MUNICH REINSURANCE AMERICA, INC. v. TOWER INSURANCE COMPANY OF NEW YORK
Filing
54
OPINION filed. Signed by Judge Freda L. Wolfson on 3/23/2012. (eaj) (Main Document 54 replaced on 3/23/2012) (eaj, ).
**NOT FOR PUBLICATION**
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
__________________________________________
:
MUNICH REINSURANCE AMERICA, INC. , :
:
Plaintiff,
:
:
v.
:
:
TOWER INSURANCE COMPANY OF
:
NEW YORK,
:
:
:
Defendant.
:
__________________________________________:
Civil Action No. 09-2598
OPINION
WOLFSON, United States District Judge:
Having decided that Plaintiff Munich Reinsurance America, Inc. (“Munich”) is
entitled to pre-judgment interest on the amount of $3,287,597 for previously remitted
insurance indemnification payments, the Court must now determine from what date prejudgment interest accrues and what interest rate to apply. For the following reasons, the
Court awards Plaintiff $175,853.04 in pre-judgment interest.
I.
BACKGROUND
As the parties are familiar with the factual background of this matter, this Court will
only recount the facts necessary for disposition of the pre-judgment interest issue. This
case arises out of multiple reinsurance agreements between Munich and Defendant Tower
Insurance Company of New York (“Tower”), through which contracts the parties agreed
1
to indemnify each other against all or a portion of the loss sustained under certain standard
insurance policies. Munich filed this suit on May 28, 2009 to recover past-due monies from
Tower under the parties’ agreements. Both parties filed motions for partial summary
judgment and, on December 23, 2011, this Court granted in part and denied in part both
motions.
Relevant here is Munich’s motion for summary judgment on the net balance of
$3,287,597 (“the past-due amount”) plus applicable pre-judgment interest that it argued
was due from Tower under certain reinsurance and retrocessional contracts. Tower did
not oppose the net balance and informed the Court that, during the pendency of the suit,
it had remitted the net balance to Munich. Tower, further, did not oppose the imposition
of pre-judgment interest.
According to Tower, the reason why it did not initially pay the past-due amount is
because it required additional information from Munich so that it could determine whether
such amounts were actually due. Dulligan Cert., ¶ 2. Also according to Tower, it and
Munich engaged in a mutual account reconciliation process and, on March 18, 2011,
Munich provided the supporting documents that Tower requested. Id. at ¶ 3. Then
satisfied that it owed the full amount sought by Munich, Tower made the payment in full
on July 15, 2011.
Following my summary judgment decision, I directed Munich to submit an affidavit
setting forth the appropriate pre-judgment interest and granted Tower the opportunity to
respond. The parties have filed their submissions, with Munich seeking $673,806.00 in pre-
2
judgment interest and Tower arguing that only $5,404.27 is warranted. Having considered
the parties’ submissions, I now rule on what is the appropriate amount of interest.
II.
DISCUSSION
For breach of contract actions, “the law of the forum state—in this case, New
Jersey—applies to questions of process, of which the award of interest is one.” Gleason v.
Norwest Mortg., Inc., 253 Fed.Appx. 198, 203-04 (3d Cir. 2007). “Under New Jersey law,
a trial judge in a contract action has discretion to award prejudgment interest in accordance
with equitable principles.” Id. at 204 (citing County of Essex v. First Union National Bank,
186 N.J. 46, 891 A.2d 600, 608 (2006)). As explained by the New Jersey Supreme Court in
Litton Industries, Inc. v. IMO Industries, Inc., 200 N.J. 372 (2009),
the award of prejudgment interest in a contract case is within
the sound discretion of the trial court. Similarly, the rate at
which prejudgment interest is calculated is within the
discretion of the court. We have explained that the primary
consideration in awarding prejudgment interest is that the
defendant has had the use, and the plaintiff has not, of the
amount in question; and the interest factor simply covers the
value of the sum awarded for the prejudgment period during
which the defendant had the benefit of monies to which the
plaintiff is found to have been earlier entitled.
Id. at 390 (quoting Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 506, 323 A.2d
495 (1974)) (internal citations omitted).
Importantly, “New Jersey state law distinguishes between postjudgment interest,
which is governed by New Jersey Court Rule 4:42–11(a); prejudgment interest in tort cases,
which is governed by Court Rule 4:42–11(b); and prejudgment interest in contract cases,
which is governed by equitable principles.” Gleason, 253 Fed.Appx. at 204 (citing County
3
of Essex, 891 A.2d at 609, inter alia). That said, “reference to the postjudgment interest
rules [found in subsection (a)] may serve as an appropriate benchmark in contract cases ....”
However, “the determination must ultimately be based on the equities of the case.” Id.
(citing DialAmerica Marketing, Inc. v. KeySpan Energy Corp., 374 N.J.Super. 502, 509-10
(App. Div. 2005)). Indeed, the New Jersey Supreme Court has affirmed a trial court’s use
of “R. 4:42–11 as a guide” in a contract case.
Litton, supra at 390-91.
Rule 4:42-11 provides, in pertinent part
(a) Post Judgment Interest
*
*
*
(ii) For judgments not exceeding the monetary limit of the
Special Civil Part at the time of entry, regardless of the court in
which the action was filed: commencing January 2, 1986 and
for each calendar year thereafter, the annual rate of interest
shall equal the average rate of return, to the nearest whole or
one-half percent, for the corresponding preceding fiscal year
terminating on June 30, of the State of New Jersey Cash
Management Fund (State accounts) as reported by the Division
of Investment in the Department of the Treasury.
(iii) For judgments exceeding the monetary limit of the Special
Civil Part at the time of entry: in the manner provided for in
subparagraph (a)(ii) of this Rule until September 1, 1996;
thereafter, at the rate provided in subparagraph (a)(ii) plus 2%
per annum.
(b) Tort Actions
[T]he court shall, in tort actions, . . . include in the judgment
simple interest, calculated as hereafter provided, from the date
of the institution of the action or from a date 6 months after the
date the cause of action arises, whichever is later, provided that
in exceptional cases the court may suspend the running of such
prejudgment interest. . . . Prejudgment interest shall be
4
calculated in the same amount and manner provided for by
paragraph (a) of this rule except that for all periods prior to
January 1, 1988 interest shall be calculated at 12% per annum
....
R. 4:42-11.
In short, subsection (a) addresses post-judgment interest. Within that subsection,
part (ii) applies to “judgments not exceeding the monetary limit of the Special Civil Part,”
which is $15,000. See R. 6:1-1(c). For 2008, the post-judgment annual interest rate was
5.5%. For 2009, the rate was 4.0%. See Post-Judgment and Pre-Judgment Interest Rates
(Updated January 2012) attached as Exh. A to Pl. Open. Br. Beginning in 2010, the rate
dropped. For 2010, the rate was 1.5%. For 2011, it was 0.5% and, for this year, it is still
0.5%. This interest rate is equal to the average rate of return on the State of New Jersey’s
Cash Management Fund hence the parties refer to this rate as the “Cash Management Fund
rate.”
Part (iii) of subsection (a) addresses post-judgment interest on judgments exceeding
the $15,000 Special Civil Part monetary limit. Part (iii) adds 2% to the default rate for part
(ii) judgments. So, for example, the rate applicable to interest accruing in 2008 under
subsection (a)(iii) would be 7.5% (5.5% + 2%).
Subsection (b) of the rule applies to pre-judgment interest in tort actions only, and
applies the same rate as that found in subsection (a) with or without the additional two
percent available under subsection (a)(iii). As noted, while the rule does not explicitly
address pre-judgment interest for non-tort actions, the Supreme Court in Litton has held
that R. 4:42-11 may serve as a guide in making contract pre-judgment interest
5
determinations.
The New Jersey Appellate Division in the contract case, DialAmerica, held that the
post-judgment interest rules in “subsection (a)(ii) provides an appropriate starting point
in determining the rate of prejudgment interest, but we do not in any sense foreclose the
use of subsection (a)(iii) in connection with a rule-based calculation of prejudgment
interest, should the equities demand it.” 374 N.J.Super. at 511. Moreover, the DialAmerica
Court held that subsection (a)(iii) may be appropriate where “unusual circumstances” are
present.1 Id. This approach is generally consistent with the holding in Litton that judges
may use R. 4:42-11 as a guide.2
Finally, the court must set forth the particular date from which pre-judgment
interest is calculated. See R. Jennings Mfg., 286 N.J.Super. at 415. The same discretion
applicable to a court’s determination of the appropriate pre-judgment interest rate applies
to the court’s determination of the date upon which pre-judgment interest will begin to
accrue. The accrual date, like the interest rate, should be decided on the basis of equitable
principles. See County of Essex, 186 N.J. at 61-62.
With these principles in mind, I now turn to the parties’ arguments. As an initial
1
Neither the Court rule nor New Jersey law defines the term “unusual
circumstances.”
2
Although DialAmerica was decided before Litton, its holding is consistent
with that New Jersey Supreme Court case and has been relied upon by the Appellate
Division post-Litton, albeit in an unpublished disposition. See Gaber v. Gaber, No.
A-3930-09T4; 2012 WL 223597, *7 (N.J. App. Div. Jan 26, 2012).
6
matter, the Court notes what is not in dispute. The parties agree that pre-judgment interest
should be granted on the full $3,287,597 amount. The parties further agree that the postjudgment interest rate applicable to subsection (a)(ii) awards is set by the annual rate of
interest on state accounts, which has varied over the past several years, and that an award
based on subsection (a)(iii) would add two percent to the applicable interest rate under
subsection (a)(ii). Where they part company is on the accrual date and the what rate—the
one under subsection (a)(ii) or the two percent-heightened subsection (a)(iii)—should be
applied.3
A.
Accrual Date
Turning first to the parties’ accrual date arguments, the accrual date determination
is slightly complicated by the fact that the $3,287,597 amount includes billings under
multiple agreements that were due on differing dates. Munich contends that each billing
was due on the date billed, i.e., “on demand,” however, Munich has incorporated into its
pre-judgment interest calculation a 30-day grace period for each billing. The first date that
Munich contends a portion of the $3,287,597 amount was due was June 20, 2007; according
to Munich, $849,620 was due on that date. Applying its self-imposed 30-day grace period,
Munich argues that interest begins to accrue on that amount on July 20, 2007. See Frawley
Decl., Exh. A - B. Munich has attached a detailed spreadsheet calculating interest on that
amount and the remaining amounts in similar fashion from mid-2007 onward.
3
Neither party argues for application of a different rate than those found in the
rule.
7
In contrast, Tower argues that the mid-2007 date is inappropriate because “Munich
did not provide sufficient information at that time from which [Tower] could determine
whether such amounts were, in fact, owing under the [parties’] [a]greements.” Dulligan
Afft., ¶ 2. It was not until an “accounting reconciliation exercise that took place after . . .
discovery” in this matter that Tower contends it “obtained the information it needed to
determine the amount it owed under the Retrocessional Agreements.” Id. at ¶ 3. For this
reason, Tower contends that the appropriate accrual date is the date of the accounting
reconciliation—March 18, 2011. Id.
Tower, further, cries foul at Munich’s attempt to rely on a mid-2007 date because the
predicate for Munich’s unopposed motion for partial summary judgment was that the
parties agreed on the $3,287,597 amount after engaging in the March 18, 2011 account
reconciliation process. See Pl. SOMF at ¶¶ 7 (“For several months in late 2010 and early
2011, the parties engaged in a comprehensive account reconciliation process ....”). Tower
intimates that it would have not conceded that Munich was entitled to pre-judgment
interest had Munich previously indicated that it believed it was entitled to interest back to
mid-2007. Moreover, Tower continues, there is no evidence in the record to support a
finding that Munich was entitled to the funds in June 2007.
Generally, “[t]he law imposes a duty to pay interest from the time payment of
principal is due ....” Siegelman v. Weinstein, No. A-0738-08T2, 2009 WL 2382248, *5 (N.J.
App. Div. Aug 5, 2009) (citing Twp. of Wayne v. Ricmin, Inc., 124 N.J.Super. 509, 514
(App.Div.), certif. denied, 63 N.J. 583 (1973) quesionted on other grounds by Jersey City v.
8
Realty Transfer Co., 129 N.J. Super. 570, 576 (App. Div. 1974)). See also County of Essex,
186 N.J. at 61 (affirming trial court’s determination that date of each of several bond
transactions was appropriate accrual date). Here, however, Munich has not pointed to any
documents in the record, such as the specific agreements under which Munich claims it
was entitled to payment as early as June 2007, to support its position. While Munich has
provided a declaration from one of its employees who calculated the various amounts
billed to Tower and when they were billed, that certain amounts were billed does not mean
that the amounts were actually due. It is true that the employee states that the agreement
provides for payment “on demand” but, without copies of those agreements, the Court
cannot make a determination that payment was due as the employee represents.
Moreover, I read Munich’s moving papers on the motion for summary judgment as relying
on the mutual account reconciliation process as the basis for judgment.
That said, Tower’s proposed accrual date is likewise untenable. While Tower may
have agreed to pay the past due amount as of the date of reconciliation, Tower does not
dispute that the monies were several years past due at that time. Rather, Tower argues that
it did not believe it had sufficient information to justify payment as early as 2007.
Applying the account reconciliation date to the monies due before that date would be
contrary to the underlying purpose of the pre-judgment interest rule, which is to
compensate the plaintiff for the defendant’s use of the monies during a time frame during
which the plaintiff was entitled to those funds. See Litton, supra at 390. See also Ellmex
Constr. Co., Inc. v. Republic Ins. Co., 202 N.J.Super. 195, 494 A.2d 339 (App.Div.1985),
9
certif. denied, 103 N.J. 453, 511 A.2d 639 (1986) (noting that the equitable purpose of an
award of pre-judgment interest is “to indemnify the claimant for the loss of what the
moneys due him would presumably have earned if the payment had not been delayed.”).
In my view, the best accrual date for the bulk of the monies due is the date of the
institution of this action, which is May 28, 2009. I make this determination by referring to
subsection (b) of Rule 4:42-11 for guidance. As noted, that subsection designates the rule
for pre-judgment interest in tort actions as “from the date of the institution of the action or
from a date 6 months after the date the cause of action arises, whichever is later ....” R. 4:4211(b). Here, treating the date the action was filed as the accrual date best balances the
equities between both parties. This result ensures that Munich receives payment for the
monies to compensate it for the loss of what the moneys due it would presumably have
earned if the payment had not been delayed, while acknowledging that Tower disputed
when and whether the amounts were due until Tower’s questions were answered during
the account reconciliation process.
There is one additional clarification required. As indicated above, the full amount
of the judgment included amounts due prior to the date the complaint was filed as well as
amounts due after the complaint was filed. According to Munich’s pre-judgment interest
spreadsheet, the amount due through April 19, 2009 was $3,188,301.4 Because this amount
was sought prior to the date the complaint was filed, the Court will grant pre-judgment
4
While Tower disputes whether payments were due “on demand,” Tower
does not generally dispute the accuracy of the figures in the spreadsheet.
10
interest on that amount as of May 28, 2009.
Munich’s spreadsheet indicates that the remaining amount of the judgment, $99,296,
was due sometime between April 19, 2009 and January 1, 2011. It is not clear from the
spreadsheet at what specific point in time each of the payments were due. Because there
is no basis for applying the May 28, 2009 date to these amounts, and without record
support for the contract due dates, the Court is left with the reconciliation date as the best
option for a date of accrual for this remaining amount. So, for the remaining $99,296, the
Court will apply the March 18, 2011 date as the operative date. Accord Liss v. Federal Ins.
Co., 2009 WL 231992 (N.J. App. Div. 2009) (treating settlement date as date of accrual). The
Court recognizes that there may be some imprecision in this formula, nonetheless, the
Court finds this result the most equitable under the circumstances and in light of the record
before the Court at this time. Cf. N.J. Power & Light Co. v. Mabee, 41 N.J. 439, 441, 197
A.2d 194 (1964) (“[T]he sundry rules for measuring damages are subordinate to the
ultimate aim of making good the injury done or loss suffered and hence [t]he answer rests
in good sense rather than in a mechanical application of a single formula.”) (quoting 525
Main Street Corp. v. Eagle Roofing Co., Inc., 34 N.J. 251, 255, 168 A.2d 33 (1961)) (internal
citation omitted).
B.
Interest Rate
I now turn to the parties’ argument regarding what rate to apply. Munich relies on
Feit v. Great-West Life and Annuity Ins. Co., 460 F.Supp.2d 646, 650 (D.N.J. 2006), for the
proposition that subsection (iii) of the post-judgment interest rule—with its two-percent
11
addition—should apply here. I do not find Munich’s reliance on Feit persuasive, however,
because the parties in that case did not dispute the rate. See id. at 649 (“The parties do not
dispute the applicable Cash Management Fund rate and thus the Court adopts Mrs. Feit's
calculations utilizing the applicable Cash Management Fund rate plus two percent (2%) per
year.”) Because the parties did not dispute the rate, the court “had no occasion to address
it,” DialAmerica, 374 N.J.Super. at 511, which means that Feit’s ruling offers little guidance
to me as to which part of subsection (a) should be my starting point.
Fortunately, Litton and DialAmerica provide useful guidance here. Read together,
these cases suggest that the “appropriate starting point in determining the rate of
prejudgment interest” is “subsection (a)(ii).” DialAmerica, 374 N.J.Super. at 511. See
Litton, 200 N.J. at 391 (affirming trial court’s reliance on subsection (a)(ii)). Unusual
circumstances or the equities of the matter, however, may justify the addition of the two
percent set forth in subsection (a)(iii). DialAmerica, 374 N.J.Super. at 507.
I find that the equities warrant application of the Cash Management Fund rate
without the benefit of the additional 2% authorized by subsection (a)(iii). While the size
of the judgment in this case is significant, DialAmerica suggests that the higher rate of
subsection (a)(iii) should not be imposed on large contract awards as a matter course. 374
N.J.Super. at 509. Moreover, other than relying on Feit, Munich has not pointed to any
principled basis for applying the enhanced rate here; Munich has not suggested why this
case is the unusual case in which the enhanced rate should apply. Lastly, in my view, to
apply the enhanced rate in this case would create a windfall for Munich. Under that rate,
12
Munich would be entitled to $428,826.56 in pre-judgment interest. Despite the large size
of the past due amount, the fact remains that once the parties amicably resolved their
dispute through the account reconciliation process Tower paid the amount due in full prior
to a judgment being entered by the Court. Accordingly, balancing the equities in this
matter, I conclude that the rate of return earned by the State Treasurer contemplated by R.
4:42-11(a)(ii), i.e., the Cash Management Fund rate, applies.
C.
Calculation
Based on the foregoing, I compute the pre-judgment interest as follows. Munich is
entitled to interest on the $3,188,301 amount from May 28, 2009 until the date of payment,
which was July 15, 2011.5 The shortened time period in 2011 equals 195 days, not including
the date of payment. The applicable interest rate was 4% during 2009, 1% during 2010, and
0.5% during 2011.
Calculating the amount of interest with these rates, Munich is entitled to $127,532.04
for 2009, $31,883.01 for 2010, and $8,516.69 for the 195 days in 2011. This totals $167,931.74.
For the remaining $99,296, Munich is entitled to pre-judgment interest for the time frame
from March 18, 2011 through July 15, 2011, a time period equaling 119 days. A simple
interest calculation on the $99,296 for that duration yields $161.87 in interest. Adding all
interest calculations together, Plaintiff is entitled to $168,093.61 in pre-judgment interest.
III.
CONCLUSION
5
To be sure, R. 4:42-11 provides for simple interest and Munich has not argued
that compound interest should be granted here.
13
For the reasons set forth above, I conclude that Plaintiff is entitled to $168,093.61 in
pre-judgment interest.
Dated: March 23, 2012
/s/Freda L. Wolfson____
Freda L. Wolfson, U.S.D.J.
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?