Not Awarding Prejudgment Interest For Time Before And After Arbitration Award Would Lead To Absurd Results

My colleague, Jason Cieri, in a recent blog post, Prejudgment Interest, What Is It and How Does It Help Me, explained what prejudgment interest is and how it helps a policyholder:

In jurisdictions that don’t have attorney fee shifting statutes, insured are left with very few tools to level the playing field against the behemoth insurance companies. Depending on your jurisdiction, prejudgment interest could be used to help level that playing field.

The United States District Court for the Southern District of New York recently awarded prejudgment interest for the period before and after an arbitration award despite the arbitral tribunal (“Tribunal”) previously declining to award interest to the plaintiff.¹ The federal judge reasoned not doing so would lead to absurd results and allow insurance carrier to continue to drag its feet and not pay without a penalty.

ExxonMobile v. TIG Insurance Company, involved an insurance coverage dispute resulting from groundwater contamination caused by leaking underground storage tanks in the 1990s. The Policy contained a New York choice of law provision and an Alternative Dispute Resolution Endorsement (“ADR Endorsement”) permitting the parties to resolve disputes through ADR. The ADR Endorsement provided:

It is expressly agreed that any decision, award, or agreed settlement made as a result of an ADR process shall be limited to the limits of liability of this Policy.

In 2019, the Tribunal entered an award for the policy’s full $25 million limit. Citing New York case law and statutory provisions, ExxonMobil requested the Tribunal also award pre-judgment interest in an amount exceeding $6 million. The Tribunal, however, declined to do so.

The Tribunal reasoned that its “decision [or] award” was “constrained by agreement of the parties to be no more than the policy limits” because the “common understanding of the terms arbitral ‘decision’ or ‘award’ would include interest.” Examining the language of the ADR Endorsement, the Tribunal found “award” to be an “all-inclusive term” that “includes damages, interest, cost and legal fees that a panel may determine is owing on a claim” and that the Tribunal lacked jurisdiction to impose an award beyond the $25 million policy limit.

ExxonMobil then requested the trial court confirm the award and that it also award post-breach interest, consisting of prejudgment interest from (1) the date of breach until the date of the arbitration award and (2) the date of the arbitration award until the date of the court’s order confirming the award. The court found for ExxonMobile, stating:

Following TIG’s interpretation, the longer it delays a judgment in this case—for example, as here, by filing a non-meritorious motion to vacate—the longer it will have free use of Mobil’s money and the more Mobil’s recovery will be diminished,

This decision is a reminder that policyholders should not foreclose their right to pre-judgment interest. Policyholders can use this tool to encourage prompt payment and to avoid delays from the insurance company. As the court explained, to decline the imposition of interest would encourage insurers to wrongfully withhold payment with no significant consequences.
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¹ ExxonMobil Oil Corp. v. TIG Ins. Co., No. 16-cv-9527 (S.D.N.Y. May 18, 2020).
² See Oldcastle Precast, Inc. v. Liberty Mut. Ins. Co., 2019 WL 5884528, at *3 (S.D.N.Y. Nov. 8, 2019) (citing Love v. State, 78 N.Y.2d 540, 544 (1991)).