On May 28, 2021, Governor JB Pritzker signed into law 6% prejudgment interest on all personal injury and wrongful death cases (735-ILCS-5/2-1303(c)). Illinois now joins 46 other states with some form of prejudgment interest. An important feature of the law is a setoff provision designed to encourage early assessment of resolution and early settlement negotiations. Whether you are a plaintiff or a defendant, this setoff portion of the law may have the most impact on your practice.
All civil defense and plaintiff attorneys need to be familiar and aware of how the law will impact their practice and advise their clients accordingly.
1) Does 735-ILCS-5/2-1303(c) Apply To My Case
The 6% prejudgement interest will apply to all actions brought to recover damages for personal injury or wrongful death. The law applies to your case whether the action is brought under a theory of negligence, willful and wanton misconduct, intentional tort, or strict liability. The statute does not apply to contractual claims.
The 6% prejudgment interest applies to all damages. This includes economic damages like medical expenses and lost wages as well as non-economic damages like pain and suffering and loss of society. The only exceptions are punitive damages, sanctions, statutory attorney’s fees and statutory costs. This would mean that a judgment against a defendant nursing home on a claim brought under the Nursing Home Care Act would have to pay an additional 6% interest on all damages except the plaintiff’s attorneys’ fees that are recoverable under the fee shifting provision of the NHCA.
The statute exempts state and municipal defendants from pre-judgment interest. If you file suit against or represent a city, township, municipal fire department, school district, or any other governmental entity, 6% prejudgment interest will not be applicable.
2) When Does the Interest Begin
For all of your current cases, the prejudgment interest will begin on July 1, 2021.
For all future cases, the interest will begin on the date of filing. The interest does not begin from the date of the alleged injury. The interest does not begin from the date of service on the defendant or the date the defendant files an appearance.
The prejudgement interest will only accrue for 5-years maximum. The time between voluntary dismissal and refiling will be tolled.
For plaintiffs, this rule may incentivize filing a case earlier than you normally would. It is not uncommon on some personal injury cases to attempt to resolve the matter directly with an insurance analyst or in-house counsel for the hospital before filing suit. Pre-suit resolution still has value in many circumstances, but you need to stress the prejudgment interest law when negotiating pre-suit. If pre-suit resolution is not realistic or is taking unreasonably long, it may be better to file suit earlier.
For defendants, this rule may incentivize accepting service on your client’s behalf. A common 103(b) service situation is the plaintiff properly serves the corporate defendant but does not properly obtain personal service on the individual defendant who works at the corporation. The individual defendant’s attorney may be aware of the action but will wait to file an appearance until proper service is made and file a motion to dismiss pursuant to 103(b). Defense counsel should advise their client that they still may be potentially liable for 6% interest from the time of filing even if proper service is delayed.
For both sides, this rule incentivizes initiating discovery as soon as possible. Defendants will want to issue and answer written discovery as soon as possible even if there are potential dispositive motions. While you may prefer to wait to engage in any discovery until all parties are at issue, it may be in your client’s interest to save time and complete written discovery while the parties are engaging in pleading stage motion practice. Plaintiffs will want written discovery completed expeditiously too. Plaintiffs will benefit from promptly providing their opposing counsel with a detailed list of damages and medical bills to facilitate well-informed, early settlement offers (see the 12-month settlement offer setoff below).
3) How Is the Interest Calculated and Applied
After a judgment is entered for the plaintiff, the judge will calculate and award the additional 6% interest post-trial. From there, the statuary 9% post-trial interest will apply.
The interest is calculated in simple interest not compound interest. As part of your negotiation strategy, it may be helpful to be able to calculate the potential interest of a hypothetical verdict for a mediator or opposing counsel. So maybe brush up on your math.
4) But It Was Not My Fault
There is no equitable analysis in the application of prejudgment interest. It does not matter whether the plaintiff cancelled depositions or the defendant needed extensions on producing their answer. It is a “no-fault” statute.
5) The 12-Month Settlement Offer Setoff
If the defendant makes a settlement offer and the plaintiff rejects the offer, the defendant may be entitled to a setoff on the prejudgement interest. If the verdict is lower than the defendant’s highest settlement offer, the defendant will not owe 6% prejudgment interest.
If the judgement is greater than the amount of the defendant’s highest settlement offer, the interest added to the amount of the verdict will only be 6% of the difference between the judgment and the highest written settlement offer.
For the setoff to apply, the settlement offer must meet a few requirements:
1) the offer must be made in writing,
2) the offer must be made within the first 12 months of filing (or by July 1, 2022 for pending cases),
3) the plaintiff either directly rejects the offer or refuses to accept the offer within 90 days.
For defendants, the setoff unfortunately means you may have to start those case reports much earlier. For clients that have 12-month reporting requirements, you may want to suggest earlier reporting deadlines. You will need to advise your insurance analyst of the setoff provision and have a detailed assessment on damages and liability within the first year of the case. This may require initiating and completing written discovery and issuing records subpoenas as soon as possible so you can provide your client with an accurate and realistic damages estimate. And if it is not your practice already, you will need to make sure you have the case reviewed by an expert in the first few months of getting the case.
The setoff incentivizes defendants to make early, well informed and higher settlement demands. Do not forget that the offer needs to be in writing. You can still continue to engage in informal discussions and verbal settlement negotiations. But by the 12-month mark, be sure to have made a formal written offer to preserve your setoff.
For plaintiffs, the law does not require you to make a settlement demand within 12 months. But you should be prepared to respond to a settlement offer within the first year. Help your opposing counsel help you. As stated above, your opposing counsel will need to provide a detailed assessment of liability and damages to their insurance analyst and the insurance analyst will need to provide a detailed case assessment to their superiors within the first 12 months. This can require many levels of slow, bureaucratic red tape. So the more information you can get to opposing counsel and the sooner you can get it to them may result in more reasonable settlement offers. Prepare your list of damages and bills early and update it as you go. You may want to order all of the bills and records even if treatment is not completed so you can get defendant the most up to date information. Do not expect an offer of the policy, but the generous set off provision should induce more realistic settlement negotiations at the early stages of litigation.