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The Second Circuit ruled that statutory prejudgment interest begins to accrue when a sworn proof of loss is submitted, not when the policyholder has fulfilled conditions precedent to coverage.  Warehouse Wines and Spirits v. Travelers Prop. Cas. Co. of Am., 2017 WL 4227943 (2d Cir. Sept. 21, 2107).

The policyholder sought coverage for losses incurred in connection with stolen property.  A New York federal district court granted the policyholder’s summary judgment motion as to coverage, and calculated damages owed under the policy, including prejudgment interest.  On appeal, Travelers argued, among other things, that the district court erred in imposing prejudgment interest from the date on which the policyholder submitted its sworn proof of loss.  Travelers argued that prejudgment interest did not begin to accrue until the policyholder had fully complied with policy conditions (e.g., examinations under oath and records inspection) because its indemnity obligations were not triggered until that point.  The Second Circuit disagreed and affirmed the ruling.

Section 5001 of New York Civil Practice Law and Rules, which permits a prevailing party in a breach of contract action to obtain prejudgment interest, provides that “[i]nterest shall be computed from the earliest ascertainable date the cause of action existed.”  The court explained that in insurance coverage disputes, the statute requires prejudgment interest to be calculated from the date that the insurer became obligated to indemnify the insured.  The court concluded that this obligation arose when the policyholder submitted a sworn proof of loss.  The court explained that although the policy entitles Travelers to investigate the claim, it “cannot circumvent § 5001(b) by denying coverage while conducting a nearly year-long investigation  . . . and then, once it is adjudicated liable, avoid paying prejudgment interest from the ‘earliest ascertainable date the cause of action existed.’”