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THORP v. AMERICAN AVIATION & GEN. INS. CO.

July 13, 1953

THORP et al.
v.
AMERICAN AVIATION & GENERAL INS. CO. et al.



The opinion of the court was delivered by: GRIM

After a fire had destroyed plaintiffs' motion picture theatre and its contents in New Jersey, plaintiffs and defendants could not agree on the amount of the loss for fire insurance purposes. Plaintiffs brought suit on six insurance policies issued by the six defendant insurance companies. These contracts both were made and were to be performed in the State of New Jersey. After the jury had made special findings in response to interrogatories which were submitted to it, judgment was entered in favor of the plaintiffs and against the defendants in a sum totalling $ 60,950.42. This included no interest. Plaintiffs have filed a motion to amend the judgment to add interest thereto from the time of the fire to the date when the jury made its findings.

In diversity of citizenship cases the federal courts, when deciding questions of law, must follow the conflict of laws rules prevailing in the States in which they sit. Klaxon Co. v. Stentor Elec. Mfg. Co., 1941, 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477. Therefore, this Court, sitting in Pennsylvania, must follow the conflicts rules applied by the Pennsylvania State Courts. In Pennsylvania it has been held that questions of interest are substantive and are to be determined by the law of the State where the contract was to be performed. Bennett v. Eastern Building & Loan Ass'n, 1896, 177 Pa. 233, 35 A. 684, 34 L.R.A. 595; Ratterree v. Schonhardt, 1932, 105 Pa.Super. 321, 161 A. 461; Restatement, Conflicts, Sec. 418. It is clear, therefore, that in the present case, where the contracts were made and were to be performed in New Jersey, reference is to be made to the New Jersey law governing the allowance of interest in actions for breach of contract. It should be noted that this case does not involve the relatively simple situation where the allowance of interest or the rate of interest is an express or implied term of a contract. The present case, where the contracts do not provide for the payment of interest, concerns the question of the obligation to pay interest in the nature of damages for the delay in payment of an unliquidated claim of an insurance policy.

 There is no doubt in my mind that there was an honest difference of opinion among the parties in this case about the amount of the loss and the amount due under the fire insurance policies. For this reason, I see no reason to award interest as a penalty for withholding payment. However, to financial institutions (like banks), and to semi-financial institutions (like insurance companies) which derive much of their income from interest or capital gains on investments, money is the means through which income is derived. All the time the defendant insurance companies have been withholding payment they have had the use of the money due to the plaintiffs with the consequent possibility of realizing income therefrom. At the same time plaintiffs have not had the use of the money and have not had the opportunity to derive income from it. Under the circumstances, it would not be fair and just to refuse an allowance of interest to the plaintiffs. In my opinion, the defendants should pay interest at the rate of three per cent per annum from the time of the fire on February 9, 1950, to the time of the findings by the jury on December 11, 1952. In the exercise of the discretion which I appear to have, *fn1" I will grant ...


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