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Tort Prejudgment Interest Statutes

On December 12, 2012, the Supreme Court handed down four decisions interpreting the Tort Prejudgment Interest Statutes (TPIS), Kosarko v. Padula; Inman v. State Farm Mutual Automobile Insurance Company; Alsheik v. Guerrero; and Wisner v. Laney.

Background on the TPIS

The Indiana General Assembly enacted the TPIS in 1988. The statutes allow plaintiffs to recover prejudgment interest in “any civil action arising out of tortious conduct.” Ind. Code § 34–51–4–1. Section 34–51–4–6 requires the plaintiff to make a qualified written offer of settlement within one year of filing a claim in order to be eligible to receive prejudgment interest. Section 34–51–4–5 empowers the defendant to avoid prejudgment interest on any judgment award if the defendant makes a qualified offer of settlement within nine months of the time at which the claim is filed. If a plaintiff makes a qualified settlement offer and the defendant fails to do so, the statute then gives the trial court discretion to award prejudgment interest, determine the time period for accrual, and set the rate of interest. Ind. Code §§ 34–51–4–7 through -9; Kosarko.

Discretionary nature of pre-judgment interest

The Court emphasized in all four decisions that the TPIS gives trial courts broad discretion to determine the amount, if any, of prejudgment interest to award. Trial courts have the discretion to award no interest at all, to determine the rate, to determine the time period over which to award interest, and whether to calculate interest based on the amount of judgment or amount of available insurance coverage. Wisner; Kosarko; Inman; Alsheik (noting that the TPIS “does not require an award of prejudgment interest”). The trial court can simply deny a request for interest without an explanation. See Inman. However, if a trial court explains reasons for its award or lack of award and the reasons are legally deficient, an appellate court will reverse the award. See Alsheik; Kosarko.

Requirements of the TPIS

In order to be eligible for prejudgment interest, the settlement letter must comply with the statutory requirements and be timely sent. See Wisner; Alsheik. For a plaintiff's settlement offer to qualify, it must be extended “within one (1) year after a claim is filed in the court, or any longer period determined by the court to be necessary upon a showing of good cause,” be in writing, be made to the party or parties against whom the claim is filed, “provide for payment of the settlement offer within sixty (60) days after the offer is accepted,” and not exceed “one and one-third (1 1/3) of the amount of the judgment awarded.” See Ind. Code § 34–51–4–6; Kosarko.

For a defendant's settlement offer to qualify, it must be extended by “one (1) or more of the parties against whom the claim is filed,” be filed “within nine (9) months after a claim is filed in the court, or any longer period determined by the court to be necessary upon a showing of good cause,” be in writing, be made “to the party receiving a judgment,” provide for “payment within sixty (60) days after the offer is accepted,” and be “at least two-thirds (2/3) of the amount of the judgment award.” Ind. Code § 34–51–4–5; Kosarko v. Plaadu, Slip Op. p. 4 n.4.

The Supreme Court explained that the better practice is for parties to cite the TPIS in the letter, include the sixty-day settlement window, and note the possibility of prejudgment interests. See Wisner; Alsheik. However, both the Wisner and Alsheik courts found letters that did not track the statute met the “minimum threshold” for compliance.

In Alsheik, the Court also found that the plaintiff’s settlement letter was timely sent. The Plaintiff filed the lawsuit in May 2002, dismissed the suit in January 2003, sent the settlement letter in April 2003, and filed a new complaint in state court in February 2006. The Court chose to not strictly enforce the TPIS's language and held that settlement letters sent before suit is filed can comply with the statute. The Court cited a policy of encouraging settlement before suits are filed. Although courts generally leave such policy decisions to the legislature, the Alsheik Court chose to stray from this general rule of statutory construction in this case and basically substituted “before” for “within” by holding that the one-year period for sending a settlement letter establishes a deadline, not a timeframe.

In Wisner, the Court held the settlement letter was not timely and therefore did not comply with the TPIS. In Wisner, the plaintiff filed suit in November 2002, sent the settlement letter in April 2005, dismissed the complaint in 2006, and refilled the complaint in August 2007. The Court, in dicta, stated that the plaintiff should have sent a new letter within one year of filing the second suit. This dicta apparently would have given the plaintiff the opportunity to fix the failure to send the initial settlement letter within one year of filing the initial complaint. It is hard to argue that plaintiffs should be allowed to resurrect prejudgment interest claims by dismissing and refilling suits, and if the issue is ever squarely before a court, defendants should argue that such letters do not comply with the TPIS.

The TPIS’s effect on the common law

As the Supreme Court explained, the TPIS abrogate common law prejudgment interest rules. See Kosarko;Inman. The Kosarko court explained that this conclusion is based on the comprehensive nature of the TPIS and the TPIS’s codification of two aspects of the common law. Specifically, the TPIS authorizes the trial court to award prejudgment interest as part of a judgment, see Ind. Code § 35-51-4-7, and exempts punitive damages from prejudgment interest see Ind. Code § 34-51-4-3. Therefore, cases involving prejudgment interest that predate the TPIS will not be particularly useful going forward.

Underinsured and uninsured motorist claims and the TPIS

In Inman, the Court held that the TPIS applies to underinsured motorist (UIM) and uninsured motorist (UM) claims, and, arguably, other insurance disputes that arise out of tortuous conduct. See Inman; Ind. Code § 34-51-4-1. The Inman Court specifically held that a prejudgment interest award can exceed a UM or UIM policy’s limits.

The natural reaction of insurance companies would be to include language in their policies specifically precluding prejudgment interest. However, the Inman Court specifically held that insurance companies cannot include such terms in policies. The Court stated: “it is not within the parties’ power to contractually preclude a prejudgment interest award made under the TPIS.” The Court held that the only way for a party to avoid a prejudgment interest award is by extending a qualified settlement offer.

Conclusion

These four decisions go a long way toward clarifying situations under which prejudgment interest awards may be appropriate. By holding that the common law no longer applies to prejudgment requests, these decisions will often be the only authority for determining whether prejudgment interest is appropriate. Both plaintiff and defense attorneys should be very familiar with these cases for purposes of determining whether prejudgment interest may be awarded in pending cases and for purposes of securing or defeating the right to prejudgment interest in future cases.

In the interest of full disclosure, the author of this post was a member of the same firm as the defense attorneys in Wisner, Edward Murphy, and Heidi Koeneman.