                     IN THE COURT OF APPEALS OF TENNESSEE
                                AT KNOXVILLE
                                        December 11, 2002 Session

                     TERESA MALONE v. SHANE MADDOX, ET AL.

                          Appeal from the Circuit Court for Hamilton County
                             No. 01C341     W. Neil Thomas, III, Judge

                                         FILED FEBRUARY 25, 2003

                                        No. E2002-01403-COA-R3-CV


This case focuses on an insurance company’s liability under the uninsured motorist (“UM”)
provisions of an automobile insurance policy. It arises out of an automobile accident involving
Teresa Malone (“the policyholder”) and Shane Maddox (“the uninsured motorist”). The
policyholder appeals the trial court’s judgment decreeing that the policyholder’s uninsured motorist
carrier, Harleysville Mutual Insurance Company (“the UM carrier”), cannot be held liable for
prejudgment interest under the facts of this case because such an award would cause the total
judgment against the UM carrier to exceed the UM coverage limit in the policy. We affirm.

              Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                                  Affirmed; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS and
D. MICHAEL SWINEY, JJ., joined.

Phillip C. Lawrence, Chattanooga, Tennessee, for the appellant, Teresa Malone.

William A. Lockett and Michael A. Kent, Chattanooga, Tennessee, for the appellee, Harleysville
Mutual Insurance Company.

                                                      OPINION

                                                            I.

       The material facts pertaining to the issues on this appeal are not in dispute.1 On February 18,
2000, at about 11:15 p.m., the policyholder and the uninsured motorist were involved in a two-
vehicle accident in Chattanooga. At the time of this nighttime, head-on collision, the uninsured
motorist was driving on the wrong side of the road, at an excessive rate of speed, without headlights,


         1
          The UM carrier agreed in its brief that the po licyholder’s Statement of the Case and Statement of the F acts in
her brief were accurate.
and while under the influence of an intoxicant.                    As a result of the accident, the policyholder
sustained serious personal injuries.

        The policyholder sued the uninsured motorist, seeking to recover compensatory damages for
the injuries and damages proximately caused by the uninsured motorist’s negligence. She caused
process to be served on the UM carrier. The UM carrier filed an answer and defended in its own
name. The jury returned a verdict against the uninsured motorist for $200,000. The trial court
entered judgment against the UM carrier for $50,000.

        Following the entry of the trial court’s judgment on the jury’s verdict, the policyholder
moved the trial court, pursuant to the provisions of Tenn. Code Ann. § 47-14-123 (2001),2 for an
award of prejudgment interest against the UM carrier “on the $50,000 policy amount from the date
of the injury to the date of the payment of the judgment into [c]ourt.” The trial court denied the
motion. In its order denying the requested relief, the trial court opined as follows:

                   After careful deliberation, the Court concludes that the language of
                   the automobile liability insurance policy pertaining to the limit of
                   liability for uninsured/underinsured motorist coverage prohibits any
                   award of pre-judgment interest that would exceed the limit of liability
                   applicable to the policy. However, were it not for the policy language
                   and the limit of liability, the Court would find that it is equitable that
                   Harleysville pay pre-judgment interest for a period of one year prior
                   to the date of the judgment on the amount of its liability of $50,000
                   in this case at the rate of ten percent (10%) per annum, an amount
                   equal to $5,000.

                                                             II.

        The policyholder makes several arguments in support of her contention that the trial court
erred in refusing to award prejudgment interest. First, she argues that an award of prejudgment
interest on a damage award against a UM carrier is an add-on, separate and distinct from, and in
addition to, the basic judgment against the UM carrier based upon the negligence of the uninsured
motorist. While conceding, as she must, that the jury’s award of $200,000 extrapolates to an award
against the UM carrier of $50,000 – the amount of the UM carrier’s limit of liability in this case –
she argues that the nature of the statutory “creature” known as prejudgment interest is such as to
render it not subject to the contractual limitation of $50,000.



       2
           Tenn. Code Ann. § 4 7-14-12 3 provides, in pertinent part, as follows:

                   Prejudgment interest, i.e., interest as an element of, or in the nature of, damages, as
                   permitted by the statutory and common laws of the state as of April 1, 1979, may be
                   awarded by courts or juries in accordance with the principles of equity at any rate not
                   in excess of a maximum effective rate of ten percent (10%) per annum; . . .

                                                            -2-
        In support of her first argument, the policyholder relies on the case of Goff v. Permanent
General Assurance Corp., C/A No. 03A01-9405-CV-00185, 1994 WL 585771 (Tenn. Ct. App. E.S.,
filed October 19, 1994). In Goff, we were presented squarely with the question of whether a
judgment against a UM carrier for the full amount of its coverage was subject to postjudgment
interest under Tenn. Code Ann. § 47-14-121 (2001),3 even though such an award would obviously
cause the total amount due from the UM carrier to exceed the stated limit of UM coverage in the
policy. Id. at *2. We held that postjudgment interest was mandated by the statute and that all
judgments were subject to it. Id. We concluded that the UM carrier in that case, i.e., PGAC, was
liable for postjudgment interest on top of the “maxed-out” judgment of $25,000:

                   Tenn. Code Ann. § 47-14-121, et seq. provides for post-judgment
                   interest, and it is not controverted that the personal injury judgment
                   bears interest at the rate of ten percent. Neither is it controverted that
                   in any event, PGAC would have been liable for interest only on
                   $25,000.00, as contrasted to the entire amount of the judgment. We
                   do not agree with the argument of PGAC that under no circumstances
                   can it be liable for more than $25,000.00, “the maximum limit of
                   liability for all damages.” The statutes regulating interest, bad faith,
                   and the like, impose liabilities in addition to the limits of coverage.

Goff, 1994 WL 585771, at *2 (citations omitted) (emphasis added).

        For her second argument, the policyholder contends that her policy of automobile insurance
does not include prejudgment interest within the concept of damages that is subject to the cap of
$50,000. Thus, so the argument goes, prejudgment interest, not being an element of the damages
so limited, is just like postjudgment interest and can be added to a judgment against the UM carrier
even though the pre-existing damages award is already at the maximum limit of UM coverage.

        The policyholder also argues that the trial court’s conclusion regarding prejudgment interest
is at odds with the public policy embodied in the prejudgment interest statute. She contends that the
trial court’s denial of prejudgment interest in the instant case “is erroneous because it ignores the
explicit purpose of prejudgment interest awards, disregards the insurance company’s obligation to
pay compensatory damages at the time when it is equitable to pay them, and creates an incentive for
insurance companies to delay paying claims even after the total amount of the obligation becomes
clear.”




       3
           Tenn. Code Ann. § 4 7-14-12 1 provides, in pertinent part, as follows:

                   Interest on judgments, including decrees, shall be computed at the effective rate of
                   ten percent (10%) per annum, except as may be otherwise provided or permitted by
                   statute; . . .

                                                           -3-
                                                  III.

          The issues in this case bring into play the following UM coverage language of the subject
policy:

                 INSURING AGREEMENT

                 A.     We will pay compensatory damages which an “insured” is
                        legally entitled to recover from the owner or operator of an
                        “uninsured motor vehicle” because of:

                        1. “Bodily injury” sustained by an “insured” and
                        caused by an accident; . . .

                                              *    *     *

                 LIMIT OF LIABILITY

                 A.     The limit of Bodily Injury Liability shown in the Schedule or
                        in the Declarations for each person for Uninsured Motorists
                        Coverage is our maximum limit of liability for all damages,
                        including damages for care, loss of services or death, arising
                        out of “bodily injury” sustained by any one person in any one
                        accident.

                                               * *       *

                        This is the most we will pay regardless of the number
                        of:

                        1. “Insureds”;
                        2. Claims made;
                        3. Vehicles or premiums shown in the Schedule or in
                        the Declarations; or
                        4. Vehicles involved in the accident.

(Bold lettering in policy). Damages under the UM feature of the policy are not further defined in the
policy. As previously noted, the policy at issue limits the UM coverage for bodily injury for each
person to $50,000. There is a total limit for each accident of $100,000.

        The insuring agreement for the liability feature of the policy includes the following provision
pertaining to damages recoverable under that part of the policy:



                                                  -4-
                Damages include prejudgment interest awarded against the “insured.”

The policyholder argues that, since the definition of damages in the liability part of the policy
expressly includes “prejudgment interest” while the reference to damages in the uninsured motorist
feature of the policy contains no such explicit reference, damages under the UM coverage do not
include prejudgment interest and, therefore, there is no violation of the policy’s terms by adding such
interest to the “maxed out” damages award of $50,000 in the instant case.

        The UM carrier does not dispute the trial court’s finding that equity would militate in favor
of an award of prejudgment interest in this case. However, it argues that the court below was correct
in holding that such an award was not proper in this case because the addition of such an award to
the already-existing $50,000 judgment would cause the total award to exceed the limit of UM
coverage contracted for by the parties.

        The UM carrier contends that the limit of liability provided for under the contract is clear.
It points to the language of the policy and argues that it states, unequivocally, that $50,000 “is the
most we will pay. . . .” The UM carrier argues that this language speaks for itself and that the
$50,000 limit is exactly that, even with respect to the subject of prejudgment interest.

         The UM carrier also addresses the policyholder’s “negative inference” argument. It contends
that if the policyholder’s argument is correct, then the UM section of the policy offers no coverage
whatsoever for prejudgment interest awards. It points out that its liability in this case is entirely
derivative of the judgment entered against the uninsured motorist. If prejudgment interest is a claim
against the UM carrier for failure to pay the claim earlier and not connected to the negligence of the
uninsured motorist, then prejudgment interest is not derivative of the uninsured motorist’s
negligence. If this be the case, according to the UM carrier, prejudgment interest is not covered at
all under the terms of the UM section of the subject policy.

        The UM carrier also responds to the policyholder’s public policy argument. It asserts that
the policy rationale for postjudgment interest is not logically transferable to the subject of
prejudgment interest. In addition, it points out that the policyholder does not allege that it was guilty
of bad faith or breach of contract. The UM carrier concludes that, absent some allegation of such
conduct, the policy rationale cited by the policyholder for prejudgment interest is not implicated by
the insurance company’s decision not to settle.

                                                  IV.

       This case presents a question of law. “[W]hen there is no conflict in the evidence as to any
material fact, . . . , the question on appeal is one of law, and our scope of review is de novo with no
presumption of correctness accompanying the [trial court’s] conclusions of law.” Union Carbide
Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993).




                                                  -5-
       It is clear that the automobile insurance policy in this case is a contract between the
policyholder and Harleysville Mutual Insurance Company. Insurance policies are construed in
accordance with the rules and principles applicable to contracts generally. See Guardian Life Ins.
Co. of America v. Richardson, 23 Tenn. App. 194, 207, 129 S.W.2d 1107, 1115-16 (1939). In
Guardian, we stated the applicable law:

               Contracts of insurance, like other contracts, are to be construed
               according to the sense and meaning of the terms which the parties
               have used, and if they are clear and unambiguous, their terms are to
               be taken and understood in their plain, ordinary, and popular sense.
               The rule of strict construction does not authorize a perversion of
               language, or the exercise of inventive powers for the purpose of
               creating an ambiguity where none exists, nor does it authorize the
               court to make a new contract for the parties or disregard the evidence
               (intention) as expressed, or to refine away terms of a contract
               expressed with sufficient clearness to convey the plain meaning of the
               parties and embodying requirements, compliance with which is made
               the condition to liability thereon. Neither does the rule prevent the
               application of the principle that policies of insurance, like other
               contracts, must receive a reasonable interpretation consonant with the
               apparent object and plain intent of the parties.

Id. (citations omitted).

                                                V.

                                                A.

        The policyholder’s reliance on our opinion in Goff and other postjudgment interest cases is
misplaced. There are fundamental differences between postjudgment interest and prejudgment
interest that belie the policyholder’s assertion that the postjudgment interest cases, by analogy,
support an award of prejudgment interest in this case.

        Postjudgment interest is mandatory. Vooys v. Turner, 49 S.W.3d 318, 322 (Tenn. Ct. App.
2001). It is imposed by statute, Tenn. Code Ann. § 47-14-121, “on judgments.” Tenn. Code Ann.
§ 47-14-122 (2001) provides that such “[i]nterest shall be computed on every judgment . . . .
(Emphasis added). Once the amount of the judgment has been established, it bears interest at the
statutory rate of 10% “except as may be otherwise provided or permitted by statute.” Tenn. Code
Ann. § 47-14-121. If the exception does not apply, the statute makes the add-on of 10% interest
mandatory; a court is without authority to relieve a debtor of its statutorily-mandated postjudgment
interest obligation. Inman v. Inman, 840 S.W.2d 927, 931 (Tenn. Ct. App. 1992); Bedwell v.
Bedwell, 774 S.W.2d 953, 965 (Tenn. Ct. App. 1989). As the Goff opinion holds, postjudgment
interest is “in addition to the limits of coverage.” Goff, 1994 WL 585771, at *2.


                                                -6-
        Prejudgment interest is very different. Rather than being a mandatory obligation, its
imposition is clearly subject to the sound discretion of the trial court or jury, as the case may be. See
Tenn. Code Ann. § 47-14-123 (“may be awarded . . . in accordance with the principles of equity”)
(emphasis added). See also Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998). In
addition, and of great significance in this case, prejudgment interest is defined as “an element of, or
in the nature of, damages.” Tenn. Code Ann. § 47-14-123 (emphasis added). In our opinion,
prejudgment interest is nothing more than an element of damages chargeable against a defendant,
in this case the uninsured motorist. As an “element of . . . damages,” prejudgment interest is
necessarily a calculation that is made in arriving at the amount of the judgment. As previously
noted, postjudgment interest comes into play only after the judgment has already been established.

        Tenn. Code Ann. § 47-14-121 and the cases, such as Goff,4 interpreting it are not authority
for the policyholder’s argument that prejudgment interest can be added to a judgment against a UM
carrier even though to do so is to enlarge the UM carrier’s liability beyond the limit of UM coverage
in the policy.

                                                              B.

       The policyholder next argues that the concept of “damages” alluded to in the UM coverage
does not include prejudgment interest. Thus, so the argument goes, there is no violation of the
policy’s terms by adding prejudgment interest to the maximum limit of “damages.”

        Contrary to the policyholder’s assertion, there is no ambiguity in the policy pertaining to the
issue of prejudgment interest. The UM coverage extends to “all damages.” (Emphasis added). As
we have previously noted, prejudgment interest, by the language of the applicable statute, is “an
element of, or in the nature of, damages.” Tenn. Code Ann. § 47-14-123. In the instant case, the
UM carrier contracted to pay “all damages.” Prejudgment interest is an element of damages.
Therefore, prejudgment interest is covered by the language of the policy pertaining to that which can
be recovered under the UM coverage.

         We reject the policyholder’s argument that the language “all damages” does not include
prejudgment interest. We also reject the policyholder’s argument that the reference to prejudgment
interest in the damages section of the liability feature of the policy in some way means that
prejudgment interest is not a part of “all damages” under the UM coverage. Under the liability
feature of the policy, prejudgment interest is a part of the covered damages because the policy says
it is. Under the UM coverage, it is a part of the covered damages because “all damages” means just
that, all damages, and, by statute, prejudgment interest is an element of the injured party’s damages.

         4
           W e recognize that the Goff Court stated that the “statutes regulating interest . . . impose liabilit[y] in addition
to the limits of coverage.” (Emphasis added). Ho wever, this language must be read in the context of the facts in Goff.
See National Life & Accident Ins. Co. v. Eddings, 188 Tenn. 51 2, 523, 221 S .W.2d 695, 699 (1949) (“It is a maxim
not to be disregarded that general expressions, in every opinion are to be taken in co nnection with the case in which those
expressions are used.” (quoting Cohens v. Virg inia, 19 U.S. (6 Wheat.) 264, 399, 5 L. Ed. 257 , 290 . (182 1))). W e limit
the holding in Goff pertaining to interest to the subject of po stjudgment interest.

                                                             -7-
                                                             C.

         The policyholder argues that the trial court’s judgment is at odds with a public policy
underlying the prejudgment interest statute. She contends that the statute embodies a policy
encouraging the prompt settlement of claims with merit. She argues that if the lower court’s
judgment is allowed to stand, it will, in effect, deprive an insurance company of any incentive to
settle a meritorious UM claim objectively worth more than the limit of coverage under the policy.
We disagree.

        In general terms, an insurance company has an incentive to settle a UM claim with merit in
order to eliminate the possibility of a damage award that includes prejudgment interest. When the
value of a UM claim arguably exceeds the UM limit of coverage, the insurance company still has
motivation to settle for a number of reasons, not the least of which is fear of the imposition of a bad
faith penalty under Tenn. Code Ann. § 56-7-105 (2000).5 In any event, we hold that the conclusion
reached by the trial court with respect to prejudgment interest does not violate an established public
policy of this state.

                                                             D.

        The policyholder cites a number of cases from other jurisdictions. In our judgment these
cases are not authority for the positions asserted by the policyholder in this case.




       5
           Tenn. Code Ann. § 5 6-7-105 (a) provid es as follows:

                   The insurance companies of this state, and foreign insurance companies and other
                   persons or corporations doing an insurance or fidelity bonding business in this state,
                   in all cases when a loss occu rs and they refuse to pay the loss within sixty (60) days
                   after a demand has been made by the holder of the policy or fidelity bond on which
                   the loss occurred, shall be liable to pay the holder of the policy or fidelity bond , in
                   addition to the loss and interest thereon, a sum not exceeding twenty-five percent
                   (25%) on the liability for the loss; provided, that it is made to appear to the court
                   or jury trying the case that the refusal to pay the loss was not in good faith, and that
                   such failure to pay inflicted additional expense, loss, or injury including attorney
                   fees upon the holder of the policy or fidelity bond; and provided further, that such
                   additional liability, within the limit prescribed, shall, in the discretion of the court
                   or jury trying the case, b e measured by the additional expense, loss, and injury
                   including attorney fees thus entailed.

                                                             -8-
         In Cox v. Peerless Ins. Co., 774 F. Supp. 83 (D. Conn. 1991), a federal court, applying a
Connecticut statute,6 imposed prejudgment interest, noting that “[a]n award of prejudgment interest
arises from a defense attorney’s strategic decision to reject an offer of settlement, and proceed to
trial.” Id. at 86. Under the Connecticut statute, however, a court is required to impose interest when
the plaintiff recovers “an amount equal to or greater than the sum certain stated in [the plaintiff’s]
‘offer of judgment.’” Tennessee does not have a similar statute. We do not find the Cox case
persuasive on the facts before us. Three other cases cited by the policyholder, Sotelo v. Washington
Mut. Ins. Co., 734 A.2d 421 (Pa. Super. Ct. 1999), Vasquez v. LeMars Mut. Ins. Co., 477 N.W.2d
404 (Iowa 1991), and Potomac Ins. Co. v. Howard, 813 S.W.2d 557 (Tex. App. 1991),7 involve
direct actions against insurance companies for breach of contract. None of these cases are implicated
by the facts now before us.

                                                              VI.

        The judgment of the trial court is affirmed. This matter is remanded to the trial court for
enforcement of the judgment below and for collection of costs assessed in the trial court, all pursuant
to applicable law. Costs on appeal are taxed to Teresa Malone.


                                                                     _______________________________
                                                                     CHARLES D. SUSANO, JR., JUDGE




        6
            The Connecticut statute provides, in pertinent part, as follows
:
                    (a) After commencement of any civil action based upon contract or for the recovery
                    of money only, the plaintiff may before trial file with the clerk of the court a written
                    “offer of judgment” signed by him or his atto rney, directed to the defendant or his
                    attorne y, offering to settle the claim underlying the action and to stipulate to a
                    judgment for a sum certain . . . .
                                                             * * *
                    (b) After trial the court shall examine the record to determine whether the p laintiff
                    made an “offer of judgment” which the defendant failed to accept. If the court
                    ascertains from the reco rd that the plaintiff has recovered an amount equal to or
                    greater than the sum certain stated in his “offer of judgment”, the court shall ad d to
                    the amount so recovered twelve per cent annual interest on said amount computed
                    . . . . from the date the com plaint in the civil action was filed with the co urt if the
                    “offer of judgment” was filed not later than eighteen months from the filing of such
                    com plaint. If such offer was filed later than eighteen months from the date of filing
                    of the complaint, the interest shall be computed from the date the “offer of
                    judgment” was filed . . . .

Conn. Gen. Stat. Ann. § 52-192a (W est, WEST LAW 1991).

        7
            This case also involves a tort claim under Texas law.

                                                              -9-
