Lloyd’s Loses Bid to Avoid $800K in Prejudgment Interest

Lloyd’s of London has been told it must pay an extra $800,000 in prejudgment interest on a $2.5 million building fire loss payment to a community bank that it had wrongly denied coverage.

A three-judge panel of the Massachusetts Appeals Court recently sided with PeoplesBank in its claim against Certain Underwriters at Lloyd’s. After a trial judge found that the insurer wrongly denied coverage to the bank in 2018 under a builder’s risk insurance policy, the parties stipulated to loss amounts. But they differed over the prejudgment interest due under the state law that says the interest is “from the date of the breach or demand.”

On April 27, 2021, the parties stipulated to a damages amount of $2,274,194.07 and later, in 2013, to an additional amount of $236,000 that was delayed due to a separate court proceeding over of a contractor’s bill. Thus the total loss payment before interest was $2.5 million.

A motion judge determined that interest would be calculated at the statutory rate of 12% per annum from April 27, 2021, the date of the parties’ first stipulation on damages. A judgment entered to that effect.

But Peoples balked at that interest ruling and appealed. The bank claimed interest accrued not from April 27, 2021 but from July 3, 2018, the date when Lloyd’s first denied coverage, Thus, the bank estimated, it was due $800,000 more in interest than Lloyd’s would pay under the motion judge’s formula.

The insurer disagreed, arguing that its duty to reimburse was governed by the “loss payment” provision of the builders risk insurance contract, and thus did not arise until Lloyd’s had reached agreement with Peoples on the amount. Otherwise, Lloyd’s said, Peoples would receive a “windfall.” The policy promised that a loss would be paid within 30 days of the parties agreeing on the amount.

The appeals court sided with Peoples, disagreeing that the obligation to pay interest could be delayed as the insurer argued. The court noted that Lloyd’s breached the contract. Had Lloyd’s adhered to the contract, $2.274 million should have been paid to Peoples in response to the demand as of July 3, 2018.

“On the facts here, there is little to commend Lloyd’s position that the accrual of interest should be delayed until (in its view) it had an obligation under the loss payment provision of the policy,” the ruling states. “To do so would result in a windfall to Lloyd’s for its breach.”

In the written ruling, Justice John Englander acknowledged that the statute on prejudgment interest has not always been consistently applied and “courts have not followed the statute’s plain language in awarding interest.” But the plain language of the law states that interest is “from the date of the breach or demand.”

Judge Englander wrote that “a straightforward, plain language application” of the statute would result in prejudgment interest commencing in July of 2018. That is the “date of the breach” — the date Lloyd’s wrongfully declined coverage.

That reasoning applied to the first stipulated amount of $2.274 million. As for the second amount of $236,000, however, the court said the circumstances differ because that amount was not paid to the contractor until 2022, after the separate litigation over that amount ended. In these specific circumstances, the appropriate course is to award prejudgment interest only from the date that the contractor was paid for its work, the appeals court concluded.

Topics Excess Surplus Lloyd's