On certification to the Superior Court, Appellate Division, whose opinion is reported at 152 N.J. Super. 561 (1977).
For affirmance: -- Chief Justice Hughes and Justices Pashman and Handler. For reversal: -- Justices Mountain, Sullivan, Clifford and Schreiber. The opinion of the Court was delivered by Clifford, J. Pashman, J., dissenting. Chief Justice Hughes and Justice Handler join in this dissent.
The factual complex giving rise to the litigation is adequately set forth in the opinion of the Appellate Division, 152 N.J. Super 561, 563-64 (1977), as follows:
The Appellate Division viewed the sole question raised by the appeal as "whether or not the trial judge erred in denying prejudgment interest on the verdict obtained by plaintiffs * *." Its approach to resolution of this issue began with a review of the history of the prejudgment interest rule, R. 4:42-11(b), and of the policy considerations which prompted this Court to adopt the Rule, as extensively set forth in Busik v. Levine, 63 N.J. 351, appeal dismissed, 414 U.S. 1106, 94 S. Ct. 831, 38 L. Ed. 2d 733 (1973). The Rule as originally drawn was in mandatory terms but was later amended, effective April, 1975, to permit suspension of prejudgment interest in "exceptional cases." The court below concluded that judicial suspension of prejudgment interest extended "only to those cases where an award of interest would neither advance the aim of early settlement nor constitute fair compensation to the plaintiff for money withheld and used or presumptively used by the defendant." 152 N.J. Super. at 566.
In applying this principle the Appellate Division held that in the circumstances of this case it was "not inequitable to require GEICO to pay interest on its $15,000 from the date the complaint was filed until the date it placed the money beyond its own reach by making the deposit in court," pointing out that the carrier can always "stop the running of the prejudgment interest by a deposit in court where it finds itself, as did GEICO here, willing to settle but unable to do so for reasons not implicating any unreasonable conduct on the part of the plaintiff." 152 N.J. Super. at 567. It went on to hold that the $85,000 portion of
the verdict which was beyond Barr's liability coverage was not subject to prejudgment interest; and, finally, that an evaluation of what constitutes an exceptional case within the meaning of the rule "cannot realistically be undertaken prior to the final disposition of the action." Id. at 568.
We granted certification, 76 N.J. 241 (1978), to review so much of the determination below as imposes prejudgment interest on GEICO's $15,000 portion of the plaintiffs' judgment. As to that issue, we reverse.
At the outset we emphasize that there are two issues projected. The first is the question of prejudgment interest on GEICO's policy limits. Although the company expressed at oral argument before the Appellate Division a willingness to submit itself directly to the jurisdiction of the court with respect to that issue, it is important not to overlook the fact that the insurance carrier is not a party to this suit.*fn1 Hence, the ultimate question before us remains whether the defendant, Barr, should suffer judgment against him in an amount which includes prejudgment interest on a part of that judgment -- that is, so much of it as is within his ability to pay by reason of his having protected himself through liability insurance. That protection in this instance was limited by contract to $15,000.
As did the Appellate Division, we advert to the policies underlying the prejudgment interest rule, namely, the indemnification of a plaintiff for the loss of income he presumably would have earned had payment not been delayed, and the encouragement of prompt consideration of settlement possibilities. Busik v. Levine, supra, 63 N.J. at 358-60. As pointed out above, the original mandatory terms of the Rule were
amended precisely for the reasons set forth by Judge Conford in his dissent in Busik, 63 N.J. at 383-85, wherein he urged that the application of prejudgment interest be left to the sound discretion of the trial court. As R. 4:42-11(b) now stands, the exercise of that discretion is to be guided essentially by the aforementioned policies which gave birth to the Rule. And so we must determine whether, under all the circumstances, the trial court mistakenly exercised its discretion in denying prejudgment interest.
In examining those circumstances we necessarily focus on the settlement posture of the parties. In this case there were certain restraints on both plaintiff and defendant as they approached amicable disposition of the claim. On defendant's side there was the limitation of the insurance contract which defendant had purchased from GEICO. The policy limit was $15,000, the amount the company agreed to pay as damages because of bodily injury sustained by any person as the result of an automobile accident. In addition GEICO agreed to pay interest "on the entire amount of any judgment [in any covered lawsuit] 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 * * *" -- that is, post-judgment interest on $15,000. The policy contains no undertaking by the company to pay prejudgment interest, and there is neither a regulation of the insurance commissioner nor any statute requiring the inclusion of any such undertaking in automobile liability policies issued in this state. Cf. State Farm Mutual Automobile Insurance Co. v. Estate of Simmons, 169 N.J. Super. 133, 138 (App.Div. 1979) (every automobile policy offered as ...