In Hartmann v. Duffy (2002), 95 Ohio St. 3d 456, the Ohio Supreme Court held that “a plaintiff who enters into a settlement agreement that has not been reduced to judgment is entitled to interest on the settlement, which becomes due and payable on the date of settlement.” This decision set off a wave of “post-settlement interest” class action cases against insurers in which plaintiffs attempted to recover post-settlement interest in thousands of cases.
On May 17, 2007, the Ohio Supreme Court issued a decision adopting “a permanent, workable rule” to address the issues arising in litigation based on Hartmann. In Bellman v. American International Group (2007), 113 Ohio St. 3d 323, ¶ 14, the Court held that the date of a written settlement agreement is the date from which post-settlement interest accrues, unless the parties negotiate a different “due and payable” date and incorporate it into the written settlement agreement. The Court also held that a claim for post-settlement interest must be brought against the tortfeasor (not the tortfeasors insurer) in the underlying action.
Bellman involved a class action filed in Lucas County Court of Common Pleas against more than 20 insurance company defendants. Generally, the theory underlying plaintiffs’ claims was that defendant insurers delayed settlement payments in an effort to derive financial benefit from the “float” between the date of verbal settlement and the date of payment. Relying on Hartmann, Plaintiffs sought post-settlement interest from the date of the oral settlement until the date of receipt of the settlement check.
The insurers moved for summary judgment, arguing that (1) plaintiffs named the wrong party (i.e., the insurance company rather than the tortfeasor), (2) res judicata precluded some of the claims and (3) the parol-evidence rule barred the admission of an oral statement to contradict a later written agreement. Plaintiffs contended that (1) the parol evidence rule did not prelude admission of evidence of the prior oral negotiations because the written settlement agreements did not include integration clauses, (2) res judicata did not apply, and (3) the insurance carriers were indeed the proper parties because the insurers – not the tortfeasors — wrongfully delayed the payment of the claims. The trial court rejected the plaintiffs’ arguments and granted the insurers’ motions for summary judgment. The Sixth District Court of Appeals affirmed.
The Ohio Supreme Court allowed a discretionary appeal to address the following issues:
- Is parol evidence admissible to establish a settlement date for purposes of calculating post-settlement interest different from the date specified in a written settlement agreement?
- Who is the proper defendant in a claim for postsettlement interest – the tortfeasor or the tortfeasors insurer?
The Supreme Court held that: “The date of a written settlement agreement becomes the date from which post-settlement interest accrues, unless the parties to such a settlement agreement negotiate a different due and payable date and incorporate that into the written settlement agreement.” When the settlement agreement does not incorporate a separate due and payable date, “the parol-evidence rule assumes that the formal written agreement embodies all of the terms of the agreement between the parties and therefore precludes extrinsic evidence to vary or contradict its terms.”
With respect to identification of the proper defendant, the Court relied on Ohio’s post-settlement interest statute and court precedent. Ohio Revised Code 1343.03(A) provides that “when money becomes due and payable…upon any settlement between the parties… the creditor is entitled to interest at the rate. . . “. In Love well v. Physicians Insurance Company of Ohio (1997), 79 Ohio St. 3d 143, the Court stated “[I]n the absence of statutory mandate or contractual agreement, the liability for a prejudgment interest award must fall upon the named party.” Based on its review of relevant authority, the Court held that a claim for post-settlement interest is properly brought against the tortfeasor in the underlying action.
This common sense decision is good news for insurance companies (who will no longer be required to defend stale claims seeking post-settlement interest) and provides a “permanent, workable rule” for all litigants contemplating settlement.