Prejudgment interest proposal issues debated

Pro: Statute would rectify injustice, follow a trend

By Robert C. “TJ” Thurston

What is all the hubbub against the proposed Illinois statute on prejudgment interest?

Is it that insurance companies don’t want to timely settle claims? Is it that the defense bar thinks they’ll be out of work? Is it that Illinois is trying to be a trendsetter in the law while other states have rejected this approach?

Illinois is following, not setting, a trend in the law. It is critical to have the facts regarding this statute and ignore the hyperbole.

One fact is that our sibling Midwestern States of Missouri, Iowa, Nebraska, Michigan, Minnesota and Ohio already have prejudgment interest statutes on their books and have recognized this need for quite some time. Sixteen states in total have prejudgment interest statutes.

Illinois is not trying to set or buck a trend; rather, Illinois is trying to fall in line with these neighboring jurisdictions.

According to the Administrative Office of the Illinois Courts (AOIC) Web site 2,732,016 civil cases were disposed of in 2007; 287,686 of those were law jury cases. Only 1,320 law jury cases were tried to jury verdicts. That’s 0.4 percent of all law jury cases that terminate by jury verdict.

Said another way, 99.6 percent of all law jury cases are disposed of before reaching a jury verdict. Thus, prejudgment interest is not even an issue in more than 99 percent of all cases tried to verdict.

In 2007, there were 905 law jury cases throughout the State of Illinois with verdicts exceeding $50,000. The average time it took for those cases to go from filing to jury verdict is 67.8 months.

Said another way, a plaintiff will have to wait five years and eight months on average to get a jury verdict, all the while paying deductibles and other expenses related to the claim (not to mention missing work and experiencing pain or other difficulties in daily life).

So why don’t insurance companies like the statute? Don’t they want claims resolved more quickly? The short answer is no, they don’t.

Insurance companies typically pay their defense attorneys on an hourly basis because attorney fees are tax-deductible as a business expense.

Whereas, payment of a claim is a loss that goes directly to the insurance company’s bottom line and is often not viewed positively by its shareholders. Tax break vs. non-deductible loss – easy choice for the insurers.

Plus, insurance companies make money if payment of claims is delayed. When an insurance company receives a claim, it makes an estimate of the claim’s value and places that amount of money “on reserve.”

That money earns interest, typically on a compound basis and at a conservative rate of about 4 percent per year. If a claim is valued at $100,000, the insurance company earns roughly $25,500 in interest over a five year and eight month period.

Under the present system, plaintiffs get no compensation for that period. The proposed statute rectifies this injustice.

The defense bar will continue to be busily employed despite the statute. Defense counsel need not worry about being put out of work by a prejudgment interest statute.

In 2007, 773,204 new civil cases were filed statewide; 26,098 were reinstated, with a total caseload still pending of 794,947. There is plenty of work to go around.

Insurance companies will still need outside counsel to cover the 99.6 percent of those cases that settle prior to trial. Insurance companies would be forced to do a better job of analyzing claims and, thus, cases that get assigned to outside counsel are stronger defense cases.

Under the language of the proposed statute, prejudgment interest is applied only in certain limited circumstances (proper notice is given; the verdict exceeds the settlement offer; etc.).

Indeed, the end result may be that defense counsel will be given better cases to try, such that prejudgment interest never kicks in because the verdict is lower than the settlement offer.

All said, the proposed statute is good for the State of Illinois, its citizens and the members of the Illinois bar. It rectifies wrongs that have existed in our legal system for a long time.

• • •

Robert “TJ” Thurston of Thurston Law Offices, P.C., Huntley, is a member of the ISBA Assembly.

Con: Measure could cause economic woes for Illinois

By Gregory L. Cochran

On Dec. 13, the ISBA Assembly voted to include a prejudgment interest measure in the 2009-10 legislative package.

The ISBA enjoys a long history as a respected voice of the legal profession in Illinois, and has an established tradition of promoting the interests of all sectors of the state bar.

Due to this history and tradition, the ISBA membership is comprised of attorneys engaged in a wide variety of practice areas, including a substantial number of attorneys who primarily represent defendants in personal injury litigation.

In approving a very pro-plaintiff measure regarding prejudgment interest, the ISBA has shunned its rich history and tradition and has turned its back on the many defense attorneys among its members. Why would the ISBA roll up the welcome mat for such a large segment of its membership?

So why now is the ISBA promoting this flawed and economically dangerous legislative proposal? While all agree prejudgment interest would be very good for some members of our profession (that is, plaintiff attorneys), the proposed legislation ignores the impact on citizens and businesses of this state.

With so many Illinois citizens struggling to make ends meet, is this the time to promote legislation destined to increase awards against those unfortunate to be defendants, and ultimately drive up the cost of obtaining insurance coverage in Illinois?

Illinois has already lost tens of thousands of jobs as businesses have fled to states or countries with climates more favorable to commerce. With our economy in its shakiest condition in decades, is this really the time to further ratchet up the cost of employing people in Illinois?

In the debate leading up to the ISBA Assembly vote on this proposal, much of the focus was on the economic damage a plaintiff purportedly suffers from the date of injury to the judgment in a lawsuit. This fails to account for the reality that many plaintiffs are not out-of-pocket for most expenses.

Most medical bills and lost wages are covered by insurance. Illinois plaintiffs already receive a windfall in that they may recover the full amount of medical bills that have been discounted by a health care provider.

Under the Collateral Source Rule, a plaintiff may recover twice for a single injury - once from the defendant and once from the collateral source. This proposed legislation would provide a further windfall to plaintiffs.

Further, if the purpose is to provide prejudgment interest on past damages for which the plaintiff is theoretically out-of-pocket, why does the proposal also award prejudgment interest on future damages?

In addition to the troubling policy issues discussed above, the ISBA proposal is substantively flawed in many significant respects.

For instance, when the proposal was introduced at ISBA Assembly meeting, the lead speaker stated that its purpose is to facilitate settlement. If the purpose is to encourage quick evaluation and early settlement of civil cases, why does the measure fail to provide any incentive for the plaintiff to accept a reasonable settlement offer?

As for the defendant, in order to avoid payment of prejudgment interest, the proposal allows only 120 days to make an offer of settlement after filing a responsive pleading. But the reality is many cases are still in the pleading stage at 120 days.

Per the proposal, once past that time period, the defendant has no shield from payment of prejudgment interest. That means the proposal provides no incentive to the defendant to resolve the case either. So much for early settlement of cases.

Many more flaws in the proposal are detailed in the position paper submitted previously to the ISBA by the Illinois Association of Defense Trial Counsel (IDC).

For all of the reasons outlined above and in its position paper, the IDC respectfully submits that on the most basic level, this proposed legislation fails to provide a level playing field for both plaintiff and defendant.

• • •

Gregory Cochran of McKenna Storer, Chicago, is president of the Illinois Association of Defense Trial Counsel.