Prejudgment interest proposal is adopted

The ISBA Assembly, by a vote of 136 to 36 on Dec. 13, adopted a legislative proposal for a prejudgment interest statute intended to encourage quick evaluation and early settlement of civil cases.

If enacted, it would be legislative recognition that delaying a money judgment diminishes the value of the judgment that is ultimately received. Similar statutes have been adopted in 16 other states.

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 the policy question to the General Assembly.

As recently as 2006, the Illinois Supreme Court commented that trial 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.

The ISBA proposal adopts suggestions of the American Tort Reform Association (ATRA), which refers to the concept as well intended. It would award prejudgment interest in civil actions at the average U.S. treasury bill rate plus two percentage points.

To avoid a “race to the courthouse,” prejudgment interest would be calculated from the date the defendant is given written notice of a 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 written offer of settlement may be made to the plaintiff at any time after that defendant has entered an answer 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 is less than or equal to the offer of settlement, no prejudgment interest may be awarded against that defendant. (The parties may agree in writing to extend the 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: 

• A unit of local government or any other governmental entity. 
• Actions in small claims.
• Awards for punitive damages.
• If the cause of action and its legal dispute has a written contract or agreement between the litigants in which prejudgment interest is covered by the contract or agreement. 
• If the cause of action and its legal dispute are governed by a more specific statute.  

The text of the statute proposed by the ISBA follows:(735 ILCS 5/2-1303.1 new) Prejudgment interest.

§ 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 tendered by (1) personal service by the sheriff or private process server; (2) certified mail, return receipt requested; or (3) any method in which delivery is documented and tracked by accepted business practices. The written notice may be tendered by party seeking money damages or his or her attorney and may be tendered to the party from whom money damages are sought, that party’s attorney, or that party’s liability insurer.

(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 to a complaint, petition, or demand for arbitration but no later than 120 days after entering an answer. 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.

(d) This Section does not apply to any of these parties or situations:

(1) A unit of local government, as defined Section 1 of Article VII of the Constitution, a school district, a community college district, or any other governmental entity.

(2) Actions in small claims.

(3) Claims for punitive damages.

(4) If the cause of action and its legal dispute are subject to a written contract or agreement between the litigants in which prejudgment interest is authorized by the contract or agreement entered into after January 1, 2010.

(5) If the cause of action and its legal dispute are governed by a more specific statute.

Section 99. This Act takes effect on Jan. 1, 2010 and applies to all actions accrued on or after that date. (Source: P.A. 85-907.)