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.
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.
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.
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