Safeco Insurance v. Lovely Agency

No. 84-305
IN THE SUPREME COURT OF THE STATE OF MONTANA
1985

SAFECO INSURANCE COMPANY,
Plaintiff and Respondent,

LOVELY AGENCY and DONALD E.
McHENRY,
Defendants and Appellants.

APPEAL FROM: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin,
The Honorable Joseph B. Gary, Judge presiding.

COUNSEL OF RECORD:
For Appellants:

Berg, Coil, Stokes & Tollefsen, P.C.; Michael Coil
argued for McHenry, Bozeman, Montana
Morrow, Sedivy & Bennett; Douglas Harris arqued for
Lovely agency, Bozeman, Montana
Kirwan & Barret; Peter M. Kirwan, (McHenry), Bozeman,
Montana
For Respondents:

Landoe, Brown Law Firm; Allen M. McGarvey argued for
Safeco Ins., Bozeman, Montana

-

Submitted: January 22, 1985
Decided: April 11, 1985

APR ' i985
Filed:

Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
Defendants Lovely Agency and Donald McHenry appeal from
the judgment of the Gallatin County District Court, awarding
Sa.feco Insl~ranceCompany (Safeco) pre judgmen.t interest, and
from the court's order requiring a supersedeas bond in an
amount covering the judgment and prejudgment interest. We
affirm.
The issues are:
1. Is the plaintiff entitled to prejudgment interest?
2. Did the District Court abuse its discretion by
requiring a supersedeas bond in an amount large enough to
cover the entire judgment including prejudgment interest?
Safeco settled a claim against its insured, Leonard
Doran, by paying to the estate of Donald Sorum the full
amount of the policy limits, S300,OOO. Before settling the
Sorum claim, investigation by Safeco revealed
misrepresentations on the insurance applications and a
forgery of Doran's signature. Safeco discovered that Donald
McHenry, the agent who sold the insurance to Doran, was
responsible for the forgery and the misrepresentations.
After settling Sorum's wrongful death claim against Doran,
Safeco sought damages from McHen.ry and the Lovely Agency for
wrongfully issuing the insurance policy.
The Gallatin County District Court entered judgment
against Safeco and for the agents, and Safeco appealed. This
Court reversed the District Court's judgment, holding that
Safeco was entitled to judgment as a matter of law on the
issue of liability and remanding for tria.1 on the issue of
damages. Safeco Insurance Co. v. Lovely Agency (Mont. 1982),
652 P.2d 1160, 39 St.Rep. 1861. In so holding, this Court
ruled that as a matter of law Safeco was not - pari delicto
in
with McHenry and Lovely Agency. This Court also ruled that
Safeco did not ratify the unauthorized acts of McHenry and
Lovely Agency. Safeco, 652 P.2d at 1162-63, 39 St.Rep at
1864-65. This Court remanded to the District Court with
directions to enter judgment for Safeco on the issue of
liability and to grant Safeco a new trial on the issue of
damages.
At the trial on damages, defendants attempted to reduce
Safeco's recovery below the $300,000 sum paid on the Sorum
wrongful death claim. Defendants characterized their defense
as a "mitigation defense." In substance, they argued that
Safeco could have discovered the coverage problems and
cancelled coverage prior to the loss, that Safeco should have
discovered Doran's prior driving record before issuing the
insurance policy, that Safeco's alleged delay in settling
the claim increased the size of the settlement, that
settlement by lump sum rather than structured settlement
increased the amount paid, and that defendants had no
opportunity to participate in settlement negotiations.
Based on the evidence presented at trial, the District
Court entered findings of fact and conclusions of law. The
District Court found that Sorum's estate sought damages of
approximately $4,250,000 and that the amount of $750,000
alone was estimated as wages naturally earned in the
deceased's normal remaining life span. The Court found that
Safeco advised McHenry and Lovely Agency that Sorum's estate
was demanding the policy limit of $300,000 and was demanding
more from Doran individually, and that Safeco felt compelled
to settle for that amount if defendants failed to respond
within 5 days. The court found that Safeco had offered to
settle the case for $270,000, but that offer was rejected.
The court found that Safeco did not settle the case
sooner because it went to court for a determination regarding
the fraudulent statements in the insurance application and
that the Sorum estate did not request settlement earlier
because of its desire to first settle separate claims with
Doran and Workers' compensation. The court found that after
Safeco learned of the forgery on the application it acted
with reasonable diligence in settling the claim of Sorum's
estate. The court found that the Sorum claim was reasonably
calculated to substantially exceed the policy limits of
$300,000 and that given the facts known by Safeco it acted
reasonably in paying the settlement. The court further found
that defendants McHenry and Lovely Agency had attempted
improperly to raise in the damages trial matters bearing on
the already-decided issue of liability. The court found that
$300,000 was a reasonable settlement amount. Finally, the
court concluded that Safeco was entitled to recover $300,000
plus interest from September 18, 1980, the date of the
settlement. Our review of the transcript indicates that the
findings and conclusions of the District Court are supported
by substantial credible evidence.
Judgment was entered on March 5, 1984. Thereafter,
motions were made to suspend the supersedeas bond
requirement. After consideration of the motions, the entire
case file, and companion cases arising from the same
incident, the District Court denied the motion to suspend the
supersedeas bond and ordered defendants to post a supersedeas
bond within 15 days.
In explanation of its ruling, the court issued a

memorandum addressing defendants' arguments on the
supersedeas bond issue. The court rejected defendants'
argument that money deposited by defendants' malpractice
carrier in two companion cases was avaiiable to satisfy this
judgment should Safeco prevail on appeal.
 Is the plaintiff entitled to prejudgment interest?
Appellants argue that the District Court erred in
awarding Safeco prejudgment interest from the date Safeco
paid $300,000 in settlement of the Sorum claim. Appellants
contend that the criteria for an award of prejudgment
interest are not met in this case, and because the initial
jud.gment was reversed on appeal, interest is allowable only
from the date the subsequent judgment was entered. We
disagree.
The criteria for an award of prejudgment interest are
clear in Montana. Section 27-1-211, MCA provides:
"Every person who is entitled to recover damages
certain or cap3ble of being made certain by
calculation and the wight to recover which is
y~ested in him upon a particular day is entitled
also to recover interest thereon from that day
... It

The three criteria which must he satisfied for an award of
prejudgment interest are: (1) an underlying monetary
obligation; (2) the amount of recovery must be certain or
capable of being made certain by calculation and (3) the
right to recover must vest on a particular day. Agrilease,
Inc. v. Gray (1977), 173 Mont. 151, 160, 566 ~ . 2 d 1114,

Appellants argue that this case is a tort claim based on
negligence, misrepresentation and breach of duty, and that
prejudgment interest is disallowed in such cases as a matter
of law. Appellants emphasize this Court's language in
Carriger v. Ba-llenger (Mont. 1981), 628 P.2d 11.06, 1110, 38
St.Rep. 864, 868, where the opinion suggests that an element
of the prejudgment interest test is tha-t one be entitled to
recover damages for the unpaid balance of a contract or an
account. Appellants contend that Safeco not entitled
prejudgment interest because their action is not for the
unpaid balance of a contract or an account.
A careful reading of Carriger reveals that prejudgment
interest was disallowed in that case because the damages were
not "a sum certain," not because the action was something
other than for recovery on a contract or an account. In
fact, Carriger was an action for breach of contract. In
holding the prejudgment interest statute, section 27-1-211,
XCA inapplicable, we emphasized that "the amount of the
damages due upon breach was not clearly ascertainable. . . ."
628 P.2d at 1110, 38 St-Rep. at 868.
Appell-znts do not cite, nor does our research disclose,
any Montana cases denying prejudgment interest solely on
grounds that the underlying action could be labeled a tort
claim. Instead, this Court has focused primarily upon
whether or not the amount was certain or capable of being
made certain by calculation. In Price Bulding Service, Inc.
v. Holms (Mont. 1985), 693 P.2d. 553, 42 St.Rep. 84, this
Court rejected the argument that prejudgment interest can be
awarded only where there is an account stated or where there
is a fixed contract price. We stated that the statute,
§ 27-1-211, MCA, "merely requires that the damages he
certain, or capable of ascertainment by calculation." 693
P.2d at 559, 42 St.Rep. at 90.
Appellants argue that Safeco is not entitled to
prejudgment interest because its damages were not certain or
capable of being made certain by calculation as of the date
Safeco paid $300,000 in settlement of the Sorum claim.
Appellants contend the amount of damages is not clearly
ascertainable where there is a dispute as to the a-mount and
that no interest can run until a fixed amount has been
arrived at by agreement, appraisal or judgment.
 We concl-ude that Safeco's damages were certain or
capable of being made certain by calculation as of September
1.8, 1980, when it paid $300,000 to settle the Sorum claim.
The Safeco policy limit was $300,000 and there was no serious
dispute whether the Sorum claim was likely to substantial-ly
exceed that amount. The District Court noted that Sorum's
estate sought damages of approxi-mately $4,250,000 and that
lost wages alone were approximately $750,000. The District
Court rejected appellants' attempts to reduce the $300,000
damage figure because their allegations concerned liability
rather than damages. The amount of Safeco's damages was
certain as of the date it paid the Sorum claim.
The fact that a claim is disputed does not make it
uncertain and therefore incapable of supporting an award of
prejudgment interest. Price Building Service, supra, 693
P.2d at 559, 42 St.Rep. at 90-91; North Pacific Plywood, Inc.
v. Access Road Builders, Inc. (Wa.App. 1981), 628 P.2d 482,
487. Here, appellants' "mitigation" defense did not reduce
the certainty of the amount of Safeco's damages, which was
set by Safeco's policy limit and the payment of the policy
limit in settlement of the Sorum claim.
Appellants also contend that the right to recover here
did not vest on the particular day that Safeco paid the
$300,000 settlement to the Sorum estate. Appellants'
argument on this issue is without merit. In substance,
appellants argue that the right to recover cannot vest until
it is reduced to judgment. This argument leads to the absurd
conclusion that there can never be an award of prejudgment
interest because the right to recover can never vest before
judgment. Here, the right to recover for the settlement
vested on the day that Safeco paid the settlement.
 Defendants argue in substance that this Court's reversal
of the District Court in the first appeal of this case alters
the rule regarding recovery of prejudgment interest. We
disagree. The cases relied upon by a.ppellants in this
respect do not support their contention. These cases hold
that where the appellate court reduces the anount of recovery
on appeal, interest on the new award runs only from the date
of the appellate decision. See Annotation, 4 A.L.R.3d 1221,
1222 n.2. Those cases are distinguishable because this
Court's previous opinion did not address in any manner the
amount of damages recoverable by Safeco. The rationale of
those cases seems to be that a party should not be entitled
to prejudgment interest on an amount it was never entitled to
receive. Here, the amount of Safeco's damages was clear from
the date the settlement was paid.
We hold that Safeco was entitled to prejudgment interest
and the District Court did not err in awarding prejudgment
interest from the date Safeco paid $300,000 in settlement of
the Sorum claim.

Did. the District Court abuse its discretion by requiring
a supersedeas bond in an amount large enough to cover the
entire judgment including prejudgment interest?
Appellants argue that the District Court abused its
discretion by requiring a supersedeas bond in an amount large
enough to cover prejudgment interest. This argument is
without merit in light of our conclusion that the District
Court was correct in a.warding prejudgment interest.
Rule 7(a), M.R.App.Civ.P. provides that a supersedeas
bond shall be conditioned for satisfaction of the judgment in
full together with interest, among other items. The purpose
of a supersedeas bond as a condition for staying enforcement
and execution on a judgment is to secure the rights of the
judgment creditor during the appeal process. Poulsen v.
Treasure State Industries, Inc. (1979), 183 Mont. 439, 442,
600 P.2d 206, 208. In accordance with these rules, the
District Court required a supersedeas bond in an amount
sufficient to cover the judgment plus prejudgment interest.

Appellants nonetheless argue that a bond in a lesser
amount would have protected Safeco during the appeal because
$250,000, deposited in another court in companion cases, was
also available to protect the interests of Safeco during
appeal. Appellants further contend that the District Court
abused its discretion by requiring bond in an amount which,
together with the $250,000 on deposit in the companion cases,
exceeded the limit of their insurer's coverage. They argue
the District Court was aware that the insurer had already
deposited $250,000 in the companion cases and that requiring
them to post a $420,000 supersedeas bond in this case would
force them to pay sums in excess of the policy limits.
The District Court carefully addressed whether the
deposit of $250,000 in the companion cases should reduce the
amount of the supersedeas bond in this case. The court
concluded those funds were not available to satisfy this
judgment and did not protect the interests of Safeco on
appeal. The District Court did not act arbitrarily without
employment of conscientious judgment or exceed the bounds of
reason in requiring a supersedeas bond in the amount it did.
We hold the District Court did not abuse its discretion
by requiring a supersedeas bond in an amount large enough to
cover the entire judgment including prejudgment interest.
The judgment is affirmed.
We concur: , /
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