ISBA News Prejudgment-Interest Proposal

A prejudgment interest statute would encourage quick evaluation and early settlement of civil cases. It is legislative recognition that the delay awaiting a money judgment is also a delay in the value of the judgment that is ultimately received. Sixteen other states have already done this.

Current Illinois statutes have not yet evolved to treat successful plaintiffs justly in actions at law for unliquidated damages. Our courts have noted this inadequacy but have deferred this policy question to the General Assembly. (The courts may award prejudgment interest in proceedings in equity.) As recently as 2006 the Supreme Court of Illinois commented on this unfairness:

Illinois courts have declined to apply the rule governing equitable awards of prejudgment interest to cases at law, notwithstanding that an injured party who is eventually compensated may suffer detriment from the inability to use the money from the date of loss to the date of compensation.¹ (emphasis added)

This modest proposal adopts suggestions of the American Tort Reform Association (ATRA), which is a tort “reform” special-interest group. ATRA refers to the concept as well intended. This proposal awards prejudgment interest in actions at law or arbitration at the average U.S. Treasury bill rate plus two percentage points. To avoid a race-to-the-courthouse, prejudgment interest is calculated from the date the defendant is given written notice of plaintiff’s claim by certified mail or the date the suit is filed, whichever is earlier.

This proposal allows defendants to control their own destiny. A defendant may make a written offer of settlement to the plaintiff at any time after that defendant has entered an answer or other responsive pleading but no later than 120 days from that date. If the plaintiff does not accept that offer of settlement in writing within 30 days of his or her receipt of it, and the plaintiff’s award or judgment against that defendant is less than or equal to that offer of settlement, no prejudgment interest may be awarded against that defendant. The parties may agree in writing to extend that 120-day period.

Defendants may also use this statute if they file counter-claims, third-party claims, or contribution claims. This proposal exempts these situations or parties:

Tri-G, Inc. v. Burke, Bosselman & Weaver, 212 Ill.2d 218, 305 Ill.Dec. 584, 607, 856 N.E.2d 389, 412 (2006), quoting Continental Casualty Co. v. Com. Edison Co., 286 Ill.App.3d 572, 579, 221 Ill.Dec. 807, 811, 676 N.E.2d 328, 332 (1997).

Proposed Statute

§ 2-1303.1 (a) If a party seeks money damages in an action at law or in arbitration, prejudgment interest must be awarded from the date the party from whom money damages are sought is given written notice of the claim for money damages or the action or arbitration is filed, whichever is earlier, until the award or judgment is entered. Actions at law include counter-claims, third-party actions, and claims for contribution. The written notice of the claim for money damages must reference this Section and be sent by certified mail, return receipt requested.

(b) The prejudgment interest rate will be calculated by the Comptroller using a rate equal to the average one-year constant maturity United States Treasury bill rate of the preceding calendar year before the cause of action is filed plus two percentage points. The Comptroller must calculate this rate and publish it on his or her official website by January 10th of every year.

(c) Any defendant may avoid paying prejudgment interest by making a written offer of settlement to plaintiff at any time after that defendant has entered an answer or other responsive pleading to a complaint, petition, or demand for arbitration but no later than 120 days after entering an answer or other responsive pleading. If the plaintiff does not accept that offer of settlement in writing within 30 days of his or her receipt of it, and the plaintiff’s award or judgment against that defendant is less than or equal to that offer of settlement, no prejudgment interest may be awarded against that defendant. The parties may agree in writing to extend the 120-day period for defendant to make a written offer of settlement.