Barnes v. Hardy , 98 N.C. App. 381 ( 1990 )

JOHNSON, Judge.

This appeal raises the single question of whether an insurer is liable for prejudgment interest when such payment would result in a total amount that exceeds the stated policy limits. Plaintiffs argue that USF&G’s liability is not limited to the policy limits since the policy conflicts with G.S. § 24-5. We disagree.

Initially, we recognize that an offer of judgment was made by defendants and that a settlement for the full $50,000 policy limit was reached by the parties. We also recognize that this settlement amounted to a release of claims, not a judgment. The issue of USF&G’s liability for prejudgment interest, however, was left open for judicial determination. Upon review at a declaratory judgment proceeding, the trial court determined that USF&G was not obligated under the terms of the policy to pay prejudgment interest. A declaratory judgment was therefore issued in favor of defendant USF&G.

G.S. § 1-254 makes a declaratory judgment proceeding available where there is a dispute concerning contracts of any kind, namely liability insurance policies. See Nationwide Mut. Ins. Co. v. Roberts, 261 N.C. 285, 134 S.E.2d 654 (1964). This proceeding is designed to provide an expeditious method of procuring a judicial interpretation of written instruments. Penley v. Penley, 65 N.C. App. 711, 310 S.E.2d 360 (1984), rev’d on other grounds, 314 N.C. 1, 332 S.E.2d 51 (1985). Its purpose is to settle and afford relief from uncertainty and insecurity with regard to rights, status and other legal relations. Hobson Const. Co. Inc. v. Great American Ins. Co., 71 N.C. App. 586, 322 S.E.2d 632 (1984).

The parties in the case sub judice, undisputedly asked the trial court to make a judicial interpretation of the insurance policy issued by USF&G, particularly the following provisions:

Part A — Liability Coverage

Insuring Agreement

We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted. .

Supplementary Payments

In addition to our limit of liability, we will pay on behalf of a covered person:

(3) 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.

(6) Other reasonable expenses incurred at our request.

Following review, the trial court interpreted the provisions, made a determination and entered a declaratory judgment adverse to plaintiffs on the issue of prejudgment interest. A judgment as to USF&G’s liability for damages resulting from plaintiffs accident was never made.

In determining whether the trial court erred in concluding that an insurer is not liable for prejudgment interest when such payment would result in a total amount that exceeds the stated policy limits, we turn to the General Statutes. G.S. § 24-5(b) provides in pertinent part that:

[i]n 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.

(Emphasis added.) Our interpretation of this statute suggests that where there is no question of liability and no judgment entered as to this issue, G.S. § 24-5(b) does not apply and we must therefore look to the contract itself for guidance.

In the instant case, the only issue raised by the parties is whether the terms of the policy obligated USF&G to pay prejudgment interest on the $50,000 settlement. Plaintiffs argue in their brief that USF&G is obligated and cites G.S. § 24-5(b) as the applicable statute for their recovery. Plaintiffs’ reliance on this statute, however, is misplaced since G.S. § 24-5(b) provides for the recovery of interest in instances where there has been both a judgment as to liability and a determination of appropriate compensatory damages. We do not equate the release of claims to the entry of a judgment as to liability, nor do we find prejudgment interest to be equal to “defense costs” to be paid over and beyond the limits of the policy already paid in a settlement. G.S. § 24-5(b) therefore does not apply.

Looking to the applicable provisions of the insurance policy for guidance, we conclude that the trial court properly granted a declaratory judgment in favor of defendant since the policy expressly provides for the payment of interest where such payment does not exceed the limit of liability.

For all the foregoing reasons the decision of the trial court is

Affirmed.

Judge LEWIS concurs. Judge COZORT dissents.