Venn v. St. Paul Fire & Marine Insurance

United States Court of Appeals,

Eleventh Circuit.

Nos. 94-3423, 95-2000.

John E. VENN, as Trustee of the Estate of Fariss D. Kimbell, Jr.,
M.D., Plaintiff-Appellant,

v.

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellee.

John E. VENN, as Trustee of the Estate of Fariss D. Kimbell, Jr.,
M.D., Plaintiff-Appellee,

v.

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellant.

Nov. 20, 1996.

Appeals from the United States District Court for the Northern
District of Florida. (No. 89-30035/LAC), Lacey A. Collier, Judge.

Before BIRCH, Circuit Judge, GODBOLD, Senior Circuit Judge, and
O'KELLEY*, District Judge.

BIRCH, Circuit Judge:

This diversity medical malpractice insurance case has spanned

twelve years and involved the participation of twenty-seven judges.

It is now before us for the second time. The issues presented on

appeal are: (1) whether a Chapter 7 bankruptcy trustee can assert

a bad faith claim against an insurer when the underlying cause of

action accrued after the named insured was discharged in

bankruptcy; (2) if such a claim is found to be cognizable, what is

the measure of recovery; and (3) whether the bankruptcy trustee is

entitled to prejudgment interest. The district court ruled that

the trustee can assert such a claim, the measure of recovery is the

*
Honorable William C. O'Kelley, U.S. District Judge for the
Northern District of Georgia, sitting by designation.
amount of the judgment in excess of policy limits, and the trustee

is not entitled to prejudgment interest. We AFFIRM in part,

REVERSE in part, and REMAND for further proceedings consistent with

this opinion.

I. BACKGROUND

The general factual background for this case is described in

detail in Camp v. St. Paul Fire and Marine Ins. Co., 958 F.2d 340,

344 (11th Cir.1992) (Camp I ). We therefore summarize briefly the

facts and rulings pertinent to the issues before us. Defendant,

St. Paul Fire and Marine Insurance Company ("St. Paul"), is the

insurer of Dr. Fariss Kimbell, a neurosurgeon who became bankrupt

in 1986. Two years prior to the filing of Kimbell's bankruptcy

petition, St. Paul assumed Kimbell's defense in a medical

malpractice suit filed by Anna Rue Camp ("Camp") in Florida state

court. Camp offered to settle the medical malpractice suit for

policy limits, $250,000, on several occasions both before and after

Kimbell's petition was filed. St. Paul rejected these offers and

the case proceeded to trial after the bankruptcy court lifted the

automatic stay mandated by 11 U.S.C. § 362. The jury returned a

verdict of more than three million dollars against Kimbell. The

bankruptcy court ordered that the excess judgment obtained by Camp

be classified as a general, non-priority, unsecured claim against

Kimbell's bankruptcy estate but specified that the judgment could

not be enforced against Kimbell personally.

Camp and Kimbell's bankruptcy trustee, John E. Venn ("Venn" or

"trustee"), next commenced a bad faith action against St. Paul in

Florida state court. St. Paul removed the case to the United
States District Court for the Northern District of Florida. On

cross-motions for summary judgment, the district court dismissed

the case and held that St. Paul could not be liable for bad faith

refusal to settle because its insured—Kimbell—was bankrupt and

could not be held personally liable for the excess judgment. On

appeal, we certified the following question to the Florida Supreme

Court:

Whether, as a matter of law, a named insured's bankruptcy and
discharge from liability prior to exposure to an excess
judgment, such that the named insured was never personally
liable for any amount of the judgment, precludes an injured
party's or bankruptcy trustee's subsequent bad faith cause of
action against an insurance company.

Camp I, 958 F.2d at 344.1 In response, the Florida Supreme Court

held that "an action for bad faith may be claimed by the trustee of

Kimbell's bankruptcy estate against St. Paul." Camp v. St. Paul

Fire and Marine Ins. Co., 616 So.2d 12, 15 (Fla.1993) (Camp II ).

The court reasoned that the bankruptcy estate held Kimbell's

insurance policy as an asset at the time he filed for bankruptcy.

Therefore, St. Paul's duty of good faith extended to the estate

which "stood in the shoes of the debtor and, in effect, ... became

the insured." Id. The court explained further that the excess

judgment against the bankrupt insured harmed the estate by

increasing its debt to the detriment of its creditors and concluded

that "Mr. Venn acted properly in filing a bad faith action to

recoup the excess judgment for which the estate remains liable."

Id.

1
A second question certified to the Florida Supreme Court
involved the construction of particular policy language and is
not repeated here. See Camp I, 958 F.2d at 344.
 Accordingly, we reversed the district court's dismissal of

Venn's bad faith action and affirmed the dismissal of Camp's

action. Camp v. St. Paul Fire and Marine Ins. Co., 989 F.2d 428

(11th Cir.) (Camp III ), cert. denied, 510 U.S. 964, 114 S.Ct. 441,

126 L.Ed.2d 375 (1993). On remand, the case was set for trial.

Before trial, the district court heard arguments on the measure of

compensatory damages. It ruled that the Florida Supreme Court had

answered this question by implication in its opinion and fixed the

amount of excess judgment as the measure of compensatory damages.

Venn v. St. Paul Fire and Marine Ins. Co., 169 B.R. 735, 737

(N.D.Fla.1994) ("Venn I "). The court held, however, that Venn

would not be entitled to prejudgment interest2 on these damages

because the estate did not suffer any "out-of-pocket" expenses.

Id. at 742. Trial commenced on July 18, 1994. The jury returned

a verdict finding St. Paul acted in bad faith and, as instructed,

awarded as compensatory damages the amount of the excess judgment

($2,784,942.66). The court, however, granted from the bench

judgment as a matter of law in favor of St. Paul on the issue of

punitive damages.3 St. Paul also timely filed motions for judgment

as matter of law or, in the alternative, for a new trial or to

alter or amend the judgment on the issue of liability. The court

denied these motions and entered judgment in favor of Venn. Venn

2
As of June 1994, the prejudgment interest on the excess
judgment amounted to $2.4 million (simple interest) or to more
than $3.3 million if compounded annually. Venn I, 169 B.R. at
737.
3
The parties had agreed in the pretrial conference to
bifurcate the trial and that the issue of punitive damages would
not be submitted to the jury until after it returned a verdict on
liability. R-6-217-2.
v. St. Paul Fire and Marine Ins. Co., 173 B.R. 759, 769

(N.D.Fla.1994) ("Venn II ").

St. Paul appeals the denial of its post-trial motions. Venn

cross-appeals on the grounds that the court erred in concluding

that Venn is not entitled to prejudgment interest and in granting

St. Paul judgment as a matter of law on the issue of punitive

damages. Based on our independent review of the record, we

conclude that Venn's challenge to the court's ruling with respect

to punitive damages is meritless. Accordingly, we affirm the

judgment of the district court as to that issue. The remaining

issues raised in these consolidated appeals are discussed below.

II. DISCUSSION

A. St. Paul's Post-trial Motions

St. Paul raises numerous contentions on appeal. Two of these

contentions warrant some discussion.4 First, St. Paul asserts that

the district court should not have applied the Camp II decision of

the Florida Supreme Court to this case because it is based on an

erroneous interpretation of federal bankruptcy law. Second, St.

Paul submits that the district court erred further by

misinterpreting the Florida Supreme Court's holding in Camp II.

St. Paul's contentions raise questions of both federal and state

law. "The district court's conclusion[s] of [federal] law [are]

subject to complete and independent review by this court." In re

4
St. Paul argues that there was insufficient evidence
introduced at trial to prove that it acted in bad faith and that
a new trial should have been granted because the district court
made several erroneous evidentiary rulings and refused to give
five jury instructions requested by St. Paul. We reject these
contentions for the reasons set forth in the district court's
opinion. See Venn II, 173 B.R. at 767-70.
Sure-Snap Corp., 983 F.2d 1015, 1017 (11th Cir.1993). We also

review the district court's determinations of state law de novo.

Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217,

1221, 113 L.Ed.2d 190 (1991); Insurance Co. of N. Am. v. Lexow,

937 F.2d 569, 571 (11th Cir.1991).

1. The Camp II Decision

The district court correctly rejected St. Paul's invitation

not to follow the Florida Supreme Court's Camp II decision. The

district court was required to do so for two reasons. First, the

court was acting under our mandate to conduct "further proceedings

consistent with this opinion and that of the Florida Supreme

Court." Camp III, 989 F.2d at 429 (emphasis added).

A district court when acting under an appellate court's
mandate, "cannot vary it, or examine it for any other purpose
than execution; or give any other or further relief; or
review it, even for apparent error, upon a matter decided on
appeal; or intermeddle ... further than to settle so much as
has been remanded."

Litman v. Massachusetts Mut. Life Ins. Co., 825 F.2d 1506, 1510-11

(11th Cir.1987) (en banc) (quoting In re Sanford Fork & Tool Co.,

160 U.S. 247, 255, 16 S.Ct. 291, 293, 40 L.Ed. 414 (1895)), cert.
5
denied, 484 U.S. 1006, 108 S.Ct. 700, 98 L.Ed.2d 652 (1988).

Second, as discussed below, the district court is required to

follow the Florida Supreme Court's decision on an issue of Florida

5
The district court recognized its duty to follow our
mandate, but it sharply criticized the Florida Supreme Court's
Camp II decision. Camp II was decided pursuant to a
certification from this court asking the Supreme Court of Florida
to advise this court on an unsettled question of state law. When
a state court responds to a request for a determination of an
unsettled question of state law, and the federal court receives
an answer, it is hardly appropriate for a federal court to
question the correctness of the answer.
law under the principles of Erie R. Co. v. Tompkins, 304 U.S. 64,

58 S.Ct. 817, 82 L.Ed. 1188 (1938).

St. Paul argues, however, that we should revisit the Camp

decisions because the Florida Supreme Court misinterpreted federal

bankruptcy law by reasoning that Kimbell's potential bad faith

claim became a part of his estate by operation of 11 U.S.C. §

541(a)(1). 6 See Camp II, 616 So.2d at 15 (citing Palmer v.

Travelers Ins. Co., 319 F.2d 296, 299-300 (5th Cir.1963)). Under

the law of the case doctrine, both the district court and the

appellate court are generally bound by a prior appellate decision

of the same case. Wheeler v. City of Pleasant Grove, 746 F.2d

1437, 1440 (11th Cir.1984). The doctrine promotes finality,

assures the obedience of the district court to appellate decisions,

and avoids waste of judicial resources. See id. at 1440. Law of

the case, however, is not a limitation on the court's power, "but

rather is an expression of good sense and wise judicial practice."

DeLong Equip. v. Washington Mills Electro Minerals Corp., 990 F.2d

1186, 1196-97 (11th Cir.) (internal quotations omitted), modified

on other grounds, 997 F.2d 1340 (11th Cir.), cert. denied, 510 U.S.

1012, 114 S.Ct. 604, 126 L.Ed.2d 569 (1993); see also Arizona v.

California, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318

(1983). The doctrine, thus, is subject to exceptions and "does not

apply to bar reconsideration of an issue when (1) a subsequent

trial produces substantially different evidence, (2) controlling

authority has since made a contrary decision of law applicable to

6
11 U.S.C. § 541(a)(1) provides that a bankruptcy estate
includes "all legal or equitable interests of the debtor in
property as of the commencement of the case."
that issue, or (3) the prior decision was clearly erroneous and

would work manifest injustice." Wheeler, 746 F.2d at 1440 (quoting

United States v. Robinson, 690 F.2d 869, 872 (11th Cir.1982)).

The first two exceptions are not applicable here. St. Paul

contends, however, that our decision in Camp III mandating

adherence to the Florida Supreme Court's decision in Camp II was

clearly erroneous. Citing Sun Insurance Office, Ltd. v. Clay, 319

F.2d 505 (5th Cir.1963),7 rev'd on other grounds, 377 U.S. 179, 84

S.Ct. 1197, 12 L.Ed.2d 229 (1964), St. Paul argues that a federal

appellate court is required to "ignore the holding of the state

court if the decision was based upon ... erroneous determinations

of federal law." Appellant-St. Paul Brief at 12 n. 8 (No. 95-

2000). Thus, St. Paul suggests, Camp III was incorrectly decided

because Camp II was based on an erroneous interpretation of federal

law.

St. Paul's reading of Clay, however, evinces a

misunderstanding of our holding in that case. The issue in Clay

was whether a Florida statute that invalidates an insurance suit

clause8 applies to a policy issued in Illinois. The policy holder

had moved to Florida after the policy was issued and later brought

a diversity action on a property loss that occurred in Florida.

7
We have adopted the decisions of the United States Court of
Appeals for the Fifth Circuit decided prior to September 30,
1981, as binding precedent of the Eleventh Circuit. Bonner v.
Prichard, 661 F.2d 1206, 1207 (11th Cir.1981) (en banc).
8
The insurance suit clause at issue in Clay provided that
any action against the insurer under the policy must be commenced
within six months after the discovery of a loss. Such clause,
the purpose of which is effectively to shorten the statute of
limitations, was valid in Illinois, but not valid in Florida.
319 F.2d at 507.
The insurer sought to have the claim dismissed on the basis of the

policy suit clause. The resolution of the case depended on the

court's answer to three questions: Whether, as a matter ofFlorida

law, (1) the Florida statute is intended to apply to a policy

issued outside Florida and (2) the particular losses at issue are

covered by the policy; and whether, as a matter of federal law,

(3) the Florida statute could be applied to the policy consistent

with the Due Process Clause of the United States Constitution. See

id. at 507. After determining that the federal constitutional

issue could be avoided if either state law question was answered in

the negative, we certified the two state law questions to the

Florida Supreme Court.9 The Florida Supreme Court answered both

questions in the affirmative, thus necessitating our consideration

of the federal constitutional question. However, in the course of

passing on the state law questions, the Florida Supreme Court also

purported to answer the federal question. In our

post-certification review of the remaining federal question, we

held that the Florida Supreme Court's interpretation of federal law

does not bind us. Id. at 509.

This case is fundamentally different from Clay. Although we

have said that "[t]his diversity case involves the intersection of

insurance bad faith law and bankruptcy law," Camp I, 958 F.2d at

340, its resolution turns solely on a question of state law: Does

the bankruptcy trustee have a bad faith cause of action against St.

Paul? See id. at 344 (collecting cases from various jurisdictions

9
We did so under mandate of the United States Supreme Court.
See Clay, 319 F.2d at 508.
which have answered this question under applicable state law). The

Florida Supreme Court answered this question in the affirmative.

In a diversity case, we are, "in effect, only another court of the

State." Guaranty Trust Co. v. York, 326 U.S. 99, 108, 65 S.Ct.

1464, 1469, 89 L.Ed. 2079 (1945); see Erie R. Co. v. Tompkins, 304

U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). We do not sit as a

reviewing court over the state supreme court. Thus, we must give

effect to the Florida Supreme Court's holding—its answer to a

question of state law—regardless of the reasoning used by that

court to reach it. See Silverstein v. Gwinnett Hosp. Auth., 861

F.2d 1560, 1569 (11th Cir.1988) ("It is well-settled that federal

courts are bound by the interpretation of a state [law] by state

courts."). That the court's reasoning might have included an

"erroneous interpretation" of federal bankruptcy law is not

relevant to our role of enforcing state law in this diversity

action, provided the court's holding is not inconsistent with

federal law.10

We conclude that our decision in Camp III is the law of this

case, which binds us and the district court. More importantly, we

10
Although we need not evaluate in detail the Florida
Supreme Court's interpretation of federal bankruptcy law, we note
that it is not necessarily inconsistent with our circuit
precedent. Section 541(a)(1) provides that interest in property
held by a debtor at the time of bankruptcy becomes part of the
estate. 11 U.S.C. § 541(a)(1). We consider causes of action
which have already accrued prior to bankruptcy as such property.
See Jones v. Harrell, 858 F.2d 667, 669 (11th Cir.1988).
However, we also recognize that interests in property are
creatures of state law. See Barnhill v. Johnson, 503 U.S. 393,
398, 112 S.Ct. 1386, 1389, 118 L.Ed.2d 39 (1992) (interpreting
the term "interest of the debtor in property" in 11 U.S.C. §
547(b)). Thus, if the Florida Supreme Court chooses to recognize
a potential bad faith claim as "property," it passes to the
estate by operation of § 541(a)(1).
also conclude that the Florida Supreme Court's Camp II decision is

an expression of state law and it, therefore, must be followed by

us as well as future federal courts sitting in diversity cases,

unless either the Florida Supreme Court or legislature changes the

law.

2. Interpretation of Camp II

St. Paul's second contention is that the district court

misinterpreted the Camp II decision. St. Paul argues that the

Florida Supreme Court in Camp II changed the identity of the

insured by holding that the bankruptcy estate became the insured

under the policy and, thus, St. Paul owed a duty of good faith only

to the estate, not to Kimbell. Under this interpretation of Camp

II, St. Paul's pre-bankruptcy conduct in handling Kimbell's defense

is not relevant to Venn's bad faith action and the introduction of

evidence as to such conduct at trial would have been erroneous.

The Florida Supreme Court described an insured's action

against its insurer for failure to settle a third party's claim in

good faith as follows:

An insurer who assumes the defense of the insured also
assumes a duty to act in good faith and with due regard to the
interests of the insured. Boston Old Colony Ins. Co. v.
Gutierrez, 386 So.2d 783 (Fla.1980). More specifically, in
actions by third parties against the insured, the insurer must
act in good faith and be diligent in its effort to negotiate
a settlement. Auto Mutual Indemnity Co. v. Shaw, 134 Fla.
815, 184 So. 852 (1938). The insurer breaches its duty if it
fails to act in good faith and the third party obtains a
judgment against the insured for an amount in excess of the
policy coverage. Id.

Camp II, 616 So.2d at 14. The duty of good faith described by the

court is a contractual duty and its breach gives rise to an action

"ex contractu rather than in tort." Government Employees Ins. Co.
v. Grounds, 332 So.2d 13, 14 (Fla.1976) (per curiam); Swamy v.

Caduceus Self Ins. Fund, Inc., 648 So.2d 758, 760

(Fla.Dist.Ct.App.1994) (noting that "Florida is in the minority in

this respect, as most states treat this as a tort claim or as a

combination of tort and contract"). Therefore, before Kimbell

filed for bankruptcy, St. Paul had a contractual duty towards

Kimbell to negotiate and settle the Camp action in good faith, and

its conduct in negotiating and refusing to settle with Camp gave

rise to a potential claim, contingent on Camp obtaining an excess

judgment. The Florida Supreme Court held that this contingent

claim became the property of the bankruptcy estate. Camp II, 616

So.2d at 15. St. Paul's pre-bankruptcy conduct, therefore, is not

only relevant to Venn's bad faith action; it is at the heart of

such action.

Moreover, the Florida Supreme Court stated in Camp II that

"[t]he bankruptcy estate stood in the shoes of the debtor and, in

effect, the estate became the insured." Id. (emphasis added). We

do not read this to signify that Kimbell was no longer the

"insured" and that St. Paul's pre-bankruptcy conduct became wholly

irrelevant to Venn's action. Rather, this language leads to the

conclusion that, when Kimbell filed for bankruptcy, the estate not

only took title to his contingent claim but also succeeded to his

contract rights under the insurance policy. Indeed, the court said

as much when it stated: "[I]n the instant case, the bankruptcy

estate holds Dr. Kimbell's insurance policy as an asset." Id.

Thus, St. Paul also owed a duty of good faith towards the

bankruptcy estate (after it came into existence) and its
post-bankruptcy conduct with respect to the Camp claim is relevant.

In short, an insurer owes under Florida law a continuous duty

to negotiate and settle in good faith a third party claim against

its insured. This duty arises from the moment the insurer assumes

the insured's defense and matures into a cause of action when the

third party obtains a final judgment in excess of policy limits.

See Romano v. American Casualty Co., 834 F.2d 968 (11th Cir.1987)

(dismissing a bad faith action filed by an insured before the

excess judgment was affirmed on appeal as it was not yet final

under state law). During that period, the duty is owed to the

"insured"—in this case, Kimbell before bankruptcy, and Kimbell's

estate after bankruptcy—and the insurer's conduct throughout this

period is relevant.

St. Paul contends further that the district court erred in

fixing the amount of damages to be the entire excess judgment

obtained by Camp. St. Paul argues that the damages recoverable by

Venn should be limited to the "harm" caused by the excess judgment.

The Florida Supreme Court reasoned in Camp II that "[t]he excess

judgment against Dr. Kimbell harmed his bankruptcy estate by

increasing the debt of the estate to the detriment of its

creditors." 616 So.2d at 15. St. Paul submits that there was no

harm to the creditors due to the addition of the excess judgment to

the estate's liabilities because Kimbell's estate was essentially

a "no-asset" estate, containing no funds that could be disbursed to

the creditors in the first place.

St. Paul's argument overlooks the unambiguous language of the

Florida Supreme Court's decision in this case:
 The estate was damaged by the addition of Mrs. Camp as an
additional unsecured creditor, a result that could have been
avoided if St. Paul had settled her claim. As the trustee of
the bankruptcy estate, Mr. Venn acted properly in filing a bad
faith action to recoup the excess judgment for which the
estate remains liable.

Camp II, 616 So.2d at 15 (emphasis added). Thus, the Florida

Supreme Court defined the harm, under state law, to be the addition

of an unsecured creditor and fixed the amount of damages to be the

excess judgment. Under Erie, both the district court and this

court must follow the state supreme court's explication of state

law. We therefore affirm the district court's application ofCamp

II at trial.

B. Prejudgment Interest

Whether a successful claimant is entitled to prejudgment

interest is a question of state law. Royster Co. v. Union Carbide

Corp., 737 F.2d 941, 948 (11th Cir.1984). We review the district

court's determinations of state law de novo. Russell, 499 U.S. at

231, 111 S.Ct. at 1221; Lexow, 937 F.2d at 571. The district

court held that, under Florida law, the estate is not entitled to

prejudgment interest because, although it incurred a claim for

Camp's excess judgment, it paid nothing on that claim. Our review

of Florida law convinces us that the district court erred in

applying the "out-of-pocket" rule to Venn's claim and we therefore

reverse.

Venn contends that there is clear Florida precedent mandating

the award of prejudgment interest to the claimant in an action for

insurer failure to settle in good faith. Venn cites three cases

for this proposition: Auto Mutual Indemnity Co. v. Shaw, 184 So.

852 (Fla.1938) (per curiam); Liberty Mutual Insurance Co. v.
Davis, 412 F.2d 475 (5th Cir.1969) (applying Florida law); and

General Accident Fire & Life Assurance Corp. v. American Casualty

Co., 390 So.2d 761 (Fla.Dist.Ct.App.), review denied, 399 So.2d

1142 (Fla.1981).

In Shaw, the injured party who had prevailed against the

insured filed suit seeking to recover the entire judgment from the

insurer. The complaint alleged two counts, the first for damages

up to the policy limit as a third-party beneficiary under a theory

of contract law and the second for the excess judgment on a theory

of insurer bad faith. Shaw, 184 So. at 853. The plaintiff

prevailed on both counts at trial. The Florida Supreme Court

affirmed the judgment as to the first count and reversed the

judgment as to the second count after finding the evidence

insufficient to support a claim of bad faith. On rehearing, the

court acknowledged that the plaintiff was entitled to prejudgment

interest on the damages recovered under the insurance policy (count

one) as of the date of the underlying judgment. Id. at 860.

Because it had reversed the judgment as to count two, however, the

court had no occasion to address the issue of prejudgment interest

with respect to bad faith.

In Davis, the former Fifth Circuit squarely held that a bad

faith claimant is entitled to prejudgment interest on the authority

of Shaw. Davis, 412 F.2d at 486. Generally, we are bound by a

previous decision of this court unless it is overruled by the court

sitting en banc. This rule applies with equal force to prior

decisions involving federal law as well as state law. Hattaway v.

McMillian, 903 F.2d 1440, 1445 n. 5 (11th Cir.1990). However, "if
subsequent decisions of the United States Supreme Court or the

Florida courts cast doubt on our interpretation of state law, a

panel would be free to reinterpret state law in light of the new

precedents." Id. Our review of Florida Supreme Court decisions

since 1985 convinces us that these decisions have significantly

changed the law on the issue of prejudgment interest and have thus

cast doubt on the precedential value of Davis.11
Prior to 1985, "[w]hat the Florida law is on prejudgment

interest [was] far from clear." Royster Co., 737 F.2d at 948. The

decision of whether prejudgment interest should be awarded as a

matter of law turned mostly on an elusive distinction between

liquidated and unliquidated damages. See id. at 949-50. This

distinction apparently did not apply to actions based on contract,

11
Our conclusion is supported by the fact that the Davis
court discussed the issue of prejudgment interest in a short
paragraph, only citing Shaw as support. Although we conclude
that Davis does not control our decision in this case, we
nonetheless are troubled by the district court's failure to
either mention Davis or analyze the extent to which it
constitutes binding law in our circuit.

In General Accident, the Florida district court of
appeals awarded prejudgment interest to an excess carrier
who sued the insured's primary carrier for failure to settle
within the primary policy limits. 390 So.2d at 766. In
diversity cases, we generally adhere to the decisions of
state intermediate appellate courts unless there is
persuasive indication that the state's court of last resort
would decide the issue otherwise. Lexow, 937 F.2d at 571.
Here, although we eventually reach the same conclusion as
that reached by the Florida district court of appeals in
General Accident, the significant evolution of the law of
prejudgment interest since 1985 persuades us that we cannot
simply adhere to that decision. Furthermore, General
Accident is arguably distinguishable from this case because
it involved a claimant who had already satisfied the excess
judgment, so the court had no occasion to consider the
applicability of the "out-of-pocket" rule. See 390 So.2d at
763.
however, in which the Florida Supreme Court had allowed prejudgment

interest from the date the debt is due or, stated differently,

"from the time of accrual of the cause of action." Parker v.

Brinson Constr. Co., 78 So.2d 873, 875 (quoting Zorn v. Britton,

162 So. 879 (Fla.1935)). Since then, several decisions by the

Florida Supreme Court have clarified the law on the question of

prejudgment interest. In Argonaut Insurance Co. v. May Plumbing

Co., 474 So.2d 212 (Fla.1985), the Florida Supreme Court adopted a

"loss theory" of prejudgment interest, holding that the interest

constitutes "another element of pecuniary damages." Id. at 214.

The loss theory recognizes that "interest is the natural fruit of

money." Id. (quoting Sullivan v. McMillan, 19 So. 340 (Fla.1896)).

The loss suffered by the plaintiff includes the wrongful

deprivation of property by the defendant; the plaintiff is made

whole by adding the prejudgment interest to the amount of damages

determined by the fact finder. Id. at 215. Thus, "when a verdict

liquidates damages on a plaintiff's out-of-pocket, pecuniary

losses, plaintiff is entitled, as a matter of law, to prejudgment

interest at the statutory rate from the date of that loss." Id.;

see also Lexow, 937 F.2d at 571-72.

Several years later, in the context of tort law, the Florida

Supreme Court held that "a claimant in a personal injury action is

only entitled to prejudgment interest on past medical expenses when

the trial court finds that the claimant has made actual,

out-of-pocket payments on those medical bills at a date prior to

the entry of judgment." Alvarado v. Rice, 614 So.2d 498, 500

(Fla.1993) (emphasis added). Here, the district court understood
Argonaut and Alvarado to have established a general rule requiring

actual, out-of-pocket losses before prejudgment interest must be

awarded under Florida law. The district court noted that "[t]he

actual loss will almost always be damage to property or the

wrongful withholding of money." Venn I, 169 B.R. at 739

(collecting cases). Significantly, the court relied, in part, on

Cigna Property & Casualty Co. v. Ruden, 621 So.2d 714

(Fla.Dist.Ct.App.1993), in which the Florida district court of

appeals held that the holder of a marine insurance policy was

entitled to costs and salvage expenses but not to prejudgment

interest for the cost of items not yet paid for by the insured.

Id. at 715-16.

Venn correctly notes, however, that a recent decision by the

Florida Supreme Court reveals that both the district court and the

Ruden Florida court were incorrect. In Lumbermens Mutual Casualty

Co. v. Percefull, 653 So.2d 389 (Fla.1995), the Florida Supreme

Court resolved a conflict among lower Florida courts regarding the

applicability of Alvarado's "out-of-pocket" rule to contract

actions. In Percefull, the lower court had held that an insured is

entitled to medical expenses payable under an insurance contract,

as well as prejudgment interest, regardless of the fact that the

insured had not paid these expenses and thus did not suffer any

out-of-pocket loss. Percefull, 653 So.2d at 389. In affirming,

the Florida Supreme Court disapproved of the Ruden court's

extension of the reasoning underlying Alvarado to contract claims

and held that "[w]hile the rule in Alvarado provided a narrow

exception to the prohibition against prejudgment interest in tort
cases, it did not announce a new limitation on prejudgment interest

in contract cases." Id. at 390 (emphasis added).

Venn has asserted a bad faith action against St. Paul for its

failure to settle Camp's claim. Because such action sounds in

contract under Florida law, Grounds, 332 So.2d at 14; Swamy, 648

So.2d at 760, Venn is entitled to prejudgment interest from the

date the cause of action arose.12 A cause of action for insurer bad

faith generally arises on the date the excess judgment against the

insured becomes final. See Romano, 834 F.2d at 969-70; Cunningham

v. Standard Guaranty Ins. Co., 630 So.2d 179, 181 (Fla.1994); see

also Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d 1289

(Fla.1991). Therefore, having prevailed in his bad faith action

against St. Paul, Venn is entitled to prejudgment interest as of

the date Camp's judgment against Kimbell became final.13

12
St. Paul argues that the tort-contract dichotomy should
not be dispositive of this case and reminds us that we have
previously stated that this "dichotomy cannot easily or
rationally be extended to actions for refusal to settle." Davis,
412 F.2d at 486. St. Paul's argument is unavailing because
Florida courts have since spoken definitively with respect to
this question of state law. Although most states treat an action
for refusal to settle as a tort action or a combination of tort
and contract, Florida consistently has treated it as purely ex
contractu. See Swamy, 648 So.2d at 760 (citing Grounds, 332
So.2d 13). Our conclusion is strengthened by the Florida Supreme
Court's treatment of cases involving uninsured motorist claims in
Percefull. The Court approved the application of the
out-of-pocket rule to these cases, stating: "While these
uninsured motorist recoveries were based upon contracts of
insurance, they actually involved unliquidated personal injury
damage claims." Percefull, 653 So.2d at 390 (emphasis added).
Venn's bad faith claim is neither unliquidated nor does it
involve personal injury of the insured.
13
Among the myriad arguments presented by St. Paul on the
issue of prejudgment interest, St. Paul once again argues that
Venn's special status as a bankruptcy trustee takes this case out
of the general Florida rules governing prejudgment interest in
contract actions. This argument is foreclosed by the Florida
Accordingly, we reverse the district court's denial of prejudgment

interest. Because the "computation of prejudgment interest is

merely a mathematical computation, ... a purely ministerial duty of

the trial judge or clerk of the court," Argonaut, 474 So.2d at 215,

we remand the case to the district court only for the purpose of

amending the judgment to award Venn prejudgment interest on the

damages at Florida's statutory rate14 as of the date the underlying

excess judgment in favor of Camp against Kimbell became final.

III. CONCLUSION

In these appeals, St. Paul challenges the denial of its

motions for judgment as a matter of law or, in the alternative, for

a new trial or to alter or amend the judgment. Venn cross-appeals,

arguing that the district court erred in ruling that Venn was not

entitled to prejudgment interest and granting St. Paul's motion for

judgment as a matter of law on the issue of punitive damages. Our

review of applicable Florida law and the record establishes that

the district court did not err in either denying St. Paul's

post-trial motions on liability or granting St. Paul's motion on

punitive damages. We conclude, however, that Venn is entitled to

prejudgment interest. Accordingly, we AFFIRM in part, REVERSE in

part, and REMAND with instructions to amend the judgment for the

purpose of awarding Venn prejudgment interest.

Supreme Court's decision that "[t]he bankruptcy estate st[ands]
in the shoes of the debtor." Camp II, 616 So.2d at 15.
14
The interest rate is specified in Fl.Stat. ch. § 687.01
(1995).