Faulkner v. Smith

STEPHENS, Chief Justice. On October 19,1983, Faulkner and Smith had an automobile accident. Smith’s insurance policy with Farm Bureau had a bodily injury liability limit of $25,000 per person. Following a March 29, 1985 jury verdict in favor of Faulkner, judgment was entered in Woodford Circuit Court on April 5, 1985 for $383,157. On April 5, counsel for Smith and Farm Bureau sent Faulkner’s counsel a tetter offering to pay her $25,000, represented as the limits of the policy, if she would accept that as the maximum coverage available under the policy. No check, draft or other form of payment accompanied the tetter. Faulkner’s counsel responded by a tetter on April 8, 1985, expressing a willingness instead to enter a notice of partial satisfac [593] tion or an agreed order noting satisfaction to the extent of funds received. Without responding to the April 8, 1985 letter, Farm Bureau moved the trial court on April 15, 1985 to enter an order relieving it of any further liability on the judgment upon payment into court of $25,000 plus court costs. Again, no form of payment accompanied this motion. After a hearing, the trial court granted Farm Bureau’s motion and entered its order on July 1,1985. Farm Bureau then paid $25,000 to the Woodford Circuit Clerk on July 5,1985. Although the question in this proceeding has been what, if any, post-judgment interest is owed by Farm Bureau to Faulkner, the Woodford Circuit Court perceived no need to address this question, reasoning that Farm Bureau did all it could to tender its limits immediately after trial. The Court of Appeals decided that the language of the policy required post-judgment interest to be paid on the entire judgment rather than on just the insurer’s liability limits. The Court of Appeals concluded that this is the majority and modem rule, and that it should be adopted in Kentucky because of the insurer’s (1) control over the language of the policy, (2) control over the litigation and settlement negotiations, and (3) ability to escape further interest liability by paying or tendering its part of the judgment into court. The Court of Appeals also held that Farm Bureau’s letter of April 5 failed to comply with the policy language regarding a tender that stops the running of its interest obligation, holding that “[tjender to be accomplished requires not just the offer of payment, but the actual production or delivery of a tangible form of payment such as draft, check, cash, or otherwise.” Nevertheless, they decided “the motion or offer of payment of its limits into court made by the company on April 15,1985, satisfied all of the policy requirements of paying, tendering, or depositing in court the limit of its liability.” The issue to be decided by this appeal is whether the post-judgment interest clause found in Smith’s contract with Farm Bureau requires the company to pay interest on the entire judgment, regardless of policy limits, until the amount is paid. We hold that it does not, and accordingly reverse the decision of the Court of Appeals. Faulkner contends the Court of Appeals was correct in deciding the interest clause in Smith’s contract required payment of interest upon the entire amount of the judgment, though he disagrees with that court’s determination that the interest was to stop being calculated on April 15, 1985. Conversely, Kentucky Farm Bureau maintains the Court of Appeals was in error to extend liability for interest to the amount of the entire judgment rather than the policy limits of $25,000, and further that the letter of April 5, 1985 was certainly sufficient to satisfy tender and stop the compilation of interest. Despite Farm Bureau’s contentions, we do not find the attempted discharge on April 5 to be adequate satisfaction of its obligations such that interest should cease to accrue. A tender requires more than just an offer; it requires the actual production of the funds which are admitted to be due by draft, check, cash or otherwise. Mutual Life Ins. Co. v. Hilander, Ky., 403 S.W.2d 260 (1966). Further, a tender must be without stipulation or condition. Id. Correspondence or pleadings offering to pay $25,000 conditioned upon an agreement that such payment would fully discharge the insurer’s liability under the policy was not legal tender. At no time did Farm Bureau tender its complete obligations to Faulkner. On July 5, a check for $25,000 was deposited pursuant to the granting of Farm Bureau’s April 15, 1985 motion. However, no matter how the interest clause is interpreted, some interest and costs were also due and remained unpaid at that time. The first tender of payment to satisfy Farm Bureau’s interest obligation occurred after the Court of Appeals’ decision, when Farm Bureau deposited interest computed until the time of payment in conformity with its ruling. Nevertheless, this sum can only serve to discharge Farm Bureau’s interest obligation if the Court of Appeals’ opinion was correct. [594] The primary issue that must be resolved in this case is whether Farm Bureau’s policy with its insured, Smith, required the insurer to pay interest on the entire judgment, or only on the portion of the judgment covered by its policy. The key to this question lies in the policy language. The insured has bought protection: “II. To pay, in addition to the applicable limits of liability: A. all expenses incurred by the Company; all costs taxed against the insured in any such suit and all interest accruing after entry of judgment until the Company has paid, tendered or deposited in Court such part of such judgement as does not exceed the limit of Company’s liability thereon.” (emphasis added). Although it is true that Farm Bureau had full control over the drafting of the contract, and it is well-settled law in Kentucky that ambiguities are to be resolved in favor of the insured, Wolford v. Wolford, Ky., 662 S.W.2d 835 (1984), such resolutions should never be carried to absurd extremes. The contractual limit of Farm Bureau’s liability under the clear terms of the policy, as stated, is a maximum of $25,000. As noted, supra, section IIA of the policy also requires the company to pay (in addition to the limit of liability) “... all interest accruing after entry of judgment... as does not exceed the limit of Company’s liability thereon.” It is clear that the limit of the interest payment applies to the “limit of the Company’s liability [under the policy].” The obligation to pay interest refers to the liability of the company under the policy: viz, the liability coverage. It is not logical that Farm Bureau ever agreed to pay interest on a money obligation it did not owe. The interest obligation of Farm Bureau— under the terms of the policy — is limited to the unpaid policy liability coverage — $25,-000. Since Farm Bureau failed to pay the full extent of its obligations promptly, interest should have been calculated. However, such interest could logically only be calculated on the extent of Farm Bureau’s contractual obligations. Thus, we hold that the post-judgment interest clause contained in Smith’s insurance contract obligates Farm Bureau to pay interest on the limits of its policy, $25,000, until its obligations have been tendered or deposited into court. The decision of the Court of Appeals is reversed. GANT, STEPHENSON and WINTERSHEIMER, JJ., concur. VANCE, J., dissents without opinion. LEIBSON, J., files a dissenting opinion in which LAMBERT, J., joins.