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Dairyland Insurance Co. v. Maria Elena Douthat State Farm Mutual Automobile Insurance Co.11/4/1994
[248 Va Page 628] The sole issue in this appeal is whether Dairyland Insurance Company (Dairyland) and State Farm Mutual Automobile Insurance Company (State Farm) are required to pay prejudgment interest which, when added to the judgment award, exceeds the liability limits for damages under their insurance contracts.
Maria Elena Douthat brought a personal injury action against Allen Price Dunford arising out of an automobile accident that occurred on October 5, 1987. In that action, a jury awarded Douthat $95,000 in damages, with prejudgment interest on that sum from the date of the accident. The trial court entered judgment on the verdict on December 10, 1991.
Shortly before entry of the judgment order in the tort action, Dairyland, Dunford's automobile liability insurer, paid Douthat its policy limits of $25,000. In addition, State Farm paid Douthat $75,000, which was the maximum amount available under the uninsured/underinsured motorist (UM) coverage provision of Douthat's automobile insurance policy issued by State Farm. Douthat thus received the entire $95,000 damages awarded, plus $5,000 attributable to prejudgment interest.
Douthat then brought this action against Dairyland and State Farm (collectively, the insurers), seeking judgment for the unpaid amount of prejudgment interest awarded in the tort action. The insurers asserted that they were not obligated by the terms of their policies to pay Douthat any amounts of prejudgment interest that exceeded their combined policy limits.
Neither of the policies issued by the insurers specifically addressed the subject of prejudgment interest. Dairyland's liability policy provided, under "Limits of Liability," that
the limit of bodily injury liability stated in the declarations as applicable to "each person" is the limit of the company's liability for all damages . . . arising out of bodily injury sustained by one person as the result of any one occurrence[.]
Under a "Supplementary Payments" provision, Dairyland further agreed
to pay, in addition to the applicable limits of liability:
(a) all expenses incurred by the company, all costs taxed against the insured in any such suit and all interest on the entire amount of any judgment therein which accrues after entry of the judgment and before the company has paid or tendered or deposited in court that part of the judgment which does not exceed the limit of the company's liability thereon[.]
State Farm's policy issued to Douthat provided UM coverage, subject to the limits of liability insurance in its policy, obligating State Farm to pay Douthat "all sums" which she was "legally entitled to recover as damages from [the underinsured tortfeasor, Dunford,] because of bodily injury sustained by [Douthat] . . . caused by accident and arising out of [Dunford's use of an underinsured] motor vehicle." The policy further provided that any amount payable by State Farm would be reduced by sums paid by or on behalf of Dunford, the underinsured motorist.
After reviewing the policy provisions, the trial court entered summary judgment for Douthat, ruling that "current statutory and case law establishes pre-judgment and post-judgment interest, and requires the payment of such even though it may exceed the limits stated in the policy." The trial court found that Douthat was entitled to an additional $27,175.56 in prejudgment interest that had accrued before the insurers made payment in the amount of their policy limits. The court entered judgment against the insurers in amounts t
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