Provides that if a rate of interest is specified in a contract and does not exceed the lawful rate, postjudgment interest shall be calculated at the contractual rate.

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# Prejudgment Interest Reform

In the absence of an applicable statute or rule, the courts generally applied the traditional common law rule that prejudgment interest was not available in tort actions since the claim for damages was unliquidated. In an effort to compensate tort plaintiffs for the often‑considerable lag between the event giving rise to the cause of action, or filing of the lawsuit, and the actual payment of the damages, many state legislatures have enacted laws that provide for or allow prejudgment interest in particular tort actions or under particular circumstances. In addition to seeking to compensate the plaintiff fully for losses incurred, the goal of such statutes is to encourage early settlements and to reduce delay in the disposition of cases, thereby lessening congestion in the courts.

**PROBLEM:** Although well‑intended, the practical effects of prejudgment interest statutes can be inequitable and counter‑productive. Prejudgment interest laws can, for example, result in over‑compensation, hold a defendant financially responsible for delay the defendant may not have caused, and impede settlement.

**ATRA’S POSITION: **At a time when policymakers are attempting to lower the cost of the liability system in an equitable and just manner, prejudgment interest laws that currently exist and new proposals should be reviewed to ensure that they are structured fairly and in a way designed to foster settlement. At a minimum, the interest rate should reflect prevailing interest rates by being indexed to the treasury bill rate at the time the claim was filed and an offer of judgment provision should be included.

**OPPOSITION:** The personal injury bar’s argument in support of prejudgment interest – that prejudgment interest compensates the plaintiff fully for losses incurred, encourages early settlements, and reduces delay in the disposition of cases – fails to address the hardship faced by defendants held financially responsible for litigation delays they may not have caused.

### Alaska

**Prejudgment Interest Reform: HB 58 (1997). ** Sets prejudgment interest rate at the Twelfth Federal Reserve District’s discount rate plus 3%. Prohibits the assessment of prejudgment interest for future damages and punitive damages.

### Alabama

**Judgment Interest Reform: S.B. 207 (2011); Amended Code of Ala. § 6-5-410.** Changes the rate of interest on judgments in Alabama from 12% to 7.5%. Prior to the enactment of S.B. 207, a defendant who lost a lawsuit and chose to appeal had to begin paying 12% post-judgment interest on the amount the court or jury awarded the plaintiff, creating a significant financial deterrent to appealing an unjust verdict.

### Colorado

**Prejudgment Interest Reform: SB 165 (1995). ** Limits the amount of prejudgment interest that can be assessed between accrual of the action and filing of the claim to below the $1,000,000 limit on the total amount recoverable in medical liability claims.

### Florida

**Judgment Interest Rate Reform: H.B. 567 (2011)** Provides that the judgment interest rate will be set in accordance with the interest rate as set by the Chief Financial Officer based on the discount rate of the Federal Reserve Bank of New York for the preceding 12 months plus 400 basis points (4 percent). The interest rate on the judgment is to be adjusted annually on January 1 of each year.

### Georgia

**Prejudgment Interest Reform: HB 792 (2003). ** Sets prejudgment interest rates at the Federal Reserve’s prime interest rate plus 3%.

### Iowa

**Prejudgment Interest Rate Reform: SF 482 (1987).** Prohibits the assessment of prejudgment interest for future damages. (Other interest accrues from the date of commencement of the actions at a rate based on the U.S. Treasury Bill.)

**Prejudgment Interest Rate Reform: HF 693 (1997); Amended Iowa Code § 535.3.** Sets the prejudgment interest rates at the U.S. Treasury Rate plus 2%.

### Louisiana

**Prejudgment Interest Rate Reform: HB 1690 (1987).** Sets prejudgment interest rates at the prime rate plus 1% with a floor of 7% and a cap of 14%.

**Prejudgment Interest Rate Reform: (1997). ** Sets prejudgment interest rates at the average Treasury Bill rate for 52 weeks plus 2%. Provided varying rates of prejudgment interest for actions pending or filed during the last 10 years.

### Maine

**Prejudgment Interest Rate Reform: LD 2520 (1988).** Sets prejudgment interest rates and postjudgment interest rates at the U.S. Treasury Bill rate.

### Michigan

**Prejudgment Interest Reform: HB 5154 (1986).** Prohibits the assessment of prejudgment interest on awards for future damages.

### Minnesota

**Prejudgment Interest Reform: SB 2078 (1986). ** Prohibits the assessment of prejudgment interest on awards for future damages.

### Missouri

**Prejudgment Interest Reform: HB 700 (1987).** Permits the assessment of prejudgment interest only in cases where the judgment exceeds a settlement offer.

**Prejudgment Interest Reform: H.B. 393 (2005); § 355.176 R.S.Mo.** Specifies that prejudgment interest is to be calculated at an interest rate equal to the Federal Funds Rate plus three percent.

### Nebraska

**Prejudgment Interest Reform: LB 298 (1986).** Reduces the rate of interest to 1% above the rate on U.S. Treasury Bill.

### New Hampshire

**Prejudgment Interest Reform: HB 140 (2001); Amended RSA 336:1.** Sets the prejudgment interest rate at the 26-week discount U.S. Treasury Bill rate.

### Oklahoma

**Prejudgment Interest Reform: SB 488 (1986).** Prohibits the assessment of prejudgment interest on punitive damages awards. Sets the prejudgment interest rate at 4% above the rate on the U.S. Treasury Bill.

**Prejudgment Interest Reform: SB 629 (2003).** Sets the prejudgment interest rate in medical malpractice cases to the average U.S. Treasury Rate of the preceding calendar year.

**Prejudgment and Postjudgment Interest Reform: HB 2661 (2004).** Sets prejudgment and postjudgment interest rate at the prime rate plus 2 percent (effective January 1, 2005).

**Prejudgment Interest Reforms: HB 1603 (2009); Amended 12 Okl. St. § 140.** Provides that prejudgment interest does not begin to accrue until two years after the beginning of a lawsuit; reduced the interest rate charged. Held unconstitutional by the Oklahoma Supreme Court in Douglas v. Cox Retirement Properties, June 2013.

**Judgment Interest Reform: S.B. 1080 (2013)** Provides that if a rate of interest is specified in a contract and does not exceed the lawful rate, postjudgment interest shall be calculated at the contractual rate.

**Judgment Interest Reform: S.B. 1080** Provides that if a rate of interest is specified in a contract and does not exceed the lawful rate, postjudgment interest shall be calculated at the contractual rate.

### Rhode Island

**Prejudgment Interest Rate Reform: HB 5885 (1987). ** Sets the prejudgment interest rate at the U.S. Treasury Bill rate. Provides that interest accrues from the date the lawsuit is filed.

### South Carolina

**Prejudgment Interest: H. 3403 (2000).** Sets prejudgment interest rates at the prime rate plus one percent.

### Tennessee

**Prejudgment Interest- H.B. 2982 (2012)** This bill establishes the Federal Reserve weekly average prime loan rate as the standard interest rate on judgments so long as such rate does not exceed 10%.

### Texas

**Prejudgment Interest Reform: SB 6 (1987).** Limits the period during which prejudgment interest may accrue if the defendant has made an offer to settle the lawsuit.

**Prejudgment Interest Reform: HB 971 (1995). ** Allows prejudgment interest only for damages that occurred before judgment.

**Prejudgment Interest Reform: HB 4 (2003).** Sets the prejudgment interest rate to the New York Federal Reserve prime rate, with a floor of 5% and a ceiling of 15%.

Provides that if a rate of interest is specified in a contract and does not exceed the lawful rate, postjudgment interest shall be calculated at the contractual rate.

This bill establishes the Federal Reserve weekly average prime loan rate as the standard interest rate on judgments so long as such rate does not exceed 10%.

Changes the rate of interest on judgments in Alabama from 12% to 7.5%. Prior to the enactment of S.B. 207, a defendant who lost a lawsuit and chose to appeal had to begin paying 12% post-judgment interest on the amount the court or jury awarded the plaintiff, creating a significant financial deterrent to appealing an unjust verdict.

Provides that the judgment interest rate will be set in accordance with the interest rate as set by the Chief Financial Officer based on the discount rate of the Federal Reserve Bank of New York for the preceding 12 months plus 400 basis points (4 percent). The interest rate on the judgment is to be adjusted annually on January 1 of each year.

Provides that prejudgment interest does not begin to accrue until two years after the beginning of a lawsuit; reduced the interest rate charged. *Held unconstitutional by the Oklahoma Supreme Court in Douglas v. Cox Retirement Properties, June 2013.*

Specifies that prejudgment interest is to be calculated at an interest rate equal to the Federal Funds Rate plus three percent.

Sets prejudgment and postjudgment interest rate at the prime rate plus 2 percent (effective January 1, 2005).

Sets the prejudgment interest rate in medical malpractice cases to the average U.S. Treasury Rate of the preceding calendar year.

Sets prejudgment interest rates at the Federal Reserve’s prime interest rate plus 3%.

Sets the prejudgment interest rate to the New York Federal Reserve prime rate, with a floor of 5% and a ceiling of 15%.

Sets the prejudgment interest rate at the 26-week discount U.S. Treasury Bill rate.

Sets prejudgment interest rates at the prime rate plus one percent.

Sets prejudgment interest rate at the Twelfth Federal Reserve District’s discount rate plus 3%. Prohibits the assessment of prejudgment interest for future damages and punitive damages.

Sets the prejudgment interest rates at the U.S. Treasury Rate plus 2%.

Sets prejudgment interest rates at the average Treasury Bill rate for 52 weeks plus 2%. Provided varying rates of prejudgment interest for actions pending or filed during the last 10 years.

Limits the amount of prejudgment interest that can be assessed between accrual of the action and filing of the claim to below the $1,000,000 limit on the total amount recoverable in medical liability claims.

Allows prejudgment interest only for damages that occurred before judgment.

Sets prejudgment interest rates and postjudgment interest rates at the U.S. Treasury Bill rate.

Permits the assessment of prejudgment interest only in cases where the judgment exceeds a settlement offer.

Sets the prejudgment interest rate at the U.S. Treasury Bill rate. Provides that interest accrues from the date the lawsuit is filed.

Prohibits the assessment of prejudgment interest for future damages. (Other interest accrues from the date of commencement of the actions at a rate based on the U.S. Treasury Bill.)

Limits the period during which prejudgment interest may accrue if the defendant has made an offer to settle the lawsuit.

Sets prejudgment interest rates at the prime rate plus 1% with a floor of 7% and a cap of 14%.

Prohibits the assessment of prejudgment interest on awards for future damages.

Reduces the rate of interest to 1% above the rate on U.S. Treasury Bill.

Prohibits the assessment of prejudgment interest on punitive damages awards. Sets the prejudgment interest rate at 4% above the rate on the U.S. Treasury Bill.

Prohibits the assessment of prejudgment interest on awards for future damages.

### Constitutionality: Unchallenged

Provides that if a rate of interest is specified in a contract and does not exceed the lawful rate, postjudgment interest shall be calculated at the contractual rate.

This bill establishes the Federal Reserve weekly average prime loan rate as the standard interest rate on judgments so long as such rate does not exceed 10%.

Changes the rate of interest on judgments in Alabama from 12% to 7.5%. Prior to the enactment of S.B. 207, a defendant who lost a lawsuit and chose to appeal had to begin paying 12% post-judgment interest on the amount the court or jury awarded the plaintiff, creating a significant financial deterrent to appealing an unjust verdict.

Provides that the judgment interest rate will be set in accordance with the interest rate as set by the Chief Financial Officer based on the discount rate of the Federal Reserve Bank of New York for the preceding 12 months plus 400 basis points (4 percent). The interest rate on the judgment is to be adjusted annually on January 1 of each year.

Specifies that prejudgment interest is to be calculated at an interest rate equal to the Federal Funds Rate plus three percent.

Sets prejudgment and postjudgment interest rate at the prime rate plus 2 percent (effective January 1, 2005).

Sets the prejudgment interest rate in medical malpractice cases to the average U.S. Treasury Rate of the preceding calendar year.

Sets prejudgment interest rates at the Federal Reserve’s prime interest rate plus 3%.

Sets the prejudgment interest rate to the New York Federal Reserve prime rate, with a floor of 5% and a ceiling of 15%.

Sets the prejudgment interest rate at the 26-week discount U.S. Treasury Bill rate.

Sets prejudgment interest rates at the prime rate plus one percent.

Sets prejudgment interest rate at the Twelfth Federal Reserve District’s discount rate plus 3%. Prohibits the assessment of prejudgment interest for future damages and punitive damages.

Sets the prejudgment interest rates at the U.S. Treasury Rate plus 2%.

Sets prejudgment interest rates at the average Treasury Bill rate for 52 weeks plus 2%. Provided varying rates of prejudgment interest for actions pending or filed during the last 10 years.

Limits the amount of prejudgment interest that can be assessed between accrual of the action and filing of the claim to below the $1,000,000 limit on the total amount recoverable in medical liability claims.

Allows prejudgment interest only for damages that occurred before judgment.

Sets prejudgment interest rates and postjudgment interest rates at the U.S. Treasury Bill rate.

Permits the assessment of prejudgment interest only in cases where the judgment exceeds a settlement offer.

Sets the prejudgment interest rate at the U.S. Treasury Bill rate. Provides that interest accrues from the date the lawsuit is filed.

Prohibits the assessment of prejudgment interest for future damages. (Other interest accrues from the date of commencement of the actions at a rate based on the U.S. Treasury Bill.)

Limits the period during which prejudgment interest may accrue if the defendant has made an offer to settle the lawsuit.

Sets prejudgment interest rates at the prime rate plus 1% with a floor of 7% and a cap of 14%.

Prohibits the assessment of prejudgment interest on awards for future damages.

Reduces the rate of interest to 1% above the rate on U.S. Treasury Bill.

Prohibits the assessment of prejudgment interest on punitive damages awards. Sets the prejudgment interest rate at 4% above the rate on the U.S. Treasury Bill.

Prohibits the assessment of prejudgment interest on awards for future damages.

### Constitutionality: Challenged and Struckdown

Provides that prejudgment interest does not begin to accrue until two years after the beginning of a lawsuit; reduced the interest rate charged. *Held unconstitutional by the Oklahoma Supreme Court in Douglas v. Cox Retirement Properties, June 2013.*