New Illinois law imposes 6% prejudgment interest on personal injury and wrongful death claims
Illinois Gov. J.B. Pritzker signed the Prejudgment Interest Act into law on May 28, 2021. The Act amends 735 ILCS 5/2-1303 to provide recovery of 6% prejudgment interest in addition to the 9 % post-judgment interest already permitted. Effective July 1, 2021, the newly added Section (c) mandates that prejudgment interest will accrue on monetary awards (minus punitive damages, sanctions, statutory attorney’s fees, and statutory costs) rendered in personal injury and wrongful death actions at a rate of 6% percent per annum from the date of filing up to five years.
The Act provides that prejudgment interest will accrue for claims based on negligence, willful and wanton misconduct, intentional conduct, or strict liability resulting in personal injury or wrongful death. Only local public entities such as school districts, community college districts, or other governmental entities are carved out. While the Act does not apply retroactively, it does permit accrual of pre-judgment interest for any personal injury or wrongful death occurring before the effective date of the Act. When the occurrence arises prior to July 1, 2021, prejudgment interest begins to accrue on July 1, 2021, or the date the action is filed, whichever is later. This means that pending actions will start accruing interest as of July 1. However, if a plaintiff voluntarily dismisses a lawsuit and later refiles, prejudgment interest will be tolled.
Defendants’ Can Mitigate Prejudgment Interest Exposure Through a Timely Settlement Offer
A 6% prejudgment interest award could significantly increase a defendant’s financial exposure in personal injury or wrongful death cases. However, defendants can mitigate this risk by tendering a written settlement offer to a plaintiff within 12 months from the filing of the lawsuit, or within 12 months after July 1, 2021 for currently pending lawsuits. The plaintiff has up to 90 days to accept or reject the written offer. If the plaintiff rejects the settlement offer and an eventual judgment is greater than the defendant’s highest timely offer, prejudgment interest will accrue only on portions of judgments in excess of the rejected offer. For example, if a plaintiff secures a $1 million jury award but the defendant timely offered $600,000 to settle, the defendant is credited that amount for purposes of calculating prejudgment interest and the 6% prejudgment interest will only be calculated on $400,000. If the judgment is less than or equal to the settlement offer, no prejudgment interest can be awarded.
While proponents of the statute argue this provision encourages early settlement, the twelve month settlement offer deadline provides a short window for defendants, who often have not answered the lawsuit for months after its filed, to conduct an investigation and secure enough discovery to appropriately evaluate the merits of a plaintiff’s claim. Nevertheless, prudent defendants should calendar these new deadlines and focus on conducting early discovery to mitigate prejudgment interest penalties when settlement is warranted. While the full impact of this amendment remains to be seen, one thing is clear - defendants and their insurers have another measure of damages to contend with in personal injury and wrongful death lawsuits filed in the state of Illinois.