costs we incur;” and 3) the policy stated that in addition to the limit of liability, defendant would pay “[a] 11 costs taxed against the insured.” The trial court agreed with plaintiffs that these provisions contradicted each other, giving rise to ambiguity. We disagree. In Lowe v. Tarble, our Supreme Court construed an insurance contract in which the insurer expressly agreed to pay, in addition to its contractual limit of liability, “all costs taxed against the insured.” 313 N.C. 460, 463, 329 S.E.2d 648, 651 (1985). The Court explained that “we hold that prejudgment interest provided for by N.C.G.S. § 24-5 is a ‘cost’ within the meaning of the contract which, under the contract in the present case, the insurer is obligated to pay.” Id. at 464, 329 S.E.2d at 651 (emphasis added). The Court’s determination was clearly limited to the contractual terms actually before it in Lowe. In Sproles v. Greene, our Supreme Court determined that an insurer was not required to pay prejudgment interest beyond its limit of liability where the terms of the contract provided that the insurer would pay “all defense costs” in excess of the limit of liability. 329 N.C. 603, 611, 407 S.E.2d 497, 502 (1991). The Court determined that “all defense costs” was not as broad a term as “all costs” because “defense costs” include only such things as attorney fees, deposition expenses, and court costs. Id. In Sproles, our Supreme Court again clearly manifested its intent to look to the language of individual insurance contracts to determine whether an insured is obligated to pay prejudgment interest beyond its stated limit of liability. Id. In the policy before us, the “Insuring Agreement” expressly provides that prejudgment interest is calculable as a part of damages and is therefore included under the liability limits of the policy. Although the “Supplementary Payments” provision does not repeat the definition of damages, defendant is not obligated to pay prejudgment interest above the policy limit of liability. See York Indus. Center, Inc. v. *114 Michigan Mut. Liab. Co., 271 N.C. 158, 162, 155 S.E.2d 501, 505 (1967) (if policy defines term that definition is applied); Woods v. Nationwide Mut. Ins. Co., 295 N.C. 500, 505, 246 S.E.2d 773, 777 (1978) (all parts of insurance policy construed harmoniously to give effect to policy provisions). By defining damages to include prejudgment interest, the policy intended to prevent the inclusion of prejudgment interest as a cost charged to defendant above the stated liability of the policy. As we recently explained in Nationwide Mutual Insurance Co. v. Mabe, 115 N.C.App. 193, 444 S.E.2d 664 (1994), a definition clause expressly including prejudgment interest as an element of damages controls the determination whether prejudgment interest is payable beyond the policy limit. We note further that even if the insurance policy itself had not defined damages to include prejudgment interest, our Supreme Court recently held that prejudgment interest is an element of damages because it compensates a plaintiff for the loss of the use of his or her money. Baxley at 8, 430 S.E.2d at 900. Therefore, we find that the policy at issue is not ambiguous, and we hold that the terms of the policy, as written, specifically exclude prejudgment interest in excess of the policy limit, and we find that the trial court erred in awarding prejudgment interest to plaintiffs. II. Because we find that defendant is not liable to plaintiffs for prejudgment interest in addition to the limits of the policy, we need not address defendant’s remaining assignments of error. For the reasons stated above, we reverse the decision of the trial court ordering defendant to pay prejudgment interest in excess of its limit of liability under the policy. Reversed. Judges LEWIS and JOHN concur.