The Civil Action Pre-Judgement Interest Proposal: Long-Overdue Justice for the Plaintiff or Oppression for the Defendant?

It is a well-settled principle of Illinois law that a judge in a chancery proceeding  has the discretion to award the petitioning party interest on the monetary value of a judgment where basic considerations of equity and justice so require.  Springfieldv. Allphin, 82 Ill.2d 571, 579 (1980).  This principle arose out of the courts’ recognition that, in many instances, “years of time” can elapse between the date of the actionable harm and the final judgment in favor of the injured party.  Groome v. Freyn Engineering Co., 374 Ill. 113, 131 (1940).  Courts commonly refer to the interest that is calculated over this period of time as “prejudgment” interest, and they have repeatedly observed that only a judge in a proceeding sounding in equity may award this form of interest.  Tri-G, Inc. v. Burke, Bosselman & Weaver, 222 Ill.2d 218, 258 (2006).  An award of prejudgment interest is not a sanction against the defendant, but rather a means of making the injured party whole.  In re Estate of Wernick, 127 Ill.2d 61, 86 (1989).

In actions that are entirely at law, such as breach of contract matters, malpractice actions, and those sounding in ordinary nonprofessional negligence, a court will not award prejudgment interest to a successful plaintiff in the absence of a statute or agreement that specifically provides for such an arrangement.  Id.at 257-258; Continental Cas. Co. v. Commonwealth Edison Co., 286 Ill.App.3d 572, 579 (1st Dist., 1997).  Illinois courts have adhered to the distinction between actions at law and actions at equity when deciding whether prejudgment interest should be made available, reasoning that courts historically did not award such interest.  Continental Cas. Co., 286 Ill.App.3d at 581.  They have continued this tradition even while recognizing that a successful plaintiff in a civil case could suffer detriment by being denied money from the date of the injury to the date of compensation.  Tri-G, Inc., 222 Ill.2d at 258.

To address this perceived unfairness, the Illinois State Bar Association (ISBA) recently voiced its support for a proposed state statute that would direct Illinois courts to award prejudgment interest to a successful plaintiff in a case at law.  In brief, the draft legislation provides that 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.”  735 ILCS 5/2-1303.1(a)  The proposal further provides that the prejudgment interest rate is to be calculated using a rate equal to the average one-year constant maturity U.S. Treasury bill rate of the preceding calendar year, plus two percentage points.  735 ILCS 5/2-1303.1(b).  A defendant may avoid paying this interest by offering to settle the dispute within 120 days after responding to the complaint.  735 ILCS 5/2-1303.1(c).

While the ISBA has praised the proposed legislation as a means of promoting fairness and encouraging early settlement of civil cases, it would in practice transform civil litigation into a high-stakes gamble that would often benefit the plaintiff and his counsel at the defendant’s great expense.  For instance, in high-value cases that are litigated over a lengthy period of time, such as toxic tort or medical malpractice actions, the total per annum interest calculated on a judgment against the defendant is likely to be extremely substantial.  Defendants in such cases may feel forced to disregard the merits of the claim and consider settlement in view of the possible exposure should the finder of fact return a verdict for the plaintiff at the conclusion of litigation.  Thus, regardless of the intentions behind the proposed legislation, it risks creating a climate in which only a deep-pocketed defendant who is fully confident of prevailing at trial will avoid settlement. 

The proposal has so far encountered resistance and is not yet the law.  On February 3, 2009, state Sen. William R. Haine (D-Alton) introduced the proposal in the Illinois Senate as SB 184.  Just 16 days later, the chamber postponed further action on the bill after the Illinois Manufacturers’ Association, defense attorneys, and others testified to the dangers of the proposal.  The ISBA was then asked to re-evaluate the bill in light of this information.  While the fate of the proposal remains uncertain, frivolous lawsuits are likely only to proliferate should it become law without substantial modification.