Dean's Address

The prejudgment interest, where allowable, is held to be necessary to compen­sate the plaintiff, not only for the amount by which he suffered damage in the usual sense, but also for the loss of the use of the money or property to which he was entitled. Where, however, the damages are incomplete and cannot be calculated with mathematical accuracy, such as in torts of personal injury, wrongful death, defamation of character, false imprisionment, etc., where the amount of the damages must be ascertained and assessed by the trier of the fact at trial, prejudgment interest, in the majority of states is not allowed.

We must, however, recognize that when a wrong is committed as of that instant the tort feasor or wrongdoer owes the victim redress ‑not five years later. Conse­quently, the above mentioned reserve fund belongs to the victim and all its interest does too. This has long been the rule in religious ethics and equity law ‑that a thing fructifies for its owner.

Instantaneous trial would determine the loss sustained by the victim as of that date, the date of injury. Due to court delay, the trial merely determines at a later date the rightful owner and the monetary extent of his ownership of the above reserve fund.

Some courts and all insurance carriers consider prejudgment interest a form of penalty for delay in disposing a case but the economic realities of delay make it immaterial who or what causes the delay because in either instance the defendant individually on this case and collectively on all cases may reap a bonanza thereby and the plaintiff suffer a gross injustice. Rather than appraise prejudgment interest as a punishment of the defendant it must be considered as a substantive right of the plaintiff. Someone of necessity is going to profit by the delay‑who has a greater right than the victim? To hold contrariwise would reward the insurance carrier to the extent that he has a vested interest in, and will promote court delay.

For example, assume a case worth $100,000, at a time when prime rate is 20%, as it presently is for Internal Revenue purposes. If it takes 4 years for the case to reach trial, the defend‑ant not only has by compound interest, recovered the $100,000 before he is obliged to pay it, so in effect he pays nothing, but any longer delay before verdict, and then by appeal, is sheer profit ‑ all at the expense of the victim. And this does not take into consideration that the carrier charged such premiums that actuarily, had he paid the $100,000 immediately, he would have suffered no loss. Now, in effect, even when he pays the $100,000 five or more years later, he has more than doubled his money.

As was aptly stated and illustrated by the Alaskan court:¹⁶

"Courts in other jurisdictions and commentators have over the years been moving away from medieval religious notions that all interest was evil toward recognition by awarding prejudgment interest of the economic fact that money awarded for any reason is worth less the later it is received."

... at the moment the cause of action accrued, the injured party was entitled to be left whole and become immediately entitled to be made whole‑all damages then, whether liquidated or unliquidated, pecuniary or nonpecuniary, should carry interest from the time the cause of action accrues..."

"The following hypothetical case illustrates the injustice of denying prejudgment interest. Suppose A inflicts precisely the same amount of damage of any type on B and C at the same moment, evaluated by juries as $1,000 each. If C wins his judgment a year later than B and does not get prejudgment interest for that year, C recovers less than B for the same injury; C has been deprived of the use value of $1,000 for one year while B has enjoyed the use value‑only by awarding prejudgment interest from the time the cause of action accrues, when a plaintiff is entitled to be made whole, can the sort of injustice which happened to C in the hypothetical case be avoided. We are also influenced by the policy consideration that failure to award prejudgment interest creates a financial incentive for defendants to litigate even where liability is so clear and the jury award so predictable that they should settle." (Emphasis supplied.)

Judge Learned Hand, over 50 years ago, in a taxation case, voiced what is now apparent in the money markets when he said:

"Whatever may have been our archaic notions about interest, in modern financial communities, a dollar today is worth more than a dollar next year, and to ignore the interval as immaterial is to contradict well settled beliefs about value. The present use of my money is itself a thing of value, and if I get no compensation for its loss, my remedy does not altogether right its loss.”¹⁷

Isn’t it ironic that the courts are so zealous in protecting a defendant's rights that future loss must be reduced to present worth on the theory that money begets money, yet the plaintiffs past loss to date of trial does not consider that this reserve fund covering his case has made money for the defendant. The subtraction of interest in one phase surely requires its addition in the other. Surely the compensation purpose of prejudgment interest requires no less.¹⁸

Insurance companies prior to lawsuit and defense attorneys prior to trial are understandably reluctant to enter into sincere and meaningful negotiations toward settlement until the last possible moment, while the amount in controversy is accumulating income at compound prime rate in a reserve fund. The result is more and more suits are filed and take longer and longer to reach trial and eventual disposition.

Obviously, in instantaneous tortious death cases or in total and permanent disability cases where there is no question of liability, or contributory negligence, the damages can be readily ascertainable for a fair and reasonable offer of settlement, by either side, with the exception of that portion for pain, suffering and disfigurement, but no distinction between pecuniary and non‑pecuniary injuries is justified because defendant had unjustly enjoyed the use of the money, and therefor one should adopt prejudgment interest in all personal injury and death verdicts for the totality thereof as a public policy because it encourages early settlement and discourages defendant from using the delay between injury and verdict to defeat a legitimate demand.¹⁹

It is my contention that with the experience of medical prognosis and the use of economists and mortality tables and reference to the compiled verdict results in regional jury reports, the value of a personal injury or death case can be reasonably ascertainable. Nevertheless, even without this, prejudgment interest should be allowed in the interest of justice, and to accelerate the speedier disposition of cases.

The fairness and justice of prejudgment interest applies equally to injury and death cases as to property and contract cases. In states where allowable, it is a substantive right of that party to recover an economic loss occasioned by his inability to use the award of damages between his injury and judgment and is meant to place an injured party in the same position as if he had been compensated immediately after his injury for his loss. Justice requires that one ought not to be able to use someone else's money for a considerable period of time without paying anything for its use. This is the very basis of the theory of restitution.

Only ten states out of 50²⁰ have so far determined not only that prejudgment interest is a right of the plaintiff in a personal injury action, but secondly that allowing it will accelerate the disposition of cases. Where legislatures have been slow to provide such a measure by statute, New Jersey and Pennsylvania have done so by adopting a civil procedure rule. In 1978, the Supreme Court of Pennsylvania, pursuant to its constitutional rule making authority, provided for prejudgment interest in certain instances to plaintiffs who receive jury verdicts in excess of any settlement offer made by defendant prior to trial. In upholding the constitutionality of this rule, the Supreme Court of Pennsylvania in the latest judicial pronouncement on this subject quoted the spirit prompting this rule on October 29, 1981²¹ as:

"The judicial system has long been vexed by the problem of congestion and delay in the disposition of civil actions for bodily injury, death, or property damage pending in the trial courts.

... Some are settled through pretrial consideration techniques, but in too many cases meaningful negotiations commence only after a trial date is fixed or on the courthouse steps or in the courtroom, thus leading to delay in the disposition of cases and congestion in the courts. The present practice provides no incentive for early settlement.

In the usual civil action for bodily injury, death or property damage there is no compensation to the successful plaintiff and no sanction against the defendant for the long delay between commencement of the action and the trial."

and the court then observes:

"Rule 238 awards damages for delay where defendant made no settlement offer prior to trial or where the defendant made an offer of settlement which was 2 5 % less than the amount of the jury verdict. Such language clearly reflects a primary desire to encourage pre‑trial settlement. In those instances where the settlement offer is not accepted and the jury verdict does not exceed the offer by 2 5 % the interest is only computed up to the date of the settlement offer. By tolling the running of interest this provision demonstrates the prominent goal of fostering early settlements. Undeniably this rule serves to compensate the plaintiff for the inability to utilize funds rightfully due him, but the basic aim of the rule is to alleviate delay in the disposition of cases, thereby lessening congestion in the courts."

In rebutting the argument that this makes a distinction between plaintiffs and defendants, the Supreme Court of Pennsylvania finds (p 156):

"The difference upon which the classification rests is that the plaintiffs have been wrongly injured and have suffered financial losses because of defendants actions. The losses then become exacerbated by defendants refusal to settle the law suit in a timely fashion. The defendants, on the other hand, have suffered no wrong. They, as tort feasors, are not unjustly deprived of compensation during the course of pre‑trial delays. On the contrary, it is in the best interest of the defendants to protract the litigation process as long as possible, so that they may benefit from the funds rightfully owing to the plaintiffs."

It is significant that none of the states that have ever adopted prejudgment interest has ever withdrawn it. Obviously, in allowing prejudgment interest in tort cases, the aims of the above mentioned legislatures and courts is to correct a long overdue wrong, and to make whole the plaintiff as of the moment of injury by allowing him full and adequate compensation for the injury inflicted on him. By its very nature this will expedite prompter settlements. Seen in this vein, prejudgment interest is not a penalty, but the manner in which it is granted or withheld by the various courts can be considered a penalty upon recalcitrance or arbitrariness and in furtherance of the by‑produced result of effecting prompt and expeditious trial and settlement of cases. Inasmuch as it is the personal injury and death torts that clog the court calendars, and inasmuch as it is desirable that these cases be settled and disposed of without undue delay as a matter of public policy, prejudgment interest should be allowed, as in Michigan, on the whole verdict, including pain and suffering and disfigurement and not only on the actual pecuniary loss.

Chief Justice Warren Burger said just a month ago in addressing the American Bar Association in Chicago, and complaining of the court congestion, that the delay becomes more acute if the litigant cannot recover interest on the award or is allowed interest at 8 % while paying double or so on a home mortgage or other debts." The justice then overlooked the obvious: the remedy for both the delay and the interest inadequacy is to grant the latter at the rate generally required of all people in the market place or what is known as prime rate. Only in this manner can we take the profit out of delay and create a proper atmosphere for prompt and meaningful settlement overtures.

Prejudgment interest is not a sanction²² against the defendant and to grant or withhold it only as a ploy to clear up a judge's backlog or as an administrative tool is unworthy of the courts. To further play with a plaintiff 's rights is a wrong in itself and beneath the dignity of our judicial system. Prejudgment interest is a substantive right of the plaintiff, and its imposition has, as a natural ancillary effect the result of not only righting a wrong, but of speeding up the disposition of the backlog. Prime rate, though not yet adopted by any state on pre or post judgment interest, will further assure this by discouraging delaying tactics and destroying its economic benefit.

To cut off prejudgment interest from the time a fair and reasonable offer has been made by the defendant, as has been adopted in most of the above ten states, should also not be considered a sanction against the plantiff. It is merely a fair and just procedure, for his loss from that date is his own doing.

The fairness of the defendant's or plaintiff's offer is determined by comparing it with the final verdict. The offer of the losing party must be as large or larger that the amount ultimately awarded. If sanctions are needed against either party to clear up the backlog, the court could change the prime rate from simple interest to compound interest; or the English system of penalizing the losing party by charging it with his opponent's costs and attorney fees may need thoughtful consideration.²³ Our English brethren have found that this cost system encourages settlements, discourages procrastination and stimulates speedy, effecient trial. Even in England, however, this cost system is not considered as a penalty or punishment, but as an increase of the damages the wrongdoer inflicted that must be awarded to the victim to make him whole.

As in some instances, it might be unfair to charge prejudgment interest before a defendant knows of the wrong he has committed and has had an opportunity to evaluate the plaintiff's claim, such as in delayed‑notice cases, malpractice actions, asbestosis cases, and cases of multiple defendants, etc., the trial judge should have discretion to award such interest, with his reasons, either from the date of the commission of the tort, the time the plaintiff first notifies defendant and presents his demand, or the date of the filing of the law suit. His discretion must be limited to this alone; the interest itself is a substantive right over which he has no discretion. In this manner, a defendant will not be penalized for the delay occasioned solely by the plaintiff.

To prevent the incongruity of allowing prejudgment interest at money market rates while assessing interest on the court judgment at a lesser rate, and in further keeping with fairness and justice, the post judgment interest should also be at prime rate.

The prime rate considered must be on some readily determined, authoritative and binding uniform standard such as is being used by the new 1981 U.S. Income Tax law in charging interest at 100 per cent of prime rate on delinquent and fraudulent tax payments. The Internal Revenue Service will change this rate each year. Interest rate changes take effect early in the year, based on the prime rate during the previous September, and announced by mid‑October. This year, starting February 1st, it is 20 per cent. As this method is now a national standard, the Internal Revenue Service rate can be nationally applied throughout the courts without cause for complaint or suspicion by anyone, and once set, it should remain constant until settlement of the case ‑just as though the plaintiff had used the money on the date of injury to buy a 5 year Certificate of Deposit.

Continue to Page 3